Mistakes Jewelers Make When They Retire

Retiring jewelers who want to sell or liquidate their businesses often run into obstacles. No one knows this better than Bobby Wilkerson, whose Stuttgart, Ark., firm, Wilkerson & Associates, has helped handle thousands of store closings nationwide over the past 30 years. Now Wilkerson is launching a Trade Transition Association (TTA) to help jewelers plan for retirement well ahead of time so they can avoid mistakes that can leave them financially ill-prepared. In a recent interview with JCK editor-in-chief Larry Frederick, Wilkerson offered advice for jewelers contemplating retirement and explained the goals of his new association.

JCK: What is jewelers’ biggest mistake when they retire?

Bobby Wilkerson: Not planning ahead. They think they can just sell their inventory and live comfortably ever after. They can’t.

JCK: Why not?

BW: It’s usually not worth nearly as much as they think. Retailers make their money on turn of inventory. Jewelers should turn their inventory often so it doesn’t get outdated. But what I see over and over again are stale stocks, with goods up to three, four, and even five years old. In fact, inventory can be as little as six months old and lose value.

JCK: Why is that?

BW: There are trends in jewelry just as in clothing. The trend now is toward platinum and white gold; if the jeweler has all yellow, he’s out of sync. In watches, kinetic movements are very popular. If you have older Seikos without kinetic, they’re hard to sell. At Wal-Mart, merchandise is pulled off the shelves in as little as four weeks if it doesn’t move.

JCK: Why don’t jewelers turn their inventory more?

BW: The big problem is they can’t identify what is selling and what is not. If they could pinpoint what moves and replace it, identify what doesn’t and work to eliminate it, they’d be more successful. This is why Wal-Mart is so successful. It spent hundreds of millions on computer programs to achieve good inventory control.

JCK: But there are lots of inventory-control computer programs for jewelers.

BW: The issue is training the user. You can buy the software—that’s easy. Training the staff to use it is the hard part. We see lots of jewelers who have a system but lack the expertise to act on what it tells them.

JCK: What happens to the typical retiring jeweler when he goes to unload his inventory?

BW: Well, generally, he has three choices. He can conduct a store sale to the public. The problem with this is that he may sell off 30% of the inventory, but it will be the most desirable merchandise. He’ll be left with 70% undesirable stock. He may get only 20 cents on the dollar for that. Second, he can call someone like my firm and we will come in and conduct a sale with the aim of getting the inventory cost back.

JCK: How do you accomplish that?

BW: With a well-planned, well-orchestrated sale to the public that generally runs eight weeks. Each week has a different phase, and we have different discounts throughout the sale and different incentives to attract customers—different ways to create a sense of urgency for the customer to buy.

JCK: What’s the third option for jewelers selling off inventory?

BW: To call in a bulk buyer. There are five of them around the country, including myself. This is sort of a desperation move. The jeweler will generally get only 30 cents on the dollar. It varies from 20 to 40 cents but averages 30.

JCK: So he takes a 70% loss!

BW: Yes. He gets only 30% of what he paid for the goods.

JCK: So here he was sitting on an inventory he thought was worth $1 million and it’s actually worth less than half that. No wonder he’s not prepared for retirement.

BW: Remember, too, that unlike the rest of Americans, the average independent jeweler hasn’t been salting away savings in a 401(k), IRA, or a corporate retirement fund. Or if he has, he hasn’t put away very much (see “How Much Are Jewelers Saving for Retirement?” JCK, August 1998, p. 136.) His nest egg is pretty much his inventory.

JCK: But aren’t you forgetting the value of the store itself—the land and the building?

BW: Well, most jewelers lease instead of own their stores. And if they’re owners, they’ll find little interest when they try to sell. Zales and the other chains want to be in the malls rather than downtown or in a free-standing location. So if you own the real estate, you’ll have to sell to some other kind of retailer, who must then transform the space to fit his needs. That lowers the value of the property. Retailers have it in their heads that their store is worth upwards of five times their annual volume, but that isn’t the case at all.

JCK: Isn’t there another alternative? What about passing your store to a family member? This is an industry of family businesses, after all.

BW: Times are changing.When young people graduate from college now, economically the last place they’ll probably want to go is into their family’s business. And not many have the passion for the business it takes to succeed, anyway. (See box at right for more on family succession.)

JCK: Are you saying independent stores are gradually dying out?

BW: Between 2,500 and 4,000 stores go out of business every year. Of course, new ones are also being started, but we don’t know how many. We do know that a lot of the new independents are opened by immigrants. We also know that in the 1950s, 95% of jewelry was bought in jewelry stores. Today it’s about 35%, with the Internet coming on strong.

JCK: Besides overestimating the value of their inventory, what other mistakes do jewelers make when they sell?

BW: Selling to the new owner on credit—in other words, financing the purchase themselves. They should never do that because it’s going to take the new owner quite a while to become profitable. There’s even the chance he’ll fail. So the seller may never get all his money or even any of it.

Another thing I see is a fear to advertise that the store is for sale. They don’t want to spook their public. They don’t want the Chamber of Commerce and all their buddies to know. But people can react only to information they have, and if enough people don’t know the store is for sale, finding a buyer will be impossible.

JCK: You’re starting a new organization to help jewelers prepare for retirement called the Trade Transition Association. What will it do?

BW: Actually, it’s not just for retirement planning. All independent retailers will make a transition at some point in time, whether it’s retirement and the closing of a store, selling to another buyer, buying more stores, creating chains, or giving the store to a family successor. The TTA will be helpful in all these situations.

JCK: How is that?

BW: By working as much as 10 years ahead, we will be able to help the TTA member jeweler get away from event-based mentality and plan strategically. We will in effect say, “This is what you can do now to position yourself for the coming transition. You need to do this, this, and this, using this timetable. If you follow this plan, you will be able to realize 50% more for your store.”

JCK: What kind of things should he do?

BW: Convert as many assets into cash and savings as possible, increase the turnover, reduce receivables, get their store as profitable as possible, among other things.

JCK: What other services will you provide?

BW: We’ll have a retirement guidebook. We’ll give retirement advice linked to one of the major brokerage firms to help people think about what they will need for a comfortable old age in the form of a customized transition plan. There will be a newsletter. We will offer a sale-development methodology so the retailer can be fully prepared for the transition. We’ll host educational seminars. The whole point is to get ahead of the curve so the jeweler can come to retirement realizing his goals.

JCK: Is this association nonprofit?

BW: No. It’s an expansion of our business, and it’s costing us several million dollars. Even so, we won’t charge an annual membership fee. Every retailer who is thinking about some type of transition within 10 years should join. But we will charge for some of our services.

Planning for Family Succession

JCK: What kind of pitfalls are there to turning the store over to a family member?

BW: The first thing the owner should think about is, does this son or daughter have the passion to run the business? If not, the business won’t last long.

JCK: What do you mean by passion?

BW: Whether the son or daughter is excelling in key areas of the business. For example, you must have volume in any business. Is the family member focused on that? Then they must have the management skills; if a dollar comes in they can’t go buy some fun thing. You must operate the business as a business and not see dollars coming in as a profit that can be taken out of the business.

JCK: What else should the owner consider?

BW: Whether the store is in good enough shape financially. Is the owner getting an adequate turn on inventory? Is the store burdened by debt?

JCK: Should the owner stay involved after handing the store over to a child, or would it be better if he turned the operation over completely and moved to Florida?

BW: From working with more than 4,000 jewelers over 30 years, I would say it would be a great value to the store to have the original owner involved in an advisory capacity, provided that the new owner can control the business, grow the business, and work with the original owner. On the other hand, if the original owner wants to dominate and micromanage, he should go to Florida. The type and extent of involvement should be worked out beforehand so there are no misunderstandings or hard feelings.

JCK: What if there are two or more siblings? How does succession work in those cases?

BW: The main thing they must do is divide responsibility, to assign specific duties to each sibling. If there are two siblings, for example, they can’t both manage the same areas. One must buy and the other do the accounting, or some other function.

I’ve seen stores where arrangements worked out well. For example, Ernest Moody in Tulsa, Okla., ran a store for 35 or 40 years. He had two sons, two daughters, and his wife involved in the business. They had about four stores. He had a heart attack and died a few years ago. When the siblings took over the stores, the oldest one assumed the leadership. Only he called the shots. Now the business is even more profitable than when Ernest Sr. ran it.

“Retailers have it in their heads that their store is worth upwards of five times annual volume, but that isn’t the case at all.”