Discount War

Just as surely as a diamond is forever, it’s inevitable that you will encounter a customer who describes a competitor’s 50%-off sale and asks if you can match the deal.

How you respond depends on your business philosophy. You can refuse to alter your price, instead explaining why your store provides greater value for the money.

You can bring your price down to match the competitor’s.

You can hold your own inventory-clearance sale, which will not only attract customers but also enable you to move unpopular merchandise.

If you’re skeptical about the competitor’s discount claims, you can collect his ads and forward them to an agency that investigates truth-in-pricing violations.

Sales and discounts of jewelry—whether actual or spurious—are ubiquitous. “The big department stores that buy double spreads in every newspaper in the country every weekend—50% off with an additional 15%-off coupon—are out there in front of consumers, giving them a jaundiced view of the jewelry industry,” says Alan Leopold, executive director of New York State Jewelers. “We trained the consumer to suspect that there is negotiating room in a jewelry price.”

It’s not surprising that deep-discount claims attract customers. “They’re consumers consuming; you can’t blame them,” says Ted Mitchell of Plaza Jewelers, Santa Rosa, Calif. “What consumers need to be educated about is that because the whole world is on sale, the reality of the situation is that nothing is on sale.”

The budget-conscious shopper will discover legitimate inventory-clearance sales, generally held as a way of moving jewelers’ buying mistakes out of the store. But all too often, jewelry customers also see ads for “sale” merchandise that has been marked up in order to be marked down, with no sales ever made at the “list” price.

Such advertising claims are prohibited in the Federal Trade Commission’s Guides Against Deceptive Pricing, which address former price comparisons, comparable value claims, suggested retail prices, and other issues. Many municipalities have enacted laws against deceptive price advertising, although not all expend resources on prosecuting violators. While the Jewelers Vigilance Committee and other agencies encourage jewelers to report alleged violations, those who try to have the offending merchants punished are in for a protracted battle (see p. 172).

“A plague on the industry.” A retailing powerhouse, the J.C. Penney Co., reluctantly agreed last August to modify its price-comparison advertising after being challenged by the Jewelry Advertising Review Program (JARP), a coalition of local Better Business Bureaus. JARP took its case to the National Advertising Division (NAD) of the Council of Better Business Bureaus, which determined J.C. Penney had insufficient evidence to substantiate its claims that consumers would receive the up to 60% savings represented in its fine jewelry “sale” advertisements. The case received national publicity. Although the agreement isn’t legally binding, advertisers usually comply with NAD findings, according to Ron Graham, the retired president and CEO of the Better Business Bureau of Minnesota, who directed the case.

Deep-discount claims are “a plague on the industry,” asserts Graham, who now coordinates a joint project with the bureaus and Jewelers of America affiliates. “Once you get on this percentage-off binge, you become driven to have more and more sales at bigger and bigger discounts,” he says. “But how can you do that? That’s when the advertisers begin to get creative, and the discounts become an illusion.”

Independent jewelers say they have to fight to maintain their credibility in today’s deep-discounting environment. “We’re like a mouse nipping at an elephant’s heels,” says Plaza Jewelers’ Mitchell, whose store is located in the same mall as four major jewelry chains and three department stores that sell jewelry, plus three jewelry kiosks. Mitchell’s store succeeds because of its unique design and attention to customer service, but “it’s not easy,” he says. “The big chains inventory their stores strictly on price point. It cheapens the product, and pretty soon it becomes a joke. People are going to wonder, ‘What is the real value of this thing?’ ”

In many cases the price war is unnecessary, says Jack Gredinger, director of sales and marketing for Scull and Co., a North Bergen, N.J., organization providing management consulting to jewelers. “If everything were solely predicated on price, everybody in America would be driving a Hyundai,” Gredinger points out. “Price is not the main reason why people buy things. It’s the ambiance of the store, the value that they perceive, the image of the store, and how they feel that they’re treated when they walk in the store.”

Standing out in the crowd. Many independent jewelers are attracting customers without the discount hook. Some are thriving without ever discounting merchandise or even having an annual sale. Those who do include regular sales in their business plans must find ways to get their promotions noticed by customers inundated with “discount” advertising.

A recent JCK poll of retail jewelers found that 67.5% have sales.* The average frequency is twice a year: 29.5% have a sale annually, 31.6% twice a year, and 15.8% four times a year. The average discount offered during these events is 35%. The most frequently held sale commemorates a store’s anniversary, reported by 53.7% of respondents who have sales. Among other sales events are those staged at Christmastime (29.5% of respondents who have sales), the end of the year (14.7%), Valentine’s Day (13.7%), and Mother’s Day (10.5%).

A sale can be an essential way to divest yourself of merchandise that isn’t moving. When an item has been in your inventory for just a year, interest costs, the lost opportunity to buy more saleable merchandise, and maintenance and insurance expenses begin to take their toll (see “The Secrets to Sound Financial Management,” JCK, June 1999, p. 182; Business Report, JCK, December 1999, p. 63). “At some point, if the item is not selling, you have to say to yourself, ‘It’s ridiculous for me to try to make a profit on something nobody wants,’ ” says Gredinger.

How do you make your sale stand out amid the cacophony? In a 1997 study, Dr. Anthony Cox, an associate professor of marketing at the Kelley School of Business, Indiana University, Indianapolis, and his colleagues found that consumers were more likely to believe discount claims if a reason was given for the discount, such as an anniversary or going-out-of-business sale. “Consumers try to make sense out of the world,” Cox says. “It’s often very helpful to explain a discount to them in a way that makes them feel good about the product.” Otherwise, they’re likely to believe something is wrong with the discounted item, he notes.

In research published over the past decade, Dr. Sunil Gupta, a professor and chairman of marketing at Columbia University, found that frequent discounts cause a store’s image to gradually decline. While discount promotions result in a short-term increase in sales, in the long run image advertising has a more positive impact, he found.

Retail consultant Gary Wright of G.A. Wright Inc., Denver, agrees with Gupta’s conclusion. “The best businesses rely on a combination of price advertising and image-building advertising,” he says.

You can have a promotion to attract customers without offering a merchandise discount, notes Eln Albert, a speaker, trainer, and consultant to the jewelry industry in La Jolla, Calif. “Promotions are more about creating an interest. The benefit may be a coupon or an additional discount, but the promotion is the draw,” she says. For example, a store could participate in a local or historical celebration by hosting a tie-in event and inviting the community to attend.

If you find yourself losing the price war, perhaps the remedy is simply to stock more items at lower price points, suggests Gredinger. “Ultimately customers will tell you what they want,” he says. “They vote with their pocketbook.”

Just say no. Some jewelers don’t believe in any kind of discounting. “The price quoted to the client is the price we live or die by,” says Paul Cohen of Continental Jewelers, Wilmington, Del. Although he acknowledges that some consumers perceive his no-discount policy as a signal that his store is “expensive,” he tells customers, “You don’t have to negotiate a position; you know you’re getting an appropriate price.”

While his selling prices for some pieces are lower than the manufacturer’s suggested list, Cohen says, “I don’t want to create an environment in which the consumer thinks they’re getting a deal.” Manufac-turers’ price tags are pulled off such items and replaced with Continental’s own price tags. “There’s no reference made to the manufacturer’s suggested list,” Cohen says.

His philosophy once cost Cohen a $9,100 engagement-ring sale. He spent “a good deal of time” educating the customer, who told him that “Of all the people I’ve gone to, you’ve given me the most information.” Yet the customer said a competitor had a similar ring originally priced at $11,000 that he would sell for $8,900. He asked if Cohen would match the price. “I’m sure you can afford the $200 to close the sale,” the customer said. Cohen acknowledged that he could, but added, “I’m not going to sell our integrity for $200.” He explained that lowering a listed price would cause shoppers to question all future price tags and pointed out that the competitor’s willingness to come down from $11,000 to $8,900 should have raised doubts in the customer’s mind. Nonetheless, the customer walked out, saying, “I never pay a price that I’m quoted.”

“If at that point he doesn’t get it, he’s not in our customer base,” Cohen says.

Continental’s policy “forces us to be very careful about what we buy,” notes Cohen, who held his last inventory-reduction sale in the early 1980s, after he closed a second store. “We buy a little more conservatively, because we know whatever we buy we may be stuck with.” Continental carries few branded items, which can easily be price-shopped.

Cohen’s suppliers have helped him out. “Most of our vendors will work with us to stock-balance,” he says. “They want to see us turn the merchandise, and they know we have to have a good balance, and once we get it, we’ll start turning it.” Another way to get rid of stale merchandise is to arrange a swap with a retailer whose customers’ tastes may differ from yours, notes New York State Jewelers’ Leopold.

Eileen Alexanian of Diamonds ’n Dunes, Manteo, N.C., also does not discount. She prefers to please customers in other ways, such as gratis repairs or with gifts such as champagne or dinner for two at the best restaurant in town. “The customer I cultivate is one who knows I care more about them than I do about selling them something,” Alexanian says. The result is a loyal clientele who “save up to buy their jewelry from us because of how we make them feel.”

In adhering to a no-discount policy, “there are disappointments, certainly, but in the long run, it builds strength and character and professionalism in your staff,” Alexanian believes. She explains that at stores that discount, a customer often will go over the head of an associate to try to get a better deal from the owner. “They’ve totally blown that salesperson’s chance of being taken seriously,” she says.

The American Gem Society enforces a set of standards that prohibit members from representing themselves as wholesalers and selling to consumers, regularly selling merchandise at prices lower than marked, and advertising an artificial price as a “regular price” and selling at a “marked-down” price, among other practices. One member was expelled at an AGS trustees’ meeting last September for misrepresentation of prices, according to AGS executive director Robert Bridel.

The Better Business Bureau’s Graham, however, points out that as long as discounts are actually what they claim to be, it’s perfectly valid to offer them. “In the industry, there is dialogue over whether giving discounts is good business, but most would argue that the freedom to cut prices is consistent with a competitive marketplace. Discounting shouldn’t be discouraged—if it’s the truth.”

Educating the customer. Independent jewelers who are succeeding against the deep discounters say they try to educate customers to beware of suspicious discount claims. Dale Robertson of Norris Jewelers, Milford, Ohio, uses a scale and gemological instruments when discussing differences in product quality. He also refers customers to a consumer feature on JA’s Web site (www.jewelers.org) entitled “What You Should Know About Bargains/Discounts.” The result has been considerable word-of-mouth advertising. “I don’t want to be on the level of a used-car salesman,” Robertson says. “Unfortunately, that’s how a lot of jewelry stores are perceived.”

Several jewelers interviewed for this article have signs or plaques in their stores stating that they practice truth in pricing. Many cite these notices as a way of encouraging customers to ask questions. Others post competitors’ “sale” ads in their stores to prove that their undiscounted price is lower than the competitors’ “discount” price.

“The best thing the independents can do is be proactive,” says New York State Jewelers’ Leopold.

Plaza Jewelers’ Mitchell agrees. “If you eliminate the confusion in the customer’s mind, you can sell more jewelry,” he says.

Reporting the Violators

If you’re mad as hell at competitors’ deceptive “sale” advertising and can’t take it anymore, where can you turn?

Cecilia Gardner, executive director of the Jewelers Vigilance Committee, suggests jewelers call JVC at (800) JOIN-JVC or (212) 997-2002. “We feel that all these problems need to be addressed,” she says. JVC will examine the advertising and contact the local attorney general’s office to determine what laws apply, she says. Part of the difficulty in investigating these cases lies in the fact that laws vary from region to region.

Ron Graham, the retired president and CEO of the Better Business Bureau in Minnesota, is coordinating a national effort of the Better Business Bureaus and Jewelers of America affiliates to investigate deceptive advertising claims. He encourages jewelers to bring questionable ad claims by national advertisers to his attention. “This process is the advertising industry’s program of self-regulation, and its public reporting policy encourages voluntary participation and effective results, without the need for government action,” he says. Graham can be reached at (612) 866-1467 or RGrahamBBB@aol.com.

If you’re interested in working for stricter enforcement of truth-in-pricing legislation in your region, be prepared for a big investment, warns Louis Fortunoff of the Fortunoff stores, who for about five years has been lobbying the departments of consumer affairs in New York and New Jersey. “You’ve got right on your side, but you need money,” says Fortunoff, who joined with retailers outside the jewelry industry to strengthen his case. Their efforts helped bring about a 1996 revision to New Jersey’s Comparative Price Advertising Regulations. In New York City, opponents have been fighting their proposed amendment to the Department of Consumer Affairs’ Rule Regarding Sales and Discounts. “It’s pretty frustrating, but we continue to push the issue, and we’ve certainly won the P.R. war,” says Fortunoff. He says his store alone has spent more than $100,000 in each of the two regions. Expenses have included hiring a lobbyist, which Fortunoff calls “crucial.”

Lee Hartsfeld, chairman and CEO of B. Sanfield Inc. in Rockford, Ill., recently lost a truth-in-pricing lawsuit but calls the decision “an important first-step victory in our 10-year effort to preserve the credibility” of jewelry advertising. B. Sanfield sued Finlay Fine Jewelry Corp., which operates jewelry departments in Marshall Field and other department stores. Judge Philip G. Reinhard of U.S. District Court for the Northern District of Illinois found that “although Sanfield successfully proved that Finlay’s discount advertising practice was unfair or deceptive under the Illinois Consumer Fraud Act, Sanfield failed to prove it suffered any damages as a result.” The judge, however, found that Finlay set the “regular” price at about 5.5 times the cost of an item so that it could still meet the store’s gross margin goals when marked at 50% off. “Finlay was obviously not concerned with the lack of sales at regular price,” the judge’s opinion states.

It’s daunting to go it alone, says Gary Youngberg of Ames Silversmithing in Ames, Iowa. Youngberg has collected a major discount chain’s advertisements, which he says demonstrate that the retailer has held a “sale” on gold for 45 of 52 weeks. The state attorney general has not expressed interest in pursuing the matter, Youngberg says. He hopes other retailers will join him in collecting documentation. “If it’s just Gary from Ames Silversmithing, it looks like sour grapes, but if there were 50 of us, then maybe they’d want to look at it.”

“When the big department stores are coming in with their lawyers preparing position papers, and you’re going in with your handwritten stuff, it takes a long time to make your point,” says Alan Leopold, executive director of New York State Jewelers, who has been working with Fortunoff to change the New York truth-in-advertising standards. “You have to be patient,” Leopold advises. “This is not a quick fix.”

Shifting Gears

The conventional wisdom in the jewelry industry is that once a retailer gets on the discounting bandwagon, it’s nearly impossible to get off, with mounting pressure to offer escalating percentages off list price. But several jewelers have successfully taken the opposite approach: They’ve stopped offering discounts.

“It was a gradual thing,” says Bill Sustachek of Rasmussen Diamonds, Racine, Wis., who made the shift about six years ago. Rasmussen sales associates pointed out that customers were going over their heads to request a price break from Sustachek or his wife, Kathy. “They came to us and said, ‘We need you to back us up,’ ” he recalls. Upon reflection, he realized customers didn’t need discounts because “I’m giving them a fair price to begin with.”

Explaining the switch to customers required a great deal of diplomacy, Sustachek says. “You have to handle that very, very carefully. The evolution is where most jewelers have a hard time with it. We worked on it for a long time.” A slip-up could give loyal customers the impression that before the policy change, prices were artificially inflated. Sustachek explained the switch by saying, “Everybody gets your special price now.”

The change could have backfired, Sustachek acknowledges. But he hasn’t seen any ill effects. “We haven’t lost any long-time customers because of it. We just explain it to them, and they say, ‘Fine.’ ”

Peter Genna of Genna’s Jewelers in Palm Bay, Fla., altered his policy in the past year as part of a series of changes before he applied for American Gem Society membership. “In the past, in order to compete with many of the chain jewelers and department stores, we discounted about 25% off” the figure on the price tag. “That caused a lot of confusion with the sales help,” he says. In a further complication, customers who had been helped by different associates at different times were being quoted different discounts.

Now all items in the store carry a non-negotiable price, and customers are told that Genna Jewelers practices truth in pricing. “At first, we were very skeptical; we didn’t know how our customers would react,” Genna says. But the fears were unfounded. “We’ve noticed an increase in sales and customer confidence. It’s been wonderful.”

A more radical change has occurred at Bernie Robbins Fine Jewelry, with five locations in Pennsylvania and New Jersey. The 37-year-old store started out as an appliance retailer and began to carry jewelry when current owner Harvey Rovinsky, son-in-law of the store’s namesake, joined the business. It then became a catalog showroom and later a retailer of low- to mid-priced jewelry. When a partner who “was into discounting heavily” left the business, Rovinsky ended the practice and in the early 1990s decided to become a luxury retailer.

Rovinsky began the transformation by acquiring “a prestigious brand that was just coming into this country in a big way” in 1992. Other luxury brands followed, but at first it wasn’t easy to snag them. “We wrote a lot of letters and had a lot of meetings,” Rovinsky explains. The store’s flagship Somers Point, N.J., store was renovated to reflect its new image. (Last July, it moved to a new, more elegant location.) Other stores were closed and new ones opened in affluent areas.

Rovinsky says he lost a lot of sleep worrying about whether he was doing the right thing. “We agonized for a long time before we made the decision.” In addition to fears over losing his customer base, he grappled with the huge investment involved in purchasing the luxury brands’ required minimum orders and providing proper display areas.

Although at first he had to explain to his customers that the store no longer sold toasters, Rovinsky says that he and his clientele “have evolved with each other. They’ve grown a little older; their disposable income has increased.”

Today, he says, “we never want to be the price leaders in anything. Value is not a function of price alone; it’s the quality of the product, the way you present the product, the knowledge of the people presenting the product, and the service after the sale is made.”