Running a successful business is always challenging, more so when soaring costs and increased competition affect jewelry store sales and operations. For its series “Thriving in Tough Times,” JCK asked Brook Ellis, now vice president of special projects for the Gemological Institute of America, and Dr. Mink Stavenga, dean of the GIA School of Business, what independent jewelers must do now to operate successfully. Here are their 10 back-to-basics suggestions.
Learn about running a business. Attend as many business seminars and workshops as possible at trade shows and association meetings and take business courses online. GIA, for example, offers online business courses and its Jewelry Business Management diploma program. Fall courses (beginning Oct. 13) include marketing management, current issues in the jewelry industry, and visual merchandising.
Use an annual business plan. Many small-business owners think they’re too small to need one, but to succeed in today’s competitive environment you must have a well-developed business plan. It’s like a road map for your business goals and objectives, which must be measurable if you want to track them through the year and make changes to your operations. In difficult times, focus on objectives that produce the best results for your business. For example, don’t add a marginal line that may or may not work. Take such risks when profit margins are higher.
A business plan’s detail depends on the size of the business, but any plan must include a financial plan, income statement, cash flow analysis, year-end balance sheet, merchandise budget, merchandise plan, and sales by department. (Sales can be further broken down, depending on your merchandise operating system.)
A business plan also needs a marketing plan, advertising budget, public relations budget (and other marketing efforts), business development plan, expansion plans (if applicable), new product categories, new lines (like national brands), and any other measurable changes. For more information, see the Small Business Administration Web site, www.sba.gov.
Manage your inventory investment. Use an open-to-buy plan, which is a budget for planned merchandise purchases during a certain time period. Open-to-buys are particularly appropriate in the retail jewelry industry because of its seasonal nature. An OTB helps you determine how much inventory to buy before a season starts, how much you should have each month, how to adjust monthly merchandise flow to maintain inventory levels, and what those levels should be at season’s end. Managed properly, OTB is a powerful tool to help jewelers increase sales, reduce overstocks and markdowns, and keep inventories at correct levels.
Plan, too, for special orders and repeat orders for best sellers. Otherwise, you might allot too much of your merchandise budget to other categories and run out of funds for best sellers when needed. On the other hand, overbuying best sellers can result in cash flow problems.
Reacting to recession. When the national economy slows, your business is affected. So, adjust your budgets—financial, cash flow, and merchandise—accordingly. For example, if analysis indicates you won’t meet sales projections, adjust your merchandising budget by reducing or changing your assortment, so you won’t have too much capital tied up in inventory. Consider stocking inventory with a wider range of price points to accommodate customers with newly reduced budgets. Develop a good working relationship with your bank before you need its help. If you must borrow, be sure your business plan is current and available for review.
Improve profit margins. Jewelers’ profits are being squeezed by rising costs of materials (especially gold and platinum) and online competitors’ lower prices. To stay profitable, closely track trends in product supply and customer demand (to maintain and improve inventory turnover), revenues, and profit margins.
Improve turnover with a strong focus on your best sellers; always keep them in stock. Negotiate better terms from suppliers, and don’t carry much fringe merchandise that doesn’t fit your store image. With slow-moving merchandise, discount it, return it if possible, or off-load it to dealers in distressed merchandise.
Find a niche in your market and products that differentiates you from competitors. Do that by analyzing your customer profiles and what they buy in your market and its demographics, and your competitors’.
Cater to repeat customers, who might pay a little more because you’ve developed a relationship with them. Remember, people return to stores where they’ve had a good shopping experience. That includes a knowledgeable, trained sales staff; return and exchange policies that favor customers; and services like repairs, enhancements, and free cleanings. Value-added services keep customers coming back and create good word-of-mouth advertising.
Improve cash flow. Some jewelers mistakenly think profitability takes care of cash flow. It doesn’t, especially in difficult times. So, have a cash flow budget, which is a projection of cash coming in and out for a specific time period, up to 12 months ahead. This is an essential part of your business plan, one you must carefully and consistently manage. That means a realistic cash flow and adjusting your sales strategy if and when you identify problems. Again, keep a good relationship with the bank, to fill cash flow gaps if they occur.
Keep employees motivated. Start with a strong orientation program for new employees. When employees clearly understand their roles and responsibilities, it enhances their job satisfaction and motivates them. Satisfied employees who enjoy their jobs are more likely to develop relationships with customers, resulting in a better shopping experience and more sales for the store. The more your employees succeed, the better they should be compensated. The more you pay them, the longer they’ll stay, and the more they sell, the more you earn.
Promote your store. Brand your store. Consumers have many businesses to choose from for their purchases. So, your store needs an attractive image, or brand, that they recognize and respond to. They need a reason to choose you over your competitors. Having a brand also helps them envision your store’s services and products, making it more likely they’ll visit.
Store design and marketing give consumers a good idea of the shopping experience to expect when they walk in, as does merchandise. (Remember, consider your image when choosing inventory.)
Advertise in media reaching the most prospects in your target market. Use offers and “call to action” ads, which bring customers in to buy a specific item. In your ads and marketing, focus on your niche. If you’re a dealer of Rolex watches or Yurman jewelry in your market, promote that. It differentiates you from competitors and strengthens your niche.
Focus on best sellers. Always keep best sellers in stock. If customers come in for one, and you don’t have it, they won’t wait for you to order it. They want it now.
A computer inventory management system (IMS) helps you identify and track inventory by type (e.g., diamond earrings) and price, and project inventory levels for coming months. (This includes not only best sellers, of course, but all merchandise.) If you don’t have an IMS, review your monthly sales receipts and manually create such reports.
Focusing on best sellers increases turnover and profitability. One example is bridal sales, a big part of many jewelers’ business—and one to pay attention to, if you don’t already. “Bridal” includes more than engagement and wedding rings. Gifts for the bride and groom, wedding party, and parents and children of the couple are opportunities for added business, as are services like jewelry repairs, enhancements, and designing. Selling bridal jewelry also is an excellent opportunity to start an ongoing relationship with a client, supported by customer service, anniversary or birthday gift suggestions, and maintenance of the piece.
Focus on business. You’re not just selling jewelry. You’re running a business with many components. Having a passion for jewelry is great, but that alone doesn’t create a profitable operation. So, in running your retail business, focus on both “big things,” like profit margins and balance sheets, and “little things,” like customer service, value-added services, and a knowledgeable staff.