It’s no secret that the jewelry industry is aging. Yet, despite the greying of the field, a recent Jewelers of America survey showed that a quarter of jewelry store owners, the majority of whom are over age 50, have no succession plan in place.
While it may be tempting for jewelers to avoid thinking about giving up the business they’ve spent years building, it is important to put a plan in place long before retirement time is nigh.
The first step in creating a succession roadmap is identifying whether there is someone to pass the business onto, said Jeff Gordon of The Gordon Company, which specializes in managed liquidations for retail jewelers.
Jeff Gordon, The Gordon Company
Handing the business over to a younger family member can make the transition easier, said Josh Hayes, business analyst at Wilkerson, a jewelry liquidator that assists in closing and relocation sales.
However, it is not always a given that next generation will want to run the family store. Another option, then, is identifying a manager or employee closely involved with the business who would be a good candidate.
Whoever takes over the business must be able to find the proper financing to purchase it.
Going to the bank is often not an option, as many banks do not like to finance jewelry stores. Yet it’s also not smart for the jeweler to personally handle the financing either.
Hayes said this is one of the biggest mistakes a retiring owner can make, as they run the risk of the new owner not paying, potentially forcing them to come out of retirement and salvage the business. “By the time they take over the store again, inventory is a fraction of what it was and their reputation isn’t the same,” he said.
One of the best solutions in terms of financing is to hold a retirement sale. It’s a win-win situation, said Hayes: “The owner gets their money for retirement and the new owner has a store.”
In the case of a family succession, it also allows the owner to cash out on their store’s assets and perhaps help finance a younger member of the family who is taking their place.
Gordon recommended hiring an experienced professional to help with such a significant sale.
“They may be excellent jewelers, but when it comes to knowing when or how much to discount, they
need someone who is doing this on a regular basis and understands urgent marketing,” he said.
The sale offers not only the opportunity to dispose of aged inventory, but also the possibility to attract new customers, lured in by the reduced prices. Gordon said his company has managed to increase the customer base by more than 30 percent in some instances, helping new owners start out on the right foot.
Darren Fries, SimplexDiam
Long before the sale, jewelers must consider inventory levels and overall mix when creating succession plans, said Darren Fries, head of the consulting arm of liquidation and asset recovery company SimplexDiam Inc. SimplexDiam began offering consulting services just last year.
A reputable consultant can help determine how much inventory will be sold during the sale. Otherwise, he said many jewelers maintain inventory levels that simply cannot be sold during the event and may have to wholesale the balance of their inventory well below cost.
The overall mix, too, should not be ignored.
Loose diamonds and colored stones can become difficult to sell, said Fries. “One might consider mounting these products onto finished goods, which are much easier to sell at the retail level,” he said.
Another key element in any succession plan is considering the terms of the lease if there is one.
When the time comes to renew, business owners should consider when they plan to retire, said Fries. “Lease terms could be lengthy, and if the decision to retire comes before the end of the lease it could become quite expensive.”
Although most landlords will allow renters to sublet to the new owner, this might prove to be problematic and is best avoided. “If the new owner does not pay the rent, the old owner will be liable,” Hayes said. “You never want to put yourself in a position to where you are retired and something comes back to bite you.”
Michelle Graffis the editor-in-chief at National Jeweler, directing the publication’s coverage both online and in print.
