BUYING LUXURY Jacksonville FL

When it comes to buying and merchandising high-end jewelry and brands, no consultant knows as much as the top independent jewelers. They learned how to buy the hard way—by putting their money and reputation on the line, again and again, to push their businesses to the next level.

To bring you that hard-earned advice on how the best stores buy, we employed sophisticated tactics. We asked them. And so they would feel comfortable sharing what they really think, we agreed not to quote them by name. They told us how and where they buy, what their plans are for next year, what's really hot, and gave us some key metrics for judging success. They also let us know, in detail, what vendors do that drives them crazy. What follows is an opinionated, unscientific guide to the best practices of some of the nation's best retail jewelers.

BY THE NUMBERS

Let's begin at the bottom line. To judge whether or not you are maximizing the potential of your merchandising strategy, you have to run the numbers. The best stores tell us they watch these numbers closely. Most could rattle them off when asked without referring to their inventory systems (and, yes, they use those systems to their maximum capacity and many are looking for better software, with more capabilities).

Here's a broad-stroke quantitative snapshot of the luxury jewelry retailer. First of all, most jewelers report that sales this year are up, from 6 to 18 percent. The average sale in the stores we talked to was between $500 and $1,300, although one store had a single location with a $5,000 average sale. Sales per square foot were, for the most part clustered between $2,000 and $3,000.

The average markup as a whole, for all categories, is still around 100 percent, with higher mark-up on bridge items balanced out by a smaller markup on diamonds. Mark-downs vary much more, from 5 percent to 25 percent. The average was 18 percent. Gross margin was pretty consistent, ranging from 40 to 45 percent. The average was 43 percent.

The biggest variation among the retailers we talked to is the amount of branded merchandise they carry in their stores. The number of jewelry brands carried ranged from 8 to 70, with most between 20 and 30. That's in addition to watch brands, which ranged from 1 to 25. Why the difference? We noticed that retailers use the word "brand" differently. Some consider any designer-type line a brand, others don't consider a line to be branded unless consumers recognize the name.

In any case, luxury retailers today are juggling a lot of brands in their stores and many of the retailers we talked to plan to narrow their vendor structure so they can better represent their stronger lines.

There is a lot of talk today about the performance of brands and vendors, with retailers assessing their relationships much more quantitatively than in the past. Top stores are tracking turns and margins and vendor performance much better than in the past. Many stores now automatically reorder: "It allows us a much higher turn on a significant part of our inventory which really boosts our bottom line," one says.

The type of POS and inventory software used varies. The provider mentioned most often is Applications Systems Corporation.

SHOPPING STRATEGIES

For the luxury retailers we interviewed, the top resource for new styles and new vendors is Baselworld. Retailers say Basel is the number one opportunity to meet new and exciting vendors, as important today for jewelry as it is for watches.

"Basel is very important for us," one retailer says. "We also do a lot of our Asian buying in Basel because we don't go to Hong Kong or Vicenza."

Why Basel? Not because it's convenient, that's for sure. It's not their favorite show experience. And it's not just the expense and the unwieldy expanse. "It's sometimes difficult to deal with European companies, many of whom require upfront purchase of jewelry that you may not receive for months," one retailer explains. "But for finding out-of-the-box resources, there's nothing better than Basel."

In the U.S., the show most often mentioned is Couture, followed closely by Premiere/Luxury and Centurion. Retailers enjoy shows like these because they can meet, chat, and compare notes with other jewelers, especially during lunch and other events. The networking element adds tremendous value to the buying experience. All complain about the difficulty of shopping JCK Las Vegas despite the fact there are good finds there. It just takes too much time to maneuver, they say. Only a few mention JA New York and SIHH.

One pet peeve is the huge volume of calls that top retailers receive during the week before a show, particularly the invitational shows which distribute an attendee list to vendors before the show. "Just imagine what it's like to receive hundreds of calls from vendors, all asking for appointments, in a single week," says one retailer. "It's overwhelming and very disruptive in the store." Vendors should plan ahead and call earlier for a better reception, many say. Of course, in addition to attending shows, many retailers also enjoy buying from vendors who visit their stores.

VENDOR RELATIONSHIPS

The best stores have a word for their vendors. That word is "partner." Almost every retailer says they are looking for a "true partnership" and "a relationship that works for both of us." What does that mean when it comes to the contentious issues of any vendor-retailer negotiation?

Payment terms, for the most part, are set by the vendor, although some vendors, retailers say, should be more flexible. "Give us time to sell merchandise without constant demands of payment after 30 days," a retailer says. "Sometimes we need a bit more time."

Retailers report that due to the credit crunch and new bank policies, many vendors are much tighter about payment today than they used to be. "The banks have hunkered down on these guys," one says. "Terms have changed and the banks are giving them 30 days to pay. We used to have months."

Some retailers prefer to pay quickly and expect a discount to do so. Surprisingly, most retailers say that they do only "limited" memo or consignment and most also say that they don't like it.

"We do memo but frankly the jewelry you get for memo isn't something that we can sell. Sometimes we will take memo collections for two or three weeks but usually it's not the latest collection or styles we would buy."

RETURN ENGAGEMENT

Returns are the lifeblood of the retailer-vendor relationship, the issue that generated the most heat in our discussions. Most retailers definitely expect to return merchandise regularly as long as they reorder. "They should be taking back merchandise regularly to keep clean as we place orders," one says. Another expects "to trade out old for new after a full season."

Although most retailers prefer a one for one return policy (who wouldn't?) they say that two for one is also pretty standard today. "On returns, a one to one is best of course. But more are doing two for one return rates, which is still tolerable. Anything more than that isn't tolerable," one bluntly says.

What gets retailers really mad is the dreaded "restocking fee." "I wouldn't expect to be charged a restocking fee on a collection we have supported and bought from and have a relationship with. Some of our vendors have started only taking back a certain amount, like two to one, and others have instituted a 10 percent restocking fee." When faced with that choice, retailers say they prefer more limited returns.

Another retailer says she told one of her biggest lines she would have to reevaluate their business when they tried to institute the fee. They backed down. "I told them that I would be glad to take in some other merchandise they hadn't sold," she says. "They would be foolish not to take me up on it when they are sitting on inventory that isn't moving."

The issue isn't black and white. Many retailers assess a brand's performance by turn and merchandise that won't move can't help the company's overall performance.

And many vendors want returns so they can switch out merchandise that isn't selling for merchandise that will, increasing sales overall. "Most of my vendors have expressed to me that they would be happy to switch out merchandise that is not selling," a retailer says.

And, yes, some retailers don't expect returns and view vendor policies as generous: "We assume the responsibility in most circumstances and don't involve the vendors. We don't want to abuse our relationships," one explains.

WHEN RELATIONSHIPS GO BAD

So, what do vendors do that really ticks off retailers? Of course, retailers say that vendors that drive them really crazy are no longer vendors. But as in families, a little friction comes with the territory.

The top pet peeves were things you might expect. Late deliveries. Constant cold calls or too many calls. "Visits to the store without appointments drive me nuts!" one retailer says. Some complaints are much more fundamental to the relationship. Shipments without invoices. Small co-op budgets. Excessive inventory commitment requirements. Quality issues are especially serious.

"I expect vendors to service their products and if defective they will be replaced or a credit is to be issued," one retailer says. "If vendors don't stand behind their products then we won't stand behind the vendor. There are literally hundreds of people waiting to be our vendor, so replacement is not too difficult except for the most exclusive brands and those people are excellent about meeting their obligations."

Many common problems involve a lack of communication. Neglecting terms that were negotiated at the time of purchase. Missing product information. Lack of timely responses.

"I am annoyed when we call our vendors and there's no one who can answer basic questions about the product, such as carat weight," a retailer says.

Surprisingly, there are luxury vendors out there who don't always return customer phone calls. "It's frustrating to say the least when you call and e-mail a company and then never hear back," another says. "Later you find out they were closed or whatever, but there's no message or return e-mail telling you they aren't available."

Most retailers we talked to strive to provide exceptional service and many also say that the luxury consumer expects nothing less. So when it comes to special orders and requests, retailers really want to go the extra mile to make a customer's dream come true. But they need the help of suppliers to do that and they often find that suppliers don't have the same sense of urgency or tradition of service.

"It drives me crazy when somebody will not push a special order ahead of their requisite six to eight week delivery time and I lose a sale. The more service oriented the designer the more likely I am going to be loyal to that designer," a retailer says.

"I lost a sale when a company sold me a ring that couldn't be sized," another retailer explains. "I called and found out to get the size I needed, it would take 6 to 12 weeks. This was for a birthday gift in a month so we lost the sale. No one seems concerned that such a long wait might impact sales."

Of course, the ultimate vendor sin is still, as you might expect, selling a direct competitor. "It drives me crazy when a designer sells a competitor in your zip code and then says it was a mistake," one retailer says.

"We worked with a company, a diamond jewelry brand, and promoted them to our clients. We had some events, sent some mailers, and had begun to develop a clientele. Then they pulled a line to be in another, larger store nearby. We had customers coming in asking about the line that we had built and which now resides at our competitors."

That bridge? Burned forever. And you can bet that retailer tells other retailers that story, too.

WHAT'S HOT?

What brands are most sought after? Yes, David Yurman and Rolex are on the top of the list by far. You don't need this article to know that. And John Hardy and Cartier follow them, also as expected. Other watch brands get high marks for consumer recognition: Tag Heuer, Breitling, Patek Philippe, Jaeger-LeCoultre, and Panerai.

When you ask who has the best marketing materials you get pretty much the same answers: David Yurman, Rolex, John Hardy, Cartier, and Tag Heuer.

But things get interesting when you start to ask about what's really selling well in individual stores. There are a surprising number of designers and brands that individual stores do incredibly well with that aren't as well known.

Prominent designers like Roberto Coin, Stephen Webster, Gurhan, Marco Bicego, and Penny Preville have quite a following. So do brands like Gregg Ruth and Mikimoto. But some stores say their best selling collections are Irene Neuwirth, Mizuki, or Yossi Harari.

"I think the price pressure and the Internet availability has caused us to rethink our process of what brands to carry," a retailer says. "So, consequently, we are looking for smaller brands and making more of our things in-house."

What does it take to turn a brand that isn't known nationally into a local star? Suitable demographics and aesthetics, no doubt. But the success of these collections in specific stores is in large part due to the efforts of a retailer who is passionate about the collection and presents it well.

"We have brought in new designers and relatively unknown brands and helped to educate our customers to who they are and their design aesthetic and philosophy and this has worked out quite well," a retailer explains. "Our customer expects new designers from us and I think it's important for other retailers out there not to let things get too stale, and to understand that we all have our bread and butter lines but to also give newer or lesser known companies the chance to sell and to help them along if we believe in them."

In these cases, the retailer is much more influential than consumer advertising. "The truth is the vast majority of consumers don't know the designers or brands we carry," a retailer says. "We have to educate them. They know David Yurman, but other than that it's unlikely unless we have sold them the collections."

WHAT'S NEXT?

What do retailers plan to buy in 2008? Almost all say that they plan to stock more fashion and designer jewelry.

What do they plan to buy less of? Many retailers say that they have cut back significantly on buying Italian jewelry due to rapidly rising prices, although they do make exceptions for a few brands.

Almost all the luxury retailers we talked to are moving their businesses beyond basics. That means eliminating basic gold, basic bridal, loose diamonds, and many watches. As one retailer put it: "I am not interested in selling basic jewelry. There are plenty of places that customers in my area can go for that. I don't want to spend hours educating a 23-year-old about jewelry only to have them buy it off the Internet."

Some jewelers say that real jewelers have a responsibility to lead the market, rather than just selling classic diamond jewelry that's available everywhere. "The tendency today is for stores to become so homogenized," one jeweler laments. "The uniqueness of the jewelry store is being lost and all seem the same. This is great for niche players like myself, but I think it is proving fatal to many colleagues that don't stand out in the crowd."

CHANGING THE RULES

Finally, we asked retailers: If there was one thing you could change about the jewelry business, what would it be? Better margins are a common wish: "Jewelers should remember that they are in business to make money and therefore should stop giving the jewelry away!" Other retailers would eliminate the gray market or make gem lab reports more consistent.

Diamond dominance is something that jewelers have long relied upon to help them sell luxury. But some retailers now see the dominance of diamonds as a threat. "I don't like the fact that the business is so dominated by diamonds, that diamonds have been promoted to be the industry's sole idea of romance," one jeweler says. "Consumers think they have to have a diamond engagement ring. There is a single mindedness that makes it more difficult to sell other jewelry, some of it at better margins, because of the focus only on diamonds."

Although Internet competition is a worry for many because of the pressure on diamond margins, other retailers are more concerned about designers selling direct from their web sites.

But other retailers say things that we didn't expect. Sadly, many jewelers wanted to feel closer to fellow retailers. They don't feel that jewelers help each other enough. "I would have retailers respect each other and try to stay on the same page," one says.

In that spirit, we'd like to thank all the jewelers who spent so much time answering our intrusive and exhaustive questions without even a credit in recognition of their expertise. Perhaps it is a positive sign of more cooperation between luxury independent jewelers in the future. They did it for the common good, to share their knowledge about buying luxury with fellow retailers.