Rules for Stock Balancing

To strike a balance between traditional merchandise and trendy fashion pieces or designer lines, jewelers should consider these guidelines: Make smart choices in supplier/buyer contracts, understand your customers, and don’t be afraid to rely on your gut.

A retailer’s sales history provides the best indication of the ideal balance of traditional and fashion jewelry, explains David Nygaard, of David Nygaard Fine Jewelers, Virginia Beach, Va. Traditional pieces make up the majority of most retailers’ annual sales, but, with the advent of Internet shopping, consumers expect more choices, not only from online shopping sites, but also from local retailers.

Nygaard compares stock balancing of jewelry to that of today’s music industry. With unlimited digital resources, Internet companies like iTunes have greatly expanded consumer choice, whereas music stores and radio, limited by both physical space and resources, carry mostly hit songs. Jewelers need to stock traditional pieces—the hit songs of the jewelry world—and can allot only a certain percentage of their retail space and annual budget to high-fashion pieces. But jewelers can emulate Internet companies by focusing on liquidity (or quick stock turn), taking a comprehensive look at their inventory and their relationships with suppliers, and making sure the store’s cases always look new and exciting.

Retailers need to do three things, explains Nygaard: Stock enough traditional merchandise to satisfy customer demand, show designer lines (or what Nygaard calls show pieces, i.e., large items that convey a luxury experience), and offer custom items.

It took Cathy Calhoun, of Calhoun Jewelers in Royersford, Pa., five years to feel like she was beginning to understand her customer base. “My tastes are a little wilder, and this was a more traditional area,” she explains. “I had to adjust my thinking and buying. Just because I love something doesn’t mean it is going to sell here.”

Calhoun enjoyed a two-time turnaround last year, and what she calls “bread and butter” items—traditional pieces such as diamond studs and diamond circle pendants—turn best. Calhoun says she’ll never get the same turn for designer pieces. “For one thing, if the piece is too exclusive or too original, I only want to sell a few,” she says.

This idea seems to hold true whether the retailer is based in a quiet Pennsylvania town or a high-fashion city like Los Angeles. Gail Friedman, a second-generation jeweler at Sarah Leonard Fine Jewelers in the Westwood section of Los Angeles, doesn’t use numbers to balance basics against new pieces. “Certainly we have our basics, but we go with our gut and stock what we think the customer is ready for,” she says. “With every trend, we sell until the market slows down.”

But understanding her customer base isn’t easy. Sarah Leonard is known for having something for everyone. Its clientele ranges from UCLA students with enough cash in their pockets to change a watch battery or purchase a sterling silver bracelet to Hollywood elites who can purchase large-ticket items but often opt for traditional pieces because of their timeless elegance.

Friedman says most of her customers—whether it’s a woman buying her first piece of fine jewelry for herself or someone looking for a safe gift selection—want the basics before moving on to designer lines or fashion-forward pieces. Nevertheless, retailers shouldn’t make assumptions about or dictate their clients’ tastes. “You always have to be willing to take somewhat of a risk,” says Kathy Corey, of Day’s Jewelers in Waterville, Maine.

Can the tastes of a jeweler’s customer base change with the introduction of designer lines, or does designer jewelry bring in new consumers with different tastes? “It’s probably a blend of both,” says Corey.

Although basic items still account for about 60 percent of her sales, Corey allots a certain dollar percentage to experiment with fashion items and to reorder items that are still trendy.

Make sure your supplier is willing and able to stock balance with you. Even though traditional items are more likely to turn quickly, designer lines keep a store fresh. The jewelry market, like any other segment of the fashion industry, constantly evolves, although not as quickly as apparel or other fashion categories.

Many designers offer stock balancing plans that allow retailers to keep their inventory current and suppliers to keep their pieces moving. Jewelers should take advantage of supplier buyback, stock balancing, or even memo capabilities. Nygaard explains, “As a retailer I want to send pieces back to the factory that aren’t selling. Out of a designer’s entire line, 20 percent of the line actually sells. I want to be able to trade that remaining 80 percent. This only increases the effective use of my inventory. I need a choice from my suppliers.”

Although an 80–20 stock balancing ratio sounds enticing, most manufacturers and suppliers won’t offer such a lenient policy. Ann Arnold, of Lieberfarb, Orange, N.J., says stock balancing is an important aspect of a vendor/retailer relationship, but one that should not be abused—it requires teamwork. She advises retailers to “ask up front what a vendor’s policy is so there are no surprises down the road.” In general, her company’s policy is to look at each retailer’s prior sales, including reorders of pieces, and find a fair buyback percentage.

Steven Mazza, of The Mazza Co., Baldwin, N.Y., says his typical policy regarding stock balancing programs is “three times the dollar amount on straight stock merchandise.” Instead of working with each client on an individual basis, Mazza sets this standard so that every client understands his company’s policies.

Vik Jain, of Fana, New York, says that although an 80–20 stock balancing ratio is larger than he likes to work with, he also understands that sometimes it takes time and cooperation for a line to begin to do well. “We believe in our product very strongly, and if we believe that the store is truly the right fit, we will work with the retailer until it works, if that means stock balancing higher ratios, cleaning up the lines, sales training, or co-op advertising.”

Corey has three tips to maintain strong vendor/buyer relationships: “Firstly, pay your bills on time. It’s basic but very important. Secondly, represent the new line in a manner that shows integrity to the product; merchandise in a positive way by buying a collection or enough of the line so that it has enough depth and makes sense not only to the customer but also to the buyer and vendor as well.” Finally, always negotiate a favorable stock-balancing arrangement before the purchase of a new collection or line.

If you build a strong partnership, Corey continues, you can begin to take advantage of the vendor’s advertising, marketing, and stock-balancing policy. She also stresses the importance of sales associates’ involvement in choosing new lines. “By making sure all the lines are connected, there is going to be that enthusiasm on the [sales] floor as well.”

Your studio can be your saving grace. Calhoun says 22 percent of her business is custom work. Her studio has the capability not only to design but also to redesign items that aren’t selling. If a custom design or estate piece isn’t selling, “we are remodeling it” she says.

Estate pieces make up about 30 percent of Calhoun’s inventory, but these pieces, although beautiful, can sit. “We have a beautiful estate cocktail ring with a large natural-colored cognac center diamond surrounded by perfectly matched cognac baguettes that has been sitting in the case for three years,” she says. Recently, however, she decided to take the center diamond out of the dated setting and reset it into an updated Simon G. mounting. “I hated to take it apart, but now it’s going to sell,” Calhoun says.

She stresses the importance of keeping her displays contemporary. “So then it looks fresh even to the employees,” she says. “Tired inventory just sits.”