JCK Business Report

Making the Switch to By-Appointment-Only Sales

It’s counter-intuitive: close your store to the general public and see your sales soar.

But for some jewelers – typically those who attract affluent clients through personal networking – that’s just what happens. For instance, when Al J. Molina, president and chief executive of Molina Fine Jewelers, became a by-appointment-only operation in 1987, the results were dramatic.

During the store’s first year of operating by appointment, sales were unchanged from the previous year. Molina focused on cultivating sales among the existing 90% of his clients who came to him through his personal contacts and referrals.

Then Molina worked to build his affluent customer base through personal networking by his entire sales force and maintaining a luxurious atmosphere. The store features eight private mahogany-paneled sales offices, working fireplaces, Godiva chocolates offered gratis and an exclusive selection of jewelry by a number of high-end designers.

Today, reports Molina, his Phoenix-based store does an annual volume of $8 to $10 million with a sales staff of eight. That’s 10 times the business he did a decade ago when he had twice the staff. And his sales closing ratio is close to 95%, well above industry averages of 20% to 40%.

“When customers call for an appointment, this gives us the lead time to make sure we have the product they’re looking for, which is impossible in a walk-in store,” says Molina, who considers his competition to be Rodeo Drive and Fifth Avenue.

On a smaller scale, Richard Patuzzi, owner of North Shore Jewelry Exchange in Peabody, Mass., likewise found that switching to by appointment only led to increased sales. It also helped him attract wealthier customers despite competition from a nearby mall where jewelry can be purchased at nearly 60 outlets.

At the time he made the switch, he felt as if he had no other option. Patuzzi had spent the first half of 1997 recovering from bleaker than anticipated 1996 Christmas sales; then he lost a key salesperson in June.

After operating on his own for a few weeks, says Patuzzi, “I found this was the best thing that could have happened financially. I saved a few thousand dollars a month by not having to pay his salary, taxes and benefits, and was able to handle the business that came in by myself.”

He was pleasantly surprised by the impact on sales: a 20% to 25% decline during the first three months, an uptick in sales by fall, and revenues that were well ahead of the previous year’s by December.

Not being tied to store hours made all the difference in his ability to become involved in area civic organizations through which he found new, more affluent customers. Patuzzi also dropped less expensive jewelry lines and beefed up the high-end offerings at North Shore Jewelry Exchange, which posts between $300,000 and $400,000 in annual sales.

“Being a smaller jeweler, you’d be surprised at some of the sales I make because I’ve gotten to know all of the prominent businessmen in the city,” Patuzzi notes.

However, there is an obvious downside to operating by appointment only: the potential loss of sales from walk-in customers. To capture these revenues, this fall Molina will open a 1,700-sq.-ft. boutique that will be open to walk-in traffic. He made the decision to have standard store hours along with his by-appointment-only business after a survey revealed that current customers as well as potential new customers would like to browse the store without an appointment. He sees the boutique as a way to cultivate clients for the higher-end, by-appointment-only business.

A 2-CT DIAMOND RING IS GONE: WILL YOUR INSURANCE PAY?

Jill and Carey were arranging merchandise in showcases just before opening when Jill noticed that a ring was missing. Not just any ring. This was the two-carat diamond ring that everyone ogled when it arrived last month. Sales receipts confirmed that it hadn’t been sold.

A search of the vault, other showcases and the surrounding area turned up nothing. No one knew whether the ring had been missing a day, a week or more.

Would this loss be paid under the store’s Jewelers Block policy? Perhaps.

Jewelers Block policies typically exclude coverage for unexplained or mysterious disappearances. Was the ring taken by an employee or a customer? Was the item still in the store or was it sent on memo to another jeweler?

In this case, the jeweler used videotapes from the store’s security cameras to discover that the ring had been taken two days earlier by a clever thief.

In retrospect, it was easy to see that a sudden influx of customers had been a cover for the theft. While two customers kept sales associates busy in other parts of the store, a third asked to see several rings. When the sales associate turned away for a few seconds to get a polishing cloth, the thief reached into the open showcase and removed the ring.

What happened next? The jeweler reported the loss to his local police department and to his insurance company. The company sent him a proof-of-loss form, along with a request for additional information. The jeweler responded by sending in the completed proof-of-loss form and the following supporting materials: a copy of the police report, a statement explaining the loss, a copy of the invoice for the stolen item, and a copy of the videotape showing the theft of the ring. Less than two weeks after reporting the loss, the jeweler received the insurance payment.

Lessons learned.

The jeweler and his staff were relieved. They had been reminded, the hard way, of several important lessons. Safety procedures should always include keeping all showcases locked, showing only one item at a time to a customer, and giving the customer your full attention. If you must briefly turn away or leave the immediate area while serving a customer, make sure that the showcase is locked.

To ensure that a loss will be covered by your Jewelers Block policy:

  • Keep track of your inventory so that you can quickly spot a loss.

  • Maintain accurate, up-to-date inventory records that include original invoices and sales receipts.

  • Take a complete, written physical inventory at least once each year.

  • Check your video surveillance equipment routinely to assess whether it is in good working order and produces clear videos.

  • Save surveillance videotapes for a period of time (two months is a good rule of thumb) before re-using them.

  • (continued on page 118)

  • Notify the police if a loss is the result of a crime.

  • Notify the insurance company promptly.

Sneak thefts are a common cause of loss. Store owners or managers should discuss distraction situations and address how sales staff might respond to help reduce the risk of a sneak theft.

This is the first of a series of case studies prepared by Ronald R. Harder, president and CEO of Jewelers Mutual Insurance Company.

Attracting Younger Customers: Rural Jeweler Sells Used Computers

We don’t do business the way normal people do because we don’t know any better,” laughs Donald R. Kelsheimer, owner of the Bird’s Nest jewelry store in Casey, Ill. In this small corn and bean farming community of 3,000, he’s taken a creative response to broadening his customer base: selling used computers in his store.

In March 1996, when Kelsheimer began offering used computers to his customers, he thought he might sell as few as six a year. The venture far exceeded his financial expectations and has attracted a younger customer base. His 1997 computer sales, excluding December, were $30,000. “That’s not a lot of money, but in a little farm community like this, it’s astounding,” says Kelsheimer.

Selling used computers isn’t the answer for every rural jeweler because it does require an expertise in computers. But it has worked so far for the Bird’s Nest, which must compete against jewelers in nearby Terre Haute, Ind.

Kelsheimer, who has a background in education along with his 21 years of experience as a jeweler, teaches computer classes through a local junior college extension class. His approximately 70 students each year are a ready source of potential computer buyers.

Currently, the store’s $150,000 inventory is allocated 53.3% to jewelry, 41.3% to cards and gifts, and 5.3% to computers. Kelsheimer is thinking of discontinuing the store’s offering of cards and introducing new computers as well as software.

Computer sales even out the store’s seasonal jewelry sales and attract a better demographic. “In a town this size, we have a lot of older ladies who shop for cards but not for jewelry,” Kelsheimer says. “Computer customers are typically working people with children in grade school who think that if they buy a computer, their child will be brilliant. Those people are definitely potential jewelry buyers for life occasions such as birthdays and anniversaries.”

Donald R. Kelsheimer, owner of the Bird’s Nest jewelry store in Casey, Ill., has found used computers helpful in attracting younger customers who are more likely to purchase jewelry in the coming years.

Pricing Custom design for maximum profit

You created a beautiful diamond pendant for a favorite customer. To come up with a fair price, you keystone the sum of your material ($2,000) and labor costs ($72.10) and write up an invoice for $4,144.20. Right?

Wrong.

In fact, to be fair to yourself, you should charge $6,193.35 to take into account the wide range of indirect costs associated with jewelry design that bear on profitability.

Try comparing your current pricing formula to one developed by Richard F. Laffin, author of the Jewelers’ Guide to Creative Pricing, published by JCK. He factors in all the costs associated with custom-designed jewelry – design time, materials and shop labor – to come up with a profitable price tag that more often than not is competitive with jewelry purchased from a supplier.

Labor costs : Calculating labor costs typically is the most complicated element in the pricing formula. Here is a simplified version of Laffin’s formula for an individual working a 40-hour week:

Base pay: $30,000 per year; $576.92 per week; $14.42 per hour

Labor costs also should include benefits and taxes, which may range from 20% to 40% of gross pay (estimated at 25% for this calculation):

  • Social Security and Medicare

  • Workman’s compensation

  • Unemployment insurance

  • State and Federal taxes

  • Health and life insurance

  • Bonus

Total: $7,500

Base salary $30,000

Documented extras $ 7,500

Total labor cost $37,500

Hour factors:

Normal per year: 52 x 40 = 2,080

Less:

2 weeks’ vacation 80

8 paid holidays 64

2 personal days 16

Breaks/2.5 hours x 48 weeks 120

Subtract 280

Available working hours total 1,800.

Billing for labor + overhead: The chart above outlines how to calculate hourly costs for labor plus overhead based on the efficiency level of the individual involved in the design and production work for store-designed jewelry.

For example, if the benchworker who designed that diamond pendant operated at an 80% efficiency level, you would divide the $37,500 total labor cost by 1,440 hours to arrive at the $26.04 hourly labor rate. If a store’s overhead costs for custom design are $100,000 (for mathematical clarity), you also would divide that amount by 1,440 for an hourly overhead rate of $69.44 (.694¢ per $1,000 of overhead).

The sum of the hourly labor and overhead costs is a fair assessment of your actual hourly cost, which is $95.48 ($26.04 + $69.44). This should be your hourly cost for both the design time and the production time for the diamond pendant.

Determining your store’s actual overhead costs may be complicated. You may want to ask your accountant to run the numbers for allocated space and utility costs, advertising and promotion, supplies, tools and so on. Supervision costs may also be a factor.

Pricing custom work: In the Jewelers’ Guide to Creative Pricing, Laffin uses the hard numbers of total labor, overhead and raw material costs as a baseline. Then, he recommends that jewelers wrap these actual costs along with their standard profit goal – for example, 60% – into the final pricetag.

For a pendant with a $1,000 diamond and $1,000 in platinum that involved two hours of design time and three hours of labor time by a $30,000-a-year benchworker who works at 80% efficiency, the actual cost for the pendant would be:

Material cost + hourly labor and overhead costs = actual cost

$2,000 + (5 x $95.48) = $2,477.40

And the sale price should be:

Actual cost + 60% profit goal = total sales price

$2,477.40 + $3,716.10 = $6,193.50

This, says Laffin, is the way to price your store’s custom-designed jewelry for profitability.

Right: Be sure your pricing ensures that you really do make money on your custom design work.

10 Safety TIPs for Global Business Travelers

You’re driving to the Bourse in Tel Aviv to buy diamonds direct from the source when you’re sideswiped by another car. You’re carrying a case of pricey jewelry to a trade show in Rome when you notice that you’re being followed by a seedy character. Or you’re visiting a jewelry factory in rural China, working to refine a brand new supplier’s product line, when suddenly you realize you’ve been ensnared in an elaborate scam.

Security problems like these are an occupational hazard for jewelers whose business takes them to some of the world’s most exotic locations, both rural and urban. With some planning and extra precautions, you can reduce some of the most common risks, advises Bart Railing, worldwide security director for International SOS® Assistance Inc., a company that provides security, medical, travel, legal and personal assistance worldwide.

Railing provides the following tips to jewelers traveling on business. Some may seem obvious, but other recommendations might make all the difference in a future, unforeseen high- security situation:

  1. Learn how to use the country’s pay phones and currency so that if you should need to summon assistance in a hurry, you can stop at a pay phone.

  2. Dress down. Wearing a business suit even in a Western city can make you a prime target.

  3. Always stay at better hotels and use the hotel’s safe deposit box for valuables. Rooms on floors three through six are best because burglars tend to prefer lower floors with window access. Upper floors in Third World countries in particular should be avoided because fire control and prevention measures may not be adequate. More specifically, ladder fire trucks may not be available to help you escape from the upper floors of a hotel during a fire.

  4. Stay away from unfamiliar areas in a city.

  5. Avoid meetings with anyone you can’t vouch for through a local business contact. But if you do feel it’s necessary to meet a stranger, be sure to meet in a public setting. With these individuals, in particular, avoid purchasing jewelry or gems on impulse.

  6. Give the consular section of the local U.S. embassy your entire trip itinerary when you enter the country. They prefer to know you’re there so they can help if you get in trouble.

  7. Always let someone know where you’re going on a given day. If you have a local contact, make sure he or she knows your itinerary and when you’re expected back. If you don’t have a local contact, tell the consular section of the local U.S. embassy where you’re going and that if you don’t call in, you might be in trouble. (Note: be sure to check back in when all goes as planned.)

  8. If you carry valuable items with you, regardless of the location, take extraordinary measures such as hiring a local, armed security escort. The U.S. embassy may be able to refer you to an escort. International SOS Assistance provides this service as well.

  9. Consider hiring a driver if you need to use a car. In some parts of the world, such as Mexico and virtually anywhere in Africa, you can be thrown in jail and detained for several weeks if you’re involved in even a minor traffic accident. In Nigeria, according to International SOS, a driver who hits a pedestrian will sometimes be dragged from a car and beaten by bystanders. Other driving hazards may include poor maintenance of cars and roadways, unfamiliar signs and having to drive on the “wrong” side of the road.

  10. Do your homework before you go. Find out in advance about security conditions at the country where you’ll be traveling. One source for this information is the U.S. State Department Bureau of Consular Affairs, though its reports sometimes are colored by issues of diplomacy and concerns about U.S. relations with a given country, according to International SOS. Also, be sure to provide someone at your company or at home with photocopies of your tickets, your passport, your credit cards and other necessary papers so that if something should happen to these items they can be replaced rapidly.

Security information and assistance for overseas travelers may be obtained from:

  • Bureau of Consular Affairs, U.S. State Department; (202) 647-5225; http://travel.state.gov.

A resource for locating medical services, informing family and friends of any problems and, if necessary, transferring personal funds from the U.S. Travel warnings can also be found on the site.

This company has 25 around-the-clock service centers located worldwide. Fees for basic personal, legal, travel and medical assistance start at $55 for up to 14 days for an individual traveling overseas. With security assistance included in the package, fees begin at $143 for an individual. The company performs an average of 8,500 evacuations and repatriations yearly, or about 23 per day.

International Legal Defense Counsel; (215) 977-9982

This U.S. firm specializes in international legal issues, and can aid in finding legal representation abroad and help with defense proceedings.

How to cope with the new area code cornucopia

Most businesses have been affected in one way or another by the introduction of nearly 100 new area codes in the U.S. over the past three years.

And the pace is likely to continue in the years to come – driven by the speed with which Americans have embraced phone-number-hogging technologies such as pagers, cell phones, fax machines and even ATMs.

It makes good business sense to plan ahead for a new area code to reduce printing costs as well as confusion among customers and suppliers. For instance, you’ll need to update and reprint:

  • stationery

  • business cards

  • print advertising

  • phone book ads

You’ll also want to find out how your local telephone company will handle the transition. Find out:

  • when the new area code takes effect;

  • the period of time during which people who dial your old area code will be automatically forwarded to your new number;

  • the period of time during which callers will hear a recorded message telling them to dial the new area code number;

  • when callers to the old number will no longer be able to reach you if they dial your old area code; and

  • how the new area code will affect local calling costs. Deregulation will soon result in competition among local telephone companies – yet another way to reduce your calling costs.

How do you cope with rumors of a pending area code change? Read your local newspaper religiously, and contact your area’s phone company and public utilities commission to find out as early as possible what your new area code will be and when it will take effect, advises Ken Branson. He’s a spokesperson for Bellcore, the communications, software, engineering and consulting company which managed new area code introductions throughout the U.S. from 1984 until last month.

Starting Feb. 1, new area code introductions are being managed by Lockheed Martin Information Management Systems (IMS), which will respond to questions about the nationwide introduction of new area codes through a soon-to-be-established toll-free number. Until then, questions may be directed to Ron Conners at Lockheed Martin IMS: (202) 414-3555.

Key stats

Dollar amount by which a male jewelry store manager’s salary exceeded a female store manager’s salary in 1990: $1,000

Amount by which a male store manager’s salary exceeded his female counterpart’s salary in 1996: $3,890

Dollar amount by which a male jewelry salesperson’s salary exceeded a female salesperson’s salary in 1990: $4,090

Amount by which a male salesperson’s salary exceeded his female counterpart’s salary in 1996: $1,625

Percentage of gold jewelry purchased by women in 1997: 60%

Percentage purchased by women in 1995: 58%

Percentage of American adults who intend to purchase gold jewelry this year: 81%

Percentage of American adults who purchased jewelry last year: 78%

Of those purchasers, proportion who bought gold jewelry: 1/2

Percentage growth in annual jewelry sales in 1997: 7%

Percentage increase in average sales per employee in a high-end independent store between 1992 and 1997: 38%

Percentage increase in average sales per employee in independent mid-range jewelry stores during those years: 5%

Percentage of total high-end jewelry store revenues that came from repairs in 1992: 15%

Percentage of revenues from repairs at high-end jewelry stores in 1997: 8%

Percentage growth in sales of designer/artist/custom jewelry in 1997: 23%

Percentage sales growth reported by jewelry chains: 1%

Of the nine jewelry stores on JCK’s Retail Panel that reported losses of 10% or more last year, number located in the South: 6

Number in Iowa: 2

Of the 35 jewelry stores that reported gains of 10% or more in 1997,

number that were the only jewelers in their state reporting such increases: 16

Of that 35, number located in California: 8

Number of cities where more than two stores reported sales increases of 10% or more: 2

Percentage of precious metal jewelry purchased in 1975 that was imported: 7%

Percentage imported in 1996: 50%

Percentage change in number of U.S. precious metal jewelry manufacturing establishments with 20 or more employees between 1977 and 1992: -20%

Record-setting consumer debt (consumer installment credit outstanding as a percentage of personal disposable income) in 1997: 21%

Previous record consumer debt, reached in 1989: 19.7%

Forecasted 1998 change in U.S. jewelry manufacturers’ shipments of precious metal jewelry, based on anticipated sluggish consumer demand and increased import pressure: -2%

Number of jewelry shows worldwide listed in the JCK calendar in 1992: 44

Number of jewelry shows worldwide listed in the JCK calendar for 1998: 123

Percentage change in price of 1-carat VS1 round diamonds between 1992 and 1997: +20%

Percentage change in price of 1/4-carat VS1 round diamonds during that time: +7%

Of the following colored stones – ruby, emerald, sapphire, amethyst, aquamarine, rhodolite, tanzanite and tsavorite –

number that posted price increases between 1991 and 1997: 0

Of these stones, number that declined by more than 20% in price per carat: 4

Average dollar amount couples age 25 to 29 spend on a honeymoon: $2,490

Average dollar amount spent on a diamond engagement ring: $2,807

Percentage of weddings where music is provided by disc jockeys: 65%

Percentage where music is provided by a string quartet: 3%

Percentage change in ounces of platinum used in U.S. jewelry between 1996 and 1997: +60%

Percentage change in U.S. platinum jewelry production between 1990 and 1997: +400%

Percentage increase in number of U.S. retailers who stocked platinum between 1995 and 1996: 19%

February JCK Index Sources

1,2,3,4 JCK Salary Survey; 5,6,7,8,9 World Gold Council; 10,11,12,13,14,15,16 Jewelers of America Cost of Doing Business Survey; 17,18,19,20,21 JCK Retail Panel; 22,23,24,25,26,27 U.S. Commerce Department – U.S. Industry and Trade Outlook 1998; 28,29,30,31,32,33 JCK Magazine; 34,35,36,37 National Bridal Service; 38, 39,40 Platinum Guild.

HOW GOOD ARE YOUR APPRAISAL SKILLS?

Appraisal answer key

Providing customers with knowledgeable appraisals is an important part of the jewelry business. The following self-test will help you assess your skills as an appraiser as you evaluate a variety of commonly-encountered customer service situations.

1. When writing an insurance appraisal on an item you just sold, the appraisal must contain a statement indicating that you were the seller.

True False

2. When a client is seeking valuation information to be used in deciding whether to sell his or her period jewelry, the appraisal should be based on typical prices paid when jewelers buy over-the-counter.

True False

3. The client wants an appraisal to determine if he or she paid a fair price on a recent purchase. The value should be expressed as a range of prices.

True False

4. An insurance appraisal of a solitaire ring with an old-mine cut diamond should be based on replacement with a modern equivalent at the estimated recut weight.

True False

5. Appraisals for state probate or estate tax should be based on prices jewelers would usually pay when buying the items over-the-counter.

True False

6. The client has a low-priced, commercial-quality item that jewelers usually buy finished from a regularly available trade catalog. The value should be based on the manufacturer’s suggested retail price listed in the catalog.

True False

7. Your customer wants an insurance appraisal on jewelry in used condition. The appraisal should usually be based on typical selling prices of similar used items of like kind and quality.

True False

8. A couple just had a one-carat diamond solitaire stolen that they had purchased from you in the early ’70s for $5,000. They didn’t have insurance and need an appraisal to be used in filing a federal theft claim for an income tax deduction. The ring would typically sell today for $20,000, so you write up the fair market value of their loss as $20,000. They will only be able to claim $5,000.

True False

9. When appraising gold jewelry, the metal should always be tested, and the report should indicate the test you used to confirm the metal quality.

True False

10. Your customer wants an insurance replacement appraisal on a brooch signed by a relatively new jewelry designer whose work is not in any great demand. You are equipped to make a similar piece for them in the event of a loss. The appraisal should be based on the price jewelers like yourself would usually charge to custom-make the replacement.

True False

Judging the results

  • Appraisers who have taken comprehensive professional appraisal courses should be able to get at least 8 out of 10 right.

  • Jewelers and gemologists without formal appraisal courses and who restrict their practice to typical consumer appraisals should score 6 to 7 out of 10 right.

  • A score of 5 or below may indicate that you are not qualified to offer appraisal services to the general public.

This appraisal quiz was created by Elly Rosen of Appraisal Information Services, based in Brooklyn, N.Y.

Appraisal answer key

1. True

2. False

3. True

4. False

5. False

6. False

7. True

8. True

9. True

10. False