It was new when you bought it, then when you sold the item it was "sort of new". Or was it from 1964?

How long until inventory becomes REALLY old? Do you think you could sell something that you've had in stock since 1964?

Over the years, after talking to a boat load of jewelers about "when does inventory become old" I've found no one wants to lose money when they sell something. So they keep on holding onto items, thinking one day they'll sell it for more than they paid for it.

It’s obvious if you buy it for $100 and sell it for $250, you'll make a profit of $150, right? Sort of.

If I offered you a job to work for me and I told you I'd pay $100,000 a year, would you be happy?

What if it took me 3 years to finally pay you? Different, eh? What if I offered to pay the TAXES on the $100 grand, would you be happier?

Oh, you expected $100,000 EVERY year for all 3 years. You expected to get paid a total of $300,000. You worked 3 years after all. What? You had 3 years of expenses to pay?

Inventory is no different. You should expect your inventory to pay you a profit each year since you bought it, not just when it sells. So a $100 ring should bring in $150 in profits EACH year. Over 3 years that's $450 in profits.

If an item takes 3 years to sell and you finally get your $250 ($150 in profit) you actually lost $300. That's the difference between what you received and what you should have received.

But I've been writing about this for years. Some of you get it and have reported that your accounts payable have decreased as you unload old merchandise (over a year old) and sales increased because you can afford to get new and exciting merchandise.

Keep on reading because you're going to love this. Just recently I have consulted with two stores and almost everything they sell was made 45 years ago! OMG is this stuff old!

And they make a boatload of money!

So how does David Geller tell you on one end get rid of jewelry if over 1 year old but on another some folks make money from stuff that's 40 years old?

Simple.

Date of manufacture, not date of the sale.

Big difference.

Store #1

This store heavily advertises to buy customers old jewelry, just like every other jeweler in America. But they have approximately 3000 sq ft just for buying. Maybe 5 private offices, just for buying.

When they buy it’s for two purposes:

• To scrap it to refiners and some dealers. Simple, in on Monday, out by Friday, get a check next week. Their scrap sales to refiners are more than the "a" and "b" combined below.
• For resale. Buy it to resell it in one of two venues they have.

 

Venues:

• They put it in their retail store. For the most part it is advertised and mostly sells "Estate Jewelry". (Old stuff). The retail store sells millions a year from the case of stuff that was made in 1964! (You get the idea).
• This is cool. They also lease a T.V. cable channel 4 nights a week to sell mostly the low end stuff that isn't right for the high end store. The T.V. station can sell more than the retail store in a year. When I was there in one night they sold close to $30,000 in stuff you'd get rid of.

 

Keep reading we're getting near your AH HAH! moment.

Store #2

Helping a store right now that is probably 25-35 years in business and has a computer for email. Hand written checks, excel spread sheet to tell the accountant how the sales are split up. That's it! Small program for a few hundred bucks that prints pretty jewelry tags.

They do over 3 million a year!

So after helping them and suggesting letting me setup QuickBooks and possibly getting a real jewelry point of sale program, I started asking about debt. You see inventory over a year old is a drag financially and if you are not making money by buying gold (they don't) then almost always the store will have a large amount of debt. Debt in a jewelry store is typically equal (with in 75%) to the value of all inventory over 1 year old. Eliminate old inventory and you virtually eliminate all debt in a store.

So I asked and this store has NO debt. Guess what, they also sell nothing but antique and estate stuff. $2-3 million a year selling stuff from 1964!

HERE'S YOUR AH HAH MOMENT:

Both stores have found that the antique and estate items are new to them, their staff and their customers once the merchandise arrives and hits the cases.

(Sounds like your store, doesn't it, just a different year of manufacture)

But they both know that once their 1964 inventory becomes 6 months old in their case sales drop off by 75%.

Its not when it was manufactured its how long does it take to become stale in your store? That's why your friend in another city can send you her merchandise that won't sell and you stick it in the case and BAM! It sells better for you, because for you, your staff and your customers, it’s all new.

Of course this assumes it’s not ugly!

More Ah Hah!

Store #1 would keep stuff in the cases forever but I showed them on their POS report that once it hits 6 months old, sales drop off. If they did $3 million a year in sales from the store, almost 2 million came from stuff they had just bought 6 months ago. Six month old merchandise attributed to 66% of total store sales.

Stuff 6-12 months old was something like $125,000 and the remainder was stuff that was 12 months to 9 years old (yes, not a misprint).

So we devised a new plan.

• Buy estate items and put it in the retail store.
• If it doesn't sell within 6 months send it to the TV station.
• If it doesn't sell within 6 months at the station, scrap it.
• Its all about money.

 

Store #2 is a different animal. She only needed to be given an iPad (I'm joking). She just needs computerized organization. I was almost leaning towards getting her into accounting and not a POS program. Why? If it ain't broke don't fix it. She's making money and there's NO INVENTORY in the store over 6 months old. But she wants to be more organized. So onward we will go.

Funny, I asked her how much inventory she owned and she didn't have a clue. Have to ask the accountant.

Doesn't matter anyway. Her tags have a date on them. When it hits 6 months old its "outta the store".

She told me that she didn't want anything in the store over 6 months old. She said "I don't like it, sales staff doesn't like it and the customers surely don't like it. They want to see new merchandise. (New to them, not manufactured new).

Today's secret number for 2 stores: with sales in the many millions of dollars and very little debt?

If it’s over 6 months old, it’s no longer new and we want new stuff. Dump it and move on. Even if it was manufactured in 1964.

David Geller - JewelerProfit | August 2nd, 2012