Thursday, 10 March 2011

Are Beads Just Jewellery Fast-Food?

**This article was submitted to In Store Magazine, and was edited down to 450 words in order to be featured in "The Great Debate."  The feature was scrubbed, so here is the larger version that not only rants against beads, but gives you some ways to transition your retail jewellery business into the post-bead era.**

I’ve had it up to HERE (between unibrow and receding hairline) with those stupid beaded bracelets.

Retailers are always on the hunt for profitable new trends.  Beaded bracelets have become exactly that; in a time when gold prices are at record highs, and the economy is dampening diamond sales.  But wait … don’t shoot my journalistic integrity down for that last comment.  Some of you will assert that diamonds and gold are doing just dandy.  Some of you have actually grown through the recession.  It’s actually the easiest time to distinguish yourself from your weaker competitors.  The sharpest (and in some cases luckiest) operators are the ones who have kept their inventory levels from getting away from them before things went bust and who kept-up their marketing to drive sales.

Many retailers I speak with say “business isn’t where it was a few years ago, but thank goodness for those bracelets.”  For those of you whose business has grown during the recession, I have a critical question.  Did your business grow because of your beaded bracelet line?  If the answer is “yes,” you’re in huge trouble.  Here’s why: “HELLO, it’s a trend!”  When the bead-train comes to a screeching halt, what kind of shape is your inventory, your staff and your diamond business going to be in?  You’ve diverted cash-flow, square footage, marketing dollars and staff training all around what I like to call, “the fast-food of the jewellery industry.”

In my part of the world (Western Canada) the largest bead company – their name starts with a “P” and rhymes with “Zandora” have clients pre-paying for their orders.  In one case, they have asked a retailer to acquire a separate credit card so that it can automatically be charged for their orders only; and the never-ending cycle of back-orders that come along.  They feel that because they’re providing a successful profit centre for retailers, they have earned signing authority on retailers’ bank accounts.
Here’s some simple business math.  When you go from averaging 60 to 75 days with your suppliers, and then someone comes along whose product is selling like hotcakes (At IHOP, they say their breakfasts are selling like beads) demands prepayment, what happens?  Well, their pay-or-die policy sucks cash-flow from your business so that your other suppliers have to wait longer for their cash.  You might argue that the increased profit allows you more money to pay other suppliers, but most jewellers I talk to have increasing inventories, increased marketing co-ops to spend and have even built displays and showcases specifically for their beaded bracelet programs.

Now your gold and diamond suppliers are waiting 90 to 120 days for their payments.  It’s like the household bills when Mommy or Daddy develops a drug or gambling addiction.  When these suppliers have to wait longer to get paid, are they going to give you better service, or will they have to cut back?  Are they going to develop more new designs or less?

I asked a retailer about to make a major investment in one of the beaded bracelet lines what happens when the party’s over and they’re sitting on $50,000 in merchandise that nobody wants?  His response was “if it’s been turning at 4-5 times per year, I can afford to just throw the rest away.”  Huh???  When you write-off that inventory; subtract one full turn, and subtract money spent on additional staff incentives, advertising, banners, showcases and displays, then you can start pondering the other ways in which your business is hurt by the end of a trend.

When a person is used to eating fast-food, they get addicted to salt, grease and/or sugar; and consequently become obese.  These foods give the body a false sense of satisfaction.  They cure hunger in a hurry, but offer little in terms of long-term health benefits.  When your jewellery customer is addicted to jewellery that they can get in $30 and $50 “hits,” they’ll end-up with an overweight jewellery box.  Their hunger for jewellery purchasing will temporarily be quenched, but they’ll end-up with little of lasting value.  They’ll also have made so many purchases to accumulate a full bracelet or two that next year will be a clothing, travel or electronics Christmas rather than a “jewellery Christmas.”  That beaded bracelet will sit and stare-up from their jewellery box as a reminder that their jewellery judgement is not very good, and might cause them to think that jewellery is too trendy for them to invest in.

I’ve always trained jewellers to use a top-down selling approach.  You always flatter a client when you show them the most expensive piece of jewellery in the store and then have fun working your way down the price-points until you reach their comfort level.  It has the lasting effect of promoting higher and higher-end product; either for the current purchase or for future considerations.  That 3ct diamond is going to stick in their mind, and then one-day when someone makes them a generous offer for their company, they’ll think of you and that $50,000 diamond.

When you take a beaded bracelet customer; who started out with a $250 starter bracelet, and has only spent $30 to $100 at a time since then, and show them a $1,500 gold bracelet, it will seem like the crown jewels!  Heaven forbid you should show them a $3,500 diamond tennis bracelet.  Do you see what we’ve set ourselves up for?

Fashion shows feature haut couture creations worth thousands of dollars in order to drive demand for designer brands.  By the time those designs reach your local clothing stores, the styles and the price-points have been diluted significantly, but those who buy the $150 dress can imagine themselves looking like the model who wore the couture version on the runway in Milan.  Home reno shows drive demand for exotic hardwood flooring, granite countertops, barrel-vaulted roof-lines and professional grade appliances.  What kind of lunatics are we for letting the latest jewellery trend drag price points into the basement?!?

Yes, beads are successful.  Yes, they’re filling the till.  Yes, they’re keeping the staff jumping.
The trend will end.  Our customers will be looking for something to replace that $30 to $50 price point.  Your staff will have forgotten how to spend time nurturing clients to make big purchases. When customers stop buying this tuff, the back-orders will still be coming in, your other suppliers will still be hounding you to catch-up on your bills, which will be hard to do without all of those beads going out the door.

How do we transition back to good old diamonds and gold?  There’s no reality show called “The Beadiest Loser” to inspire you (sorry couldn’t stop that pun from coming;) just my lone voice in the wilderness.  Listen to Todd’s top 9 list of things you need to do to help your clients kick the junk-food-jewellery habit.

1.     Make bead customers look at fine jewellery pieces while you’re writing-up their purchase.  If you need to learn how, just visit to learn from the master, Shane Decker.

2.     Stop your lazy staff from selling what’s easy.  It’s easy to sell cheap stuff – it’s profitable to nurture a passion for fine jewellery in your clients.  Make beads or a new beaded bracelet a last resort sale; show them the good-stuff, and then if you’ve exhausted all other possibilities, take them to the bead counter.

3.  Don’t let beads monopolize your marketing budget.  Because it’s the easiest thing to sell, it should be advertised the least.  The heart and soul of advertising is a BIG PROMISE. Make big promises with your advertising.  When clients come in to take advantage of your big promise, if nothing-else, you can sell them a beaded bracelet, or a couple of beads for an existing bracelet.

4.    Reorder fast-selling fine jewellery as judiciously as you do beads. 
a.     A $2,000 diamond ring which sells 2.5 times per year at a 2.5X markup will generate $3,000 in gross profit.  You’ll have to make 2-3 sales, and have $800 tied up in inventory.
b.     In order to generate the same gross profit from beads, you have to stock 30 different beads (averaging two in stock at a time) from $30 to $50, and sell five each per year.  You’ll have to do way more ordering and restocking (including putting up with backorders) and you’ll have to make 150 sales.  You’ll also require 50% more tied-up in inventory.

5.     Invite your fine jewellery suppliers to do product knowledge sessions, and learn their unique story.  Branding is all about the story.  Every one of your suppliers has a story to tell, and the result will be your ticket to selling better merchandise.  Only one competitive item can have the lowest price; all others’ value must be justified on some other merit.

6.    Develop a 5-10 year plan for building your fine jewellery business, then put your effort and money into making it happen.  Would beaded bracelets figure into any sort of 5-10 year plan for any type of jeweller?

7.    Remember the 70s silver charm bracelet.  Remember the 80s herringbone chains and diamond cluster rings.  Remember the 90s “Tin-Cup” pearl necklace.   Remember the more recent “Italian charm bracelet”.  All of these were profitable (for a time), unserviceable (or nearly so), and rank extremely low on the recyclability scale.  Who has ever thrown away a big diamond because it was out of style?

8.  Use rising gold prices to your advantage.  Give trade-in for old-gold towards new jewellery, and stress the long-term value of owning gold.  It is valuable enough to recycle.

9.     Have your sales staff buy-into the concept of jewellery as a wardrobe.  If they don’t ask a client about their jewellery wardrobe when making a sales presentation, they’re missing-out on future sales.  If you’re selling a couch, you need to talk to the client about how much room they have, functionality, what colors and textures are in the living room, and what changes they might be considering to their d├ęcor in the future.  In the same way jewellers need to work with clients to make jewellery purchases fit into a life-long quest for the ultimate jewellery wardrobe.

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