Two years ago, the jewelry business in Evansville, Ind., was virtually untouched by discount selling and aggressive off-price promotions.
Today, its jewelry retailers are engaged in what one observer calls “a price war.” When they started to lose business to the mass merchandising tactics of chain stores, Evansville’s jewelers decided to go head-to-head, to match discount for discount. “It’s changed the market drastically,” mourns one jeweler.
Evansville isn’t alone. From Hartford, Conn., to San Diego, Cal., discount competition has become a daily reality for thousands of jewelers and other independent retailers. A recent poll of jewelers coast-to-coast by this magazine found that almost one in five says price-cutting competition is “very severe,” while another 37% list it as “severe.” “The 75%-off to 90%-off price advertising by major stores and chains makes credibility in the market place a fantasy,” complains Henry J. Emanuel of Fox Jewelers in Fond du Lac, Wis.
It’s this fantasy world that’s the real trouble for jewelers. They know they have to live with legitimate discounting by the store trying to dispose of dated merchandise or willing to exchange a lower profit per item for higher volume. But what really hurts them is the plague of phony discounting that’s arisen next to the legitimate discount. It does nothing for jewelry’s good name that this form of competition has forced some jewelers to adopt phony pricing themselves in an effort to survive.
The price formula is simple, unethical and, in most communities, illegal. Mark an item with a high fictitious price, then “discount” that price 40% or 50% or 60%. It fools many consumers into believing that they’re getting a bargain–and takes sales away from the honest retailer who may well be selling the same item, without a discount, for less.
Deceptive pricing is not new. The council of Better Business Bureaus in Washington, D.C., for example, warned the public about catalog showroom “bargains” back in 1980. It studied the comparative or “reference” prices used in catalog showrooms to highlight the showrooms’ own “low” prices. In three out of four cases, it found the reference prices were higher than those charged by competitors. In some cases they were almost 50% higher. Since that study was made, the problem of phony pricing has gotten progressively worse until it now is an epidemic–and one largely ignored by the law.
The Federal Trade Commission issued guides against deceptive pricing in January 1964. This wishy-washy document says in its introduction that the guides are “practical aids to the honest businessman who seeks to conform his conduct to the requirements of fair and legitimate merchandising [and] will be no assistance to the unscrupulous few whose aim is to walk as close as possible to the line between legal and illegal conduct.” The guides are of equally small importance to the consumer.
Many states have tried to put teeth in deceptive pricing laws. As the review of 38 state laws later in this special report shows, there is some strong legislation on the books. It is mostly ignored, however. Oregon, for example, has legislation governing deceptive pricing by retailers and in a recent letter to the Jewelers Vigilance Committee an assistant state attorney general noted that it has worked “reasonably well.” But, he added: “Approximately three years ago we considered amending the rule in an effort to improve and strengthen its provisions, but that task was never completed. Since that time the subject of deceptive pricing has received little attention by this office”–the Financial Fraud Section of the business/Labor/Consumer Affairs Division of the state Department of Justice.
Thanks to the JVC and the efforts of its executive vice president and general counsel, Joel A. Windman, new pressure will be put on the states to enforce their deceptive pricing laws, to toughen present laws that are too weak and to enact laws where none exist. At a public hearing in February of this year, Windman urged the Connecticut Department of Consumer Protection to toughen its pricing law. JVC plans to fight phony pricing at the state and local level, arguing that the problem has gotten unmanageable on the national level. JVC is not alone. Fair pricing advocates are at work in a number of states, most ntably California where a model statute has been drawn up following extensive public hearings.
The political action may be bolstered by legal action. Consumers who feel they’ve been cheated are not waiting for official policing authorities to come to their aid. Instead they’re taking their case to the courts. One important suit was filed last year in the Arizona Superior Court. In it, two Arizona couples charged that Gordon Jewelry Corp., the nation’s second largest jewelry retailer, allegedly violated the state consumer fraud act. They said the firm allegedly used false advertising and pricing to sell its jewelry and they want damages of more than $30 million. The case is still in litigation.
The JVC is not the only industry group aroused by false pricing. The American Gem Society recently ran public service announcements on some 600 radio stations nationwide, reaching some 32 million listeners, warning against “so-called jewelry bargains.” And Jewelers of America in April sent “consumer alert” bulletins to some 2000 newspapers and magazines concerning the perils and problems of buying $4 emeralds.
Local groups are acting, too. The New Mexico Jewelers Association, for example, recently conducted a statewide, holiday campaign against “deep discount” retailing.
But what’s an individual independent jeweler to do?
Don’t panic. There’s good news along with the bad. A jeweler doesn’t have to go head-to-head, slicing prices to compete with discounters.
* First, only a small percentage of consumers are bargain-hunters. A major national survey by the Zale Corp. recently found less than 25% of shoppers are “acutely price sensitive,” says Dennis J. Mullin, director of marketing for Zale. That finding surprised even him. There was “less price consciousness than we thought.”
* Second, many jewelers–even those in markets saturated with discount promotions–are competing successfully and profitably every day without resorting to cut-throat selling. Their methods vary. In this special report we present some of their pricing strategies and business methods. The report also examines the costs of the services which many of these jewelers offer to keep their market share relatively immune to discount competition.
In the final analysis, however, say some industry observers, the jeweler’s worst enemy isn’t the discounter or the economic system or the state or federal government. “It’s the jewelers themselves. They’ve got to change their approach to their business,” says management consultant Richard Laffin.
Too many small jewelers, he says, still consider retail jewelry “a nice, safe, comfortable business,” untouched by the competitive aggressiveness of other merchandisers. “The jeweler says, ‘I’m a jeweler first, then a businessperson.’ But the discounter’s approach is ‘Business first, then I’m a jeweler.’ The jeweler has to be a businessperson first, if he doesn’t want to lose business to the competition.”
Bruce J. Walker is professor of marketing at the University of Arizona and consultant to the Small Business Administration on pricing for small retailers. Here’s what he suggests a jeweler should consider when reevaluating pricing strategy:
* Examine your store’s target market and the competition’s target market (you may be needlessly cutting prices and giving away margin).
* Do some research. Get a clear idea of the customer you want to go after.
* Go to a university and see if you can get a class to do a study of your market as a term project.
* Emphasize value–and provide it (i.e., department assortments/expert service/extended store hours).
* Convey the message to the marketplace. “Put a good ratio of your cash into your ad budget.”
Above all, be a “better business-person.” Zale’s Dennis Mullin says this means “developing a price margin strategy. How much money do you need to make this year to cover expenses? If you can’t afford to be price-competitive, find a better way to do what you do. Know how much you can afford to take in markdowns.”
Finally, if there is one thing jewelers can thank discounters for, it is for making them take a new, hard look at how they operate and compete. “It’s forced us to take a closer look at our operations and come up with better ways of merchandising and attracting customers to the store,” says Paul Cohen, of Continental Jewelers, Wilmington, Del.
And the value of that to the jeweler’s bottom line can never be discounted.
This report appears in three parts.
Part I provides profiles and a detailed analysis of how a number of jewelers across the country mark their products and run their business as they meet and beat the competition.
Part II looks at the feasibility and costs of using non-pricing competitive strengths, such as custom design, service, staff and so on. This section includes a case study of what happened in Evansville, Ind., when the discount wars started.
Part III offers a look at the laws and regulations that govern deceptive pricing and advertising in 38 different states.
Jeweler #1: Robert, with a $400,000 annual volume store in the upper Midwest, is in the middle of a discount price war. “Every ad published is cut-price: 50% off, 54%, 56%. Second Tuesday specials. Every Wednesday specials,” he says.
He rarely shortens margin; most stock is marked and sells for regular retail. But he is staying competitive. Some examples of how:
* Closeouts: Robert buys closeout and overstocked goods (watches, cultured pearls, men’s and women’s stone rings, gold chains) from several suppliers, adds his own dated or slow merchandise, and sells them in a major, heavily promoted sale. Most suppliers provide goods on memo, at up to 30% off Robert’s regular cost. This enables him to promote hefty savings while still getting keystone or better. Example: Robert buys a man’s black onyx ring for $60 and retails it at $185. When he buys closeout stock, his one-third-off cost for the ring is $40. He prices it at $92.50, 50% off normal retail and still takes a 2.3-time markup.
Robert runs several full-page ads promoting the sale and products: “Robert’s has purchased manufacturer’s overstock of stone rings and is clearing them out at tremendous savings,” says one. Another closeout offer is for 14k gold chain at “up to 50% off.” One ad features a mailgram (which Robert requested) from a manufacturer offering the oversupply at substantial price reductions, which Robert could pass on to the customer.
Robert plans at least one or two such events annually. “But it takes work.” He started calling suppliers in May for a sale scheduled in the following January. “You have to dig for wholesalers and manufacturers willing to work with you,” he notes.
* Advertising: Robert evaluated his advertising budget ($15,000 or 4% of sales) and cost effectiveness and made some changes.
He cut back on institutional newspaper ads. Then he commissioned a one-minute slide show ad to run in the city’s four theaters, between movies. It features his store’s diamond jewelry, a diamond mine and creation of a ring (taken during his visits to South Africa and Antwerp). The ad is shown seven days a week, reaching precisely the audience he wants for his diamond engagement and wedding rings: The 16- to-25-year-old market. Cost: $2000 a year (including production costs.) “I had been newspaper oriented, but kids don’t read papers,” Robert explains. “They go to movies, so that’s where you reach them.” The ad campaign already has brought “a lot of feed back.”
* Pricing: Robert’s pricing strategy includes discounts on citizen watches prices and gold chains, his most price-sensitive products, to pull in traffic and be competitive. He’s the last jeweler in his city to mark down chains, doing so reluctantly. (“It’s not right” to use markups which allow for large discounts, he says.) Example: A 14k gold serpentine chain costs him $5.42, is marked at $19.95 (3.7 times), then immediately tagged 30% off ($13.95) and 50% off ($9.95) for special sales.
Diamond jewelry: Half of Robert’s business, his best seller and never marked down, even for promotional reasons. Direct purchases of stones (primarily in Antwerp) and mountings save him from 15% to 25% on purchase costs, keeping markup competitive. Example: A diamond engagement ring (a 1/4-carat diamond and gold band) and wedding band set costs him about $215 and retails at $650-$750 (3-3.5X).
An unconditional warranty on diamond engagement rings, introduced five years ago, is a big sales help. It covers everything from chipping to theft and is unmatched by competitors. The warranty’s cost to Robert over five years–“under $1000” for polishing, repairing, replacing about two dozen rings. “The cost is minimal and having the guarantee has made or saved many sales,” the jeweler reports.
Colored stone jewelry: Triple keystone. Example: Ruby earrings, cost: $100; retail: $300.
Karat gold jewelry: Triple keystone for regular goods. Example: A ring that costs $82 retails for $250 (3X). There’s also a markdown policy of up to 50% off–but only on promotional sale goods, discarded, broken or old, slow-moving pieces.
Jeweler #2: Anita operates three mall stores into southwestern cities. She would like to maintain keystone but isn’t always able to, especially with wathces and gold chain. Here are some of her pricing practices:
Watches: She has started discounting Akribos watches, taking only a 40% markup, then automatically cutting that price by 20%. To encourage employes, she gives a spiff (i.e. special commission) for eachwatch sale. The thin margin has speeded turnover and cleaned out inventory: In six months, she reduced her $100,000 watch stock to $20,000.
Thin margin also has raised the question: Should she stay in the watch business? “The landlord, the utilities and the employes don’t give me discounts [on costs]. Why should I lower [my profit] just to be a vehicle for the watch companies?” Anita asks.
Karat gold jewelry: Anita uses comparison and education. She urges customers to compare actual prices. “They’re surprised to find our regular price is the same or cheaper than department storesselling at 60% off,” she says. “We explain gold is the same price the world over, and there is no such thing as a bargain in gold.”
* Pricing: Marketing policy allows markdowns on dated goods and for special promotions. Aging merchandise is rotated among her three stores every six months to provide variety and fresh goods in each shop and offer them to a new market and sales staff. Each January, a computer review identifies items in stock more than two years. These are than marked down for sale.
Promotions of specially-purchased pearls, diamonds or other items are held four or five times annually, with the accent on quality, not bargains. Ads cite “substantial savings,” never language like “20% off.”
Anita puts a big markup (2.5-3X) on estate jewelry because it isn’t subject to price competition, is unique and is “a big portion” of her business.
* Service: Service and the personal relationship between customers and salespeople are her keys tobusiness success. “We’re very flexible here,” and do what’s necessary to serve and hold a customer. Her firm has four manufacturing jewelers who do repair, sizing, remount and special orders on the premises. Staff longevity helps, too: Some salespeople have been with her for more than 30 years. “People know and trust them,” Anita says.
Jeweler #3: Fred heads a three-store American Gem Society family business. He’s in a Midwest city hit hard by recession and discounters. Everyrone is “scrambling to stay alive, and wheels and deals,” says Fred. “Anyone who buys gold chain for list in this area now must be from the moon.”
Fred tried to keep his store’s traditional one-price image. “We did all the little things people suggest [to fight competition]: Service, selection, reputation. People listened–and went elsewhere.”
Giving over-the-counter markdowns for individual customers, he found, kept traffic coming. “Customers ask, ‘What discount do you offer?’ If we have none, but urge them to compare our prices, they leave and buy elsewhere. But if we offer any figure, such as 30%, they stay, look and compare. Even if they leave, they usually come back and buy.”
He found the discount competition–legitimate and illegitimate–impossible to resist. He also thought it “hypocritical” to claim a one-price image while giving discounts to some customers and not others. But it wasn’t easy, personally: “I felt sour doing this, and many of my staff found it hard to make the change,” he says.
* Discounting: Two years ago, Fred “changed his entire retail markup” and marketing strategy. He reviewed his balance sheet and calculated he needed an overall gross profit margin of 55% to cover expenses and provide adequate net. He restructured his pricing for high volume and fast turnovers: Narrow margins for watches and giftware (the most price-sensitive), his fast-turning, traffic-pulling loss leaders. High markups for his “blind items,” diamonds and colored stones, “to cover what we lose on watches and giftware.” Price markdowns are figured into initial markups. Example: Ruby earrings costing Fred $100 are quadrupled to $400, then discounted 30% to $280.
What the competition is charging (some offer 70% off) and what his managers recommend determines the size of discounts. Usually the figure falls about halfway between the competitors’ offers and the managers’ suggestions. These suggestions are for “good discounts” that attract customers, without strangling margin.
* Other changes: Fred advertises price points and his price tags, similar to those of catalog showrooms, reinforce the competitive image. A typical one reads, “Retail price: $200, our price $180.”
To reduce inventory costs, he no longer “warehouses” merchandise, relying instead on suppliers to “deliver fast, when I need an item right away.”
And his stores are doing more appraisals. This business sets him apart from most of his competition, allowing him to charge realistic prices. Appraisals also help his stores build their professional image–and to build traffic.
Repair service (10% of volume) also sets him apart from much of the competition. There are no markdowns in this area.
Fred agrees his markups and price reductions–and those of other discount jewelers in the area–are inflated. “Absolutely, but it can’t be otherwise” if his stores are to be competitive, he says. But he insists he sells his customers quality goods, worth the price they pay.
He understands other jewelers’ disdain for discounters but says they should “realize how lucky they are not to have our problems! Don’t damn us who are fighting for our lives” by using discounts. Pricing policies:
* Watches: Markup: 2 to 2.5X. Markdown: 20% all the time, 30% special sales. Example: His cost: $100. Retail: $200. Discount price: $160.
Special feature: Customers can have either a discount or an unconditional three-year written guarantee from Fred’s store if the watch is purchased at regular retail price. “The guarantee is a winner because it keeps them coming back to the store, for service, batteries, addons.”
* Gold chain/charms: Markup: 3.5X. Markdown: 30%. Example: A gold chain. His cost: $100. Retail: $350. Discount price: $245.
* Diamond jewelry/colored stone jewelry: Markup: 4X. Discount: 40%. Example: Diamond engagement ring. His cost: $100. Retail: $400. Discount price: $240.
Jeweler #4: Pierre operates two family-owned stores in the South, near a large city. He responds to discount competition this way:
He raised markups 10% in the past year on almost all merchandise (except watches), to cover rising overhead costs and provide a little more margin. He discounts when he must to make customers hesitate before they shop at the 50%-off stores. His price goal is a minimum keystone markup. On special deals from suppliers, he takes a bigger-than-usual markup and profit.
Discounters have made Pierre “more concerned about turnover.” To speed it up, he:
* Increased advertising in the past two years, from about 4% of sales to 6.5% ($110,000). Three-quarters is for newspapers; ads now feature more unique, special items, especially colored stones.
* Offers more one-of-a-kind jewelry, such as colored stone pieces and estate jewelry. He gets his best markups on these. “They’re all different and blind $(non-comparable$) items.”
* Has more pieces custom-made for him, to cut costs and maintain margin. “We buy the stones and mountings and have the pieces made. It saves us as much as 50% of the cost of buying direct from manufacturers,” he says.
* Added more promotions, especially of estate jewelry. He also has more sales of traffic-pullers, such as diamond pendants, acquired on memo. Ads emphasize quality and uniqueness of the goods, not savings. Pricing policies
* Watches: His cost: $70. Retail: $140. Markdown: 20%-40%
* Diamond jewelry/colored stone jewelry: His cost: $500. Retail: $1050.
* Karat gold jewelry: Markup: keystone plus 10%. Markdown: 20%-40%. Jeweler #5: There’s only one other jeweler in Harry’s town, but his real competition is from nearby Pittsburgh, Pa.– with dozens of stores and wholesale houses luring hard-pressed shoppers with huge discounts. They spread their message on radio, TV and in the papers. Full-price retailers are “all fighting for a share of the shrinking pie,” Harry reports. To compete, he:
* Reduced his mark-up and margin (some employees had to go). Instead of 2.5X or triple keystone, items are priced at keystone to 2.25X–and discounted from there. Some examples:
A Bulova Caravelle watch: His cost: $50. Retail: $100. Markdown: 25%-50% for a sale price of from $50 to $75. In short, no profit or very little.
Karat gold jewelry: His cost: $500. Retail: $1100 (2.2X). Markdown: 25%-50% for a sale price from $550 to $825.
Diamond/colored stone jewelry: Ruby earnings, as an example. His cost: $100. Retail: $225 (2.25X). Markdown: 25% to 50% for a sale price of from $112.50 to $168.75.
* Does more custom work, saving up to 20% buying stones and settings separately. “And I can weigh it exactly,” he adds. As have other jewelers, Harry is building new (and profitable) business by offering appraisals.
* Tries to educate and warn consumers about discounting. Harry has appeared on local TV shows and run newspaper ads about discounting. He lets the public know some of the so-called “bargains” are not really bargains. He avoids using “was” and “is” in his ads because “discounters do that.” Instead, he urges readers to compare price. (“Did you buy a piece of jewelry at 50% off? Come in and compare it with our regular prices.”)
Jeweler #6: “I admit it honestly,” says Franklin. Discounts are a major element in his marketing and pricing strategy. He was one of the first discount operations in his East Coast city, more than three decades ago. (“Some suppliers didn’t like that, and took away their lines,” he recalls.) His store–with a million-dollar annual volume, selling to an uppe middle class and affluent clientele–is as fine looking as the best guild operation in the city. It provides traditional jewelry store services (four gemologists on the premises).
But phony discount offers upset Franklin. He’s critical of operators who don’t give customers fair value for their dollars. “We don’t play games,” he says. “You can replace merchandise, but you can’t replace customers.”
* Marking: His marking policy is simple: Everything in his store has a double or triple keystone markup, then sells at a 35% markdown from that retail. For example, a gold wedding ring which costs him $75, is triple keystoned to $225 retail, then sells for $146.25. He rarely takes larger markdowns, unless to save a sale. He follows the competition (“Everyone discounts these days”) but says he doesn’t juggle prices to be competitive. Almost all customers are referrals or learn of the store by word-of-mouth and they expect to get price reductions. If they don’t know about Franklin’s price policy, salespeople inform them at the counter that merchandise carries a one-third price cut.
* Expense control: Franklin says he can afford his markdowns because he controls expenses that normally push up costs and markups. Examples:
* His store is on the second floor of the building, with rent far less (by 40%) than if he were in a prime location on the first.
* Security is easier (for example, no store display windows), and customers’ entry easier to control.
* He saves on advertising by doing virtually none. His only advertising is direct mail to his customer list of 10,000 names. Until two years ago, he spent $20,000 annually on color magazine ads alone, but found the return didn’t justify the expense.
Franklin’s advice to other jewelers considering making discounts a part of pricing policy: “Be honest. Don’t overmark in an effort to give the 70%-off type of discount. Don’t be greedy. Work on your costs to keep markups under control.”
He prides himself on his honesty and that of his staff, and for giving fair value. “We are very correct in the way we grade and appraise things, and accurate in how we sell merchandise,” Franklin says.
Jeweler #7: Larry operates two stores in a Midwest city, catering to upper middle class, professional people.
He has never held a sale, he says, and doesn’t discount from retail, except on watches. “I keep the same price all year round. I buy at one price, why not sell at same?”
* Has reduced his margin to keep prices competitive. (“The days of triple keystone are past,” he says. “We’re in business to move merchandise.”) His stores guarantee that any diamond jewelry they sell can be returned if sold elsewhere for less.
* Seeks good buys in the marketplace, such as 500 half-carat diamonds Larry recently purchased “at a good price.” He passed on the savings with competitive prices for his customers. He also cultivates good, long-term relations (i.e., paying on time) with a few suppliers to get good deals, and he doesn’t often switch suppliers. “It’s like a marriage. Both sides have to give a little to get a little.”
* Marking policy: Markups are highest (keystone) on less expensive items and decline to as little as 1.5X on expensive ones. Example: A 14k diamond anniversary ring that costs Larry $250 retails for $500 (2.0X), while a $5800 ring sells for $8700 (1.5X). “The fixed expenses remain the same and don’t ‘cost’ as much as the price rises,” explains Larry. Since there’s a probability that sales will decline as prices rise, the store has to set a price policy that will produce good sales and profits, yet not discourage customers. There’s no need to be greedy, says Larry. “I don’t have to charge keystone on a $1000 item, just because others charge keystone. I don’t need $1000.”
Watches are Larry’s one discount item. He sells Rolexes and when they go on display they’re immediately marked 25% to 30% off. Example: A man’s President watch costs the store $3500. It’s marked to retail at $7950, then discounted to $5962.50 (25% off). “It moves watches and I’m here to sell watches,” says Larry. “I sell 10 for every one watch the competition sells.”
* Advertising: Discounters’ continuous heavy-breathing promotions have “taught us we must tell our story through the electronic media,” Larry asserts. He now spends about $250,000 annually, primarily on TV & radio.
* Staff: Educated and knowledgeable salespeople are the key to success in his business, says this jeweler. “We don’t have sales clerks here, like discount stores. We have graduate gemologists.”
Larry’s firm pays for his staff’s GIA education, and holds twice-a-month management meetings to review inventory changes, sales techniques, problems.
Jeweler #8: Bill and David, owners of several mall stores outside a western city, don’t use discounts (“a form of dishonesty”) in their pricing strategy. “We merchandise fairly, no padded markups with discounts built in,” they say. They pride themselves on “doing the opposite of discounters” in ads, staff wages and pricing. They prefer to “let people compare our prices, without discounts, with the 30%-off or 50%-off sales around us and find we’re the best.” Some keys to non-discount success:
* Qualified trained salespeople are the “single most important” factor, say Bill and David. “We have salespeople, not clerks who only know today’s discount.”
To attract qualified people, they offer above-industry-average wages; incentives like profit-sharing, and “the best working conditions in the area.” Many jewelers’ big mistake, they say, is that–like discounters–they pay too little or try to squeeze more from the bottom line by cutting wages and benefits. Bill and David also have a three-month training period and on-going education of staff.
“By treating our help well, we get the best people in the area, a loyal staff, very low turnover–which also cuts expenses–and better sales producers. For all that, we’d rather pay a little more.”
* Buying and pricing: The merchandise mix emphasizes diamond jewelry/wedding sets, for a young, middle class market.
Markup largely depends on buying, say Bill and David, and competition has made them ever more conscious of shrewd purchasing. “Advantageous buying can allow a high markup and competitive prices,” they say. “We can’t afford to overpay for goods now, less so since we’re not padding markup.” The two jewelers have consolidated suppliers to get better deals. “We’d rather be important to a few then dependent on many.”
They comparison-shop competitors to set prices “as competitively as possible.”
* Cost controls: To control ad costs, Bill and David “open stores in the same media-coverage area” (i.e., the broadcast area of one TV station), unlike firms their size with stores in several media areas.
* Advertising: The jewelers have upped their ad budget in the past couple of years, from about 2.5% to 3.5% of total volume, almost all for TV. Less than 5% goes for newspapers, because “that’s where discounters’ glitzy, promotional ads are.” Indeed, to avoid being lumped with discounters, two years ago they stopped running periodic “15% off” sale ads (for clearances of dated goods) or advertised promotions such as birthstone of the month. “Percent-off ads now are meaningless” because so many are “phony,” the jewelers say. The public has lost confidence in them and in those who use them.
Instead, they stress image: “Fair pricing. Good merchandise. Good people. No corner cutting.”
* Show and tell: But discounters’ promotions have made Bill and David “more aggressive” in the past year in educating consumers about inflated pricing and phony discounts. “It’s not enough to tell them. We show them, now, too.”
* The tone of ads has changed. Previously institutional, they now ask consumers to come in and compare prices and quality.
* Salespeople’s training includes visits to stores with large discounts “so they can see for themselves, and understand” the competition and similarity of actual prices.
* In their display windows, Bill and David show identical pieces (diamonds, for example) which they and competitors sell (without competitors’ names), explaining differences in quality and urging viewers to “compare our prices with others.”
* They recently spent $700 for 11,000 brochures “logically explaining” inflated prices and discounts. Salespeople use them as sales aids and give them to customers.
Jeweler #9: Gerhard heads a family business on the East Coast. For decades it’s been known for its competitive–but not, he stresses, discount–prices.
How? Gerhard cites:
* Lower overhead: The family owns its free-standing building, so “there’s no rent for the landlord or percentage of profits, plus overage, for a mall.” The biggest expenses (55% of operating costs) are employes’ salaries.
* Lower margin, higher volume than most jewelers. One method helping sales volume: Gerhard prices his 14k jewelry at $500 gold and marks down to current price.
* Buying: Being a good customer for suppliers (excellent credit rating, paying on time) “has a lot to do with” getting better deals, says Gerhard. He has started importing gold jewelry from Italy for the first time, instead of having it made here, “a substantial savings in labor costs.”
* Staff training is very important to success, says Gerhard. There already are seven graduate gemologists on staff, and another two at GIA resident course. He encourages those selling gold or precious stone jewelry to complete GIA’s mail order courses, reimburses them, and sends them to New York or California for the GIA residence (1-2 week) courses. Those in giftware take courses such subjects as table settings from the National Bridal Service.
Employes, when hired, attend classes–developed by Gerhard and staff–in salesmanship (i.e., how to approach a customer). He also uses videotapes on salesmanship (from business training firms) for employes’ continuing education, and occasionally brings in management and motivational speakers to instruct workers.
There are regular departmental meetings of employes to review buying plans or changes in inventory and discuss, as a group, employes’ sales problems and solutions.
Regular computer printouts track salespeople’s productivity.
Gerhard considers the cost of all this “minimal” because “a trained, knowledgeable salesperson builds customer confidence and sales. The typical discount store clerk, on the other hand, doesn’t even know the difference between diamonds.”
* Advertising: Discount competitors have affected Gerhard here. With virtually everyone trying to build sales on price-cut images and promotions, he is trying to “increase sales by improving our image.” Example: He uses fewer coop ads because previous, indiscriminate use resulted in “an advertising mish-mash with no consistent image. Now, we’re developing a consistent ad campaign and image.”
His ads show merchandise and price, but never use phrases like “save now” or “compare and save,” which could be confused with discounters’ ads. About 3% of his expense is for advertising–one-third for newspapers, the rest for Yellow Pages, TV, radio and direct mail.
Examples of Gerhard’s marking:
Gold jewelry: 35% gross profit margin.
Giftware: 30%-33% GPM.
Watches and clocks: 33% GPM.
Diamonds/colored stones: 38% GPM.
Jeweler #10: Amos, a West Coast jeweler, is literally surrounded by discount competition–other stores, 50%-off newspaper ads, even a “trunk show” next store selling gold chain for 65% off.
But is Amos worried? Nope. “I don’t waste energy chasing them. I prefer to spend time building my business.” He not only competes profitably, he has raised, not reduced, his markups on his inventory, including Stuhrling watches! His only price-cutting is with highly-promotional traffic builders. Here’s how he operates:
* Business goals, not price competition, dictate his business strategy. “The real question is what do you feel is an adequate net return before taxes or a good return on investment,” he says. It’s an accounting approach that frees him from basing prices on what someone else is doing.
He has “an ultimate goal” for the business (i.e., projected growth), and sets annual sales and profit goals.
Amos estimates gross sales needed in the coming year to maintain his overall gross profit margin (which is based on year-end review of costs, and analysis of long-range economic indicators, interest fluctuations, borrowing rates and their effects on consumer income). Then, he assigns each store and department objectives for the year to maintain the store’s overall gross margin.
Amos tracks all this with computerized profit-and-cost updates by the 10th of each month.
* Pricing: Higher volume and price cutting aren’t part of his strategy. “That just means sales and costs increase while you take less home.” Instead, he recently raised markups (“the best way to increase profit margin and cover rising costs”). His current pricing:
Jewelry: 3X markup.
Diamonds/colored stones: 5X.
Watches: National brands–2X (his poorest ROI); private labels–4X.
* Buying: “Buying right” is important. Amos is a member of a buying group (“Many can buy a lot cheaper than a few”) and tries, where possible, not to sell merchandise comparable to that found in many stores.
On good buys, he uses a bigger-than-usual markup, taking a larger profit, instead of passing the savings on to customers.
* Advertising: Amos devotes about 8% of total expenses to advertising and regularly analyzes turnover in relation to ads. He disdains ads citing service (“People won’t come in just for that”) and institutional ads “that help all jewelers, but don’t make money for me.” Instead, his ads are very price-promotional, citing big savings on promotional goods bought specially for that purpose.
“I’m here to get customers into my store to spend money. Advertising is the vehicle to do it. No one’s goind to walk in by accident. But perception of a discount [i.e., if consumers think they are getting a bargain] is a very important part of advertising. They come if they perceive they will save money.”
So, he promotes a lot of loss leaders–pens, S chains, tie pins–which he sells for virtually unbeatable low prices–i.e., S chains for $4.99. In dollar terms, they don’t product much, but they’re “very worthwhile” for the additional sales they generate. “When someone wants a $2000 ring, they’ll remember my ad or the store,” he says.
Most of his advertising money (90%) goes to direct mail/catalogs. He does little TV or radio. In his metropolitan area, where TV reaches millions, it’s hard to target audiences.
He rarely gives over-the-counter discounts, even on watches. “Discounts are just one incentive [for people to buy]. We give them other incentives”–the service and courtesy provided by his staff.
* Sales staff: Amos invests some of his ad budget dollars in sales incentives for salespeople, i.e., extra commissions, in-store contests. These motivate them and “give them an extra reason for treating customers well.” His staff is instructed to “treat customers like a king [because] they get enough discourtesy from clerks at discount stores and malls.” At staff meetings, managers emphasize courtesy (“Smile and say ‘Thank you'”) and service. It might seem trivial to some, says, Amos, “but we only get one chance to make a first impression and have to make it the best.”
Jeweller #11: Lewis, a western jeweler, works on an average gross margin of 45%, enough to allow “small markdowns” on some merchandise for sales or promotions. He marks fast-moving, volume-building merchandise with lower markups, slower-moving, more elegant pieces with higher ones. He holds periodic sales, reducing prices on promotional jewerly up to 30% off regular retail. He always sells his Seikos at 30% off.
But Lewis’s key pricing action involves his gold. Two years ago, when gold prices were roller-coasting, he fixed his price for gold at $600 an ounce “for convenience.” He keeps it there now, discounting from the marked price “to keep prices fair and competitive.” This policy permits him to sell gold jewelry at 65% off. The 65%-off ads he runs are “a useful tool” in pulling traffic. Lewis says that, in the ads and in the store, he tells consumers “how we arrive at such a large discount by explaining our pricing policy.
“I can justify [that discount on] gold but not on other merchandise.”
Jeweller #12: Ted, operator of a family-owned store in the Northeast that does about half-a-million annually, is deeply concerned about the surrounding discount competition. He charges that many of the discounts offered are flagrantly misleading. Here’s what he’s doing to compete:
* Consumer education: To show up the phony discounts, Ted displays, side by side, samples of competitors’ products which he purchased and similar items of his own. He leaves the original price tags on the merchandise. “People can compare and see themselves” there is little or no difference in price, he says. Example: A light gold chain sold by a department store at 30%-off for $39 retails for $19 in Ted’s store.
Another “education” tool: A newspaper page with ads from his store and from a competitor for the same type of ring. His competitor prices the ring at $49.95–and claims a 25%-off discount. Ted offers his ring routinely for $39.
* Pricing policy: Ted hasn’t cut prices (“A knee-jerk reaction”). Like some other jewellers, he’s raised them slightly to cover rising costs–from keystone markup to keystone plus 10% to 20%. “I find customers are willing to pay a little bit more for service.”
But he is price competitive in other ways.
He works on an overall margin of 45%.
He is slowly specializing in diamonds, colored stones, remounts and estate jewerly, merchandise his discount competitors can rarely match.
He puts odd-numbered prices on some pieces (i.e., $995), based on “the psychology of prices” that such figures sound “cheaper” to some customers.
He does give price reductions (not, he stresses, discounts) on large purchases, a pricing policy which he calls “a reduction in normal margin, because of large dollar volume.” The greater the dollars, the lower the margin, with reductions ranging from 5% under keystone to 30% or more. The only exception: Watches, which all are marked 20% off retail.
Some samples of Ted’s prices for diamond, colored stone and karat gold jewelry:
When his costs is $100, his selling price is from $200 to $225 and he offers no reductions.
When his cost is $500, his selling price is from $1000 to $1100–and he drops the price about 7% to 8%. The selling range now ranges from about $920 to 1025.
When his cost is $1000 his selling price is from $2000 to 2220–and he drops the price about 12% to 14% The selling range is now from about $1725 to $1950.
* Promotions: This autumn, TEd will drop all ads associated with inexpensive traffic items. Instead he will use “specialized advertising” emphasizing remounts, listing stones, promoting his estate jewelry. He is planning “eye-catching headings.”
Ted is doing more special promotions. He recently ran a “carat-plus sale” of loose stones, acquired on memo, selling with low margin and competitive prices (i.e., a 1.01- carat stone: Cost $600, retail $995) and promoted for its “special savings.”
“We want to see if this will move large stones, and if it is an effective way to sell without stressing ‘discount’ or ‘sales,'” Tad explains. But he is cautious about running sales, for generally he dislikes them. This is true even of the clearance sales he’s done for several years to get rid of dated merchandise. “The problem is that customers come to expect a sale and ask, ‘When is this item going on sale?’ If a jeweler gets caught up in this cycle, he almost has to inflate prices to give customers the markdowns they expect in a sale.”
Jeweler #13: Ronald, a successful Southern jeweler catering to an upper-class clientele, built his business on two basic premises: Custom-created jewelry and service to the customer.
Since much of his inventory is custom-made, there’s little direct competition from discounters. “I’ve carved a niche by doing something different. A customer can’t come in here, see something and then go to a discounter to get it for less,” he says.
Being a manufacturing jeweler enables Ronald to enjoy price savings in his buying. He ways, for example, that he can buy gold at $10 to $20 a pennyweight. By contrast, he says the jeweler who buys a completed mounting pays $40 to $50 and the jeweler who buys a finished piece of jewelry pays $90 to $120.
Some examples of Ronald’s markups:
* An 18k gold ring with 180 points of round diamonds. His cost: $750; his retail: $1950 (1.6X).
* A woman’s ring with a 68-point marquise and a half-carat round diamond. His cost: $1500: his retail: $3500 (1.3X).
* A man’s 18k gold ring with rhodolite garnet and a third of a carat of round diamonds. His cost: $760; his retail: $1975 (1.6X).
Jeweler #14: Duncan, owner of a $1-million-a-year northwestern store founded at the turn of the century, faces “unvelievable discounting” in his area. At a major mall across the street, “it’s sell, sell, sell all the time.” Yet Duncan hasn’t resorted to discount retailing.
“My philosophy is exactly opposite,” he says. “We advertise nothing on sale in our store.” His pricing strategy:
* “Reasonable” but competitive markups–enough to cover expenses and net without turning away customers. “Our prices is keystone plus very little” (usually 2.2X), with margin shrinking sharply on more expensive goods. A $3000 sale, for instance, has a 1.2-1.4X markup.
The only markdowns in his store are on dated merchandise he wants to move, and on watches, where “people expect to wheel and deal.” He takes very little markup there. The pre-ticketed list price is used, the amount of markdown is based on what the competition is doing, but “not over 20% to 30%.” Gold’s markup usually is 2.5X, depending on the base price. “We have a little more margin because of the changing price.”
* Comparison shopping. Duncan or a staff member regularly visits competing stores. “A store has to shop other stores to know” what the compeition is doing and how he is marketing.
* Good buying is important to good marking. Duncan buys blank mountings and loose diamonds from small firms in New York, then makes his pieces, saving the cost of the manufacture. HE also keeps inventory down, buying only as he needs stock and findings.
Jeweler #15: Andrew, a successful New England jeweler, competes with discounters by customizing his merchandise mix and price system.
* He dropped price-comparative merchandise. “I reduced the amount of gold chains I carry. I can’t compete with guys selling by weight–except with pendants.”
* He’s “more price sensitive.” Less expensive, faster-turning items now carry a higher markup (1nder $100, 2.5X); more expensive ones have a lower one (down to 1.3X when the price runs into thousands of dollars). Previously, Andrew worked on a standard 2.25X markup for all items.
One exception of the markup policy: He changes “much more” (usually at least 2.6X) for his custom design work.
* Andrew is “buying smarter,” getting cost comparisons from other jewelers and visiting factories. For example, he used to buy findings, pearls and studs and make pearl earrings himself. But he found he could buy the finished piece from a supplier for the same cost and avoid the shop-time making them.
* His only promoted markdowns are after-Christmas clearances (20% to 30% off the regular retail price) and an after-Valentine’s Day sale of old, dated or excessive stock, sold at a loss for up to 70% off. But Andrew doesn’t try to compete “head-to-head” with discounters. “Forget it,” he says. “Discounters are selling to the lowest economic level.”
Jeweler #16: Simon, owner of a small southern chain of stores, has been in the middle of a “deep discount” promotion war since the start of the year. Department stores are offering up to 50% off on gold and diamond jewelry. “It’s so bad, even catalog showrooms are offering 50% off their ‘low prices,'” he says.
To counteract, he has:
* Changed his price philosophy. “The prudent jeweler will take more [markup] on less expensive merchandise and less on more expensive,” he says.
In colored stone jewelry, for example, a citrine ring that costs him $100 is marked at 2.5 times for $250, while an imported ring with diamonds and colored stones which costs him $10,000 sells at about $15,000 (1.5X).
He also gets good margins by assembling stones and findings and having jewelry made for him rather than buying a finished piece direct from the manufacturer.
He has become more price promotional on pearls, some diamond jewelry, watches and chain. Simon buys merchandise in quantity (such as diamond stud earrings) to sell at reduced prices. To attract customers he boosts his markup, then marks the pieces down 15% to 20% and still makes a profit.
“In today’s climate you have to promote on certain items–such as Seiko watches or pearls, something for which there is a lot of demand–to get activity in the store,” explains Simon.
* Buying shrewder. Simon is “being picky, being choosy” about who he buys from. Jewelers need to evaluate their sources of supply constantly to get the best deals and service, he says. “A supplier who was good five years ago may not be good today.
“all jewelers have to rethink their buying,” he says.
REPAIR: A SERVICE YOU CAN MATCH
A jewelry repair department can be an effective weapon against discount competition because it offers the customer a service few can match. The repair department also can be a source for jewelry sales. But the investment in this service will truly pay off only:
If it’s efficient.
If the jeweler can jutify costs.
If the jeweler generates enough repair volume to make it profitable.
Big “If’s,” but solvable. Just ask jeweler Peter J. Kavee, owner of Mainline Jewelers in Havenford, Pa.
Repair service “brings people into the store and that’s the name of the game,” says Kavee. Indeed, he notes, they come twice–once to leave items for repair, once to pick them up–giving Kavee twice as many jewelry sale opportunities.
But Kavee doesn’t wait for customers. He makes his repair department bring in customers.
* Fast turnover: He offers one-day repair service, which he actively promotes: In by 2, out by 4:30.
Most jewelers’ repair jobs, including 80% of his, he says, are “quickies”–ring sizing, chain soldering and so on–which can be done quickly by a skilled jeweler. “There’s no reason they can’t be finished the same day they’re brought in,” he says. More complicated jobs are sent out.
Kavee uses the “assembly line” approach: The same work for all pieces at one time. Equipment for similar jobx is grouped together in different parts of the shop, cleaning and polishing tools in one corner, benches and findings in another. Benchwork (actual repairing, soldering, etc.) is done in the morning. Cleaning, polishing, steaming are done in the afternoon, after 2 p.m. “This is a much more efficient approach. The jeweler can do 20 jobs at a time at his bench, instead repairing one item, getting up to polish and clean it, washing his hands, then sitting down for the next.”
But the key, says Kavee, is “a very fast jeweler who gets work done on time and does what the job calls for.” He has one jeweler year-round, and hires one or two additional, experienced freelancers (usually retired jewelers), depending on the season and amount of business.
He checks jobs regularly to be sure that they meet customer deadlines and requests.
* Generating sales: Fast turnaround builds volume business. Kavee daily takes in an average 35 “quickie” jobs and about 10 “long” jobs (mainly watch repairs).
This in-house repair creates jewelry sales. He sold a $5900 bracelet because he could make a needed adjustment promptly in his shop. Another customer, waiting while her ring’s prongs were tightened (a free service), noticed a $2000 ring, which she bought. Jewelry sales aren’t always big, but “people look around while they’re waiting, often see something and buy it. Or they come back to buy something else,” says Kavee.
To encourage browsing, he keeps repair forms and price lists at the section of the store where, he’s observed, customers most often go to browse when they enter. Thus, even while a salesperson is filling out a repair slip, the customer can look at jewelry that may catch his or her eye and pocketbook.
* Counting costs: Kavee’s been in business 13 years, but only started his repair department seven years ago when he realized in-store repair reinforced customer trust and loyalty (“They don’t like their jewelry to go to someone they don’t know”). It also increased traffic and sales and gave him more control over his business. “When you send things out, someone else controls repairs, delivery and costs,” he says.
But a jeweler should consider the cost before impulsively opening a repair department.
* You need high volume; five repair jobs a day simply won’t do. “Don’t, invest in a repair shop until you’ve successfully built up a volume department,” says Kavee: At least 20 jobs a day.
Contact suppliers for store renovation and/or basic equipment costs. Kavee paid $4000 in the late 1970s to covert his store’s basement into a repair shop. Equipment costs included 3 benches (about $300 each); 3 torches ($100 each); polishing wheel ($400); ultrasonic cleaner ($100); steamer ($400) and various tools.
Consider upkeep and replacement costs. Kavee just purchased a $1200 polisher to replace the $400 one–but it wil pay for itself in a year, he says, because it sucks in and stores gold dust. There’s an added advantage for employes–no dust means healthier working conditions.
Consider findings, too. You need a well-stocked inventory. Kavee has about $8000 to $10,000 in findings (based on biannual stock inventories), and a monthly replenishment cost of about $1000.
And remember other costs: A good benchman cost $13 to $15 an hour, not including benefits like insurance. Less experienced benchmen can be hired, freelance, for less. A Basic repair department
Here’s what one East Coast equipment supplier suggest for a basic jewelry repair department. Prices are for “economy” models, and will vary somewhat with suppliers and regions. (Consult dealers listed in JC-K’s Jeweler’s Directory for comparisons.)
* Jeweler’s workbench–$300
* Bench lamp–$100
* Bench stool–$$60
* Torch–$50 (for soldering chains, etc.)
* Ultrasonic cleaner–$25
* Gold scales–$300 (diamond scales–$50)
* Ring sizer–$200
* Flexible shaft machine–$150
* Plating machine–$300 (Solution–$150)
* Incidentals (tools, pliers, screw-driver, bench brush, findings shovel, ring stick, ring cutter, drills, burrs, polishing supplies, saw blades, etc.)–$300
* Total: $2810
* Saving labor costs:
Kavee estimates his benchpeople generate at least 3 to 3.5 times their salary annually. (Management experts suggest benchmen’s repair volume should be as much as 8 or 10 times salary, though Kavee considers that unrealistic.)
He keeps a tight grip on productivity costs: After a recent reevaluation, he raised the labor factor in his markup from $10 an hour to $15. That includes not only salary, but “hidden factors” jewelers don’t often consider, he says: Vacations, bonuses, days off, time spent not working, i.e., coffee breaks.
Here are some examples:
* He no longer hires smokers. “You lose 3 hours or more a week in work time,” he discovered from health articles, just from time spent to light up and smoke (i.e., 3 minutes per cigarette costs about an hour of worktime daily for a pack-a-day smoker). And there are other longer-range benefits: Healthier employes, fewer disability and insurance problems.
* He installed a “dumb waiter” between the first floor and the basement repair shop (cost $600), to eliminate the five minutes salespeople spent going up and down with job orders. Since Kavee averages 35 “quickie jobs” daily, the pulley saves more than two hours in worktime weekly.
* He has “the right people do the right job. If I’m paying a man $15 an hour, why should he polish [jewelry] wen he can be doing more important repair or custom work. The man getting $4 can do it. Even if he takes three times as long, he’s not going to take $15 worth of time.”
* A study by the local electric company, at Kavee’s request, improved his store’s energy use (i.e., lights that use less power, but give more light) and reduce costs.
Kavee only advertises his repair service, in the local weekly paper, in seasons when jewelry sales fall off or business slows.
He runs 1/4 page ads in the neighborhood paper (with a 10% service discount coupon to measure reader response) every week for a month four or five times a year. (Cost: $80 a week, $320 a month, $1280-$1600 a year.) A key competitive feature: His ads list prices as well as services, the only area jewelry store which does.
Kavee also advertises in the Yellow Pages under severel headings–retail, repair, jewelry appraisals–annual cost: $2000-$3000.
As a member of his shoping center association, he promotes his store and services in the newsletter of a large, local apartment complex (no charge) and sends flyers to another (cost to the association, about $1000).
A sign in his door lists his repair services year-round, an inexpensive and constant reminder to traffic in the shopping center and from the neighborhood.
He does virtually no TV or radio advertising because it’s “too diverse” to reach his market. His best advertisement, he says, is satisfied customers’ “word-of-mouth.”
“Lack of communication between customer and jeweler is a big problem in jewelry repair and custom-design,” causing unnecessary delays and costs, says Kavee. To prevent that, he gives his four salespeople specific price lists for all repairs. To eliminate unnecessary paperwork–and staff to do it–he designed his own repair order forms:
* A “quickie” envelope, for small, quick jobs, which becomes the customer’s permanent receipt when the job is returned. The store keeps no receipt. (“We can’t have $7 of paperwork for a $5 job.”)
* A “long ticket” envelope, for special orders and outside jobs (i.e., watch repairs, pearl stringing, factory work) with three receipt copies, for customer, factory and store. As a result, the business has only one full-time office employe to handle paperwork for outside jobs. (As a precaution, all paper trash is kept two weeks before disposal in case any jewelry accidentally gets thrown out with the paper.)
Kavee comparison-shops among suppliers for the best price. “I’m constantly checking prices. If I can get it cheaper somewhere else, I’ll tell them. “Why buy from you at $15 a dozen, when I can get them from so-and-so for $10?” he asks. Often a company will meet his price or give a discount to make the sale.
Kavee and soe friends sometimes combine forces and do some group buing of castings from suppliers who won’t fill small orders. “I don’t need three of the same, so we buy and divide them and the cost, saving me two-thirds,” he says.
* Money matters:
Kavee bases repair prices on time and cost rather tha charge a flat fee for the same types of job. “Why charge the same fee to size a 2 mm ring as a 4 mm, when it costs me more to do the 4 mm one”? he asks. Likewise, the cost to solder a gold chain is based on its width–the wider it is, the more it costs.
He also asks customers for a deposit on repairs. That has several advantages, he says:
* It helps defray work costs and the expense to contact people who don’t pick up items for weeks or months. “They make us wait for reimbursement while we have to pay for materials, time, labor. And it costs money to call or write them reminders.”
* The deposits also provide some cash upfront for store needs. Bridal Consultant. Members only ($200 joining fee).
Seminars, $165 (6 to 12 annually).
Contact Gary Wright at NBS, 3122 W. Cary St., Richmond, Va. 23221; 800-355-6945.
* Diamond Promotion Service: In-store training courses. Basic retail sales training (product knowledge and selling skills), 15 lessons, audio-visual aids, tape and workbooks, $225. Comprehensive retail sales (developed and promoted in conjunction with Jewelers of America), 15 sessions, audio cassettes, $100. Both courses combined, $300.
“The Diamond Masters” sales training game, Cost: $150.
Workshops on management, product knowledge, marketing, selling techniques, as arranged between retailer (primarily small chains, associations), and DPS. Cost: No charge. Contact Alan Master, DPS, 1345 Ave. of the Americas, New York, N.Y., 10105.
* Dale Carnegie Leadership Institute: Public training programs, which can be adapted for individual companies. Courses in effective speaking and personal relationships (14 weekly sessions, 3-1/2 hrs each; minimum company size: 25 people); sales training (22 weekly sessions, 3-1/2 hrs each; minimum company size: 35); personnel development/customer relations (5 weekly sessions, 3 hrs each; minimum company size: 25); management seminar (6 weekly sessions, 3 hrs each; minimum company size: 25). Cost: Varies, depending on program and geographic location. $450-700 for the effective speaking course, several hundred dollars each for others. Call (800) 231-5800, anywhere in U.S., for local Carnegie representative.
Consultants: Experts in selling, motivation, inventory control, computerization, etc. All-day sessions, usually one or two days. Cost: Usually $500 to $2000, plus travel and expenses. Management Growth Institute, 572 Washington St., Wellesley, Mass. 02181 (617-235-1520), is a specialist in the jewelry management field. For other sources see JC-K Jewelers’ Directory for a list of names and addresses.
Local adult evening schools: Contact local school district headquarters or local college for information. Cost is minimal, less then $50 for three-month courses, excluding any materials or books.
Training films, tapes: Most are 30 inutes long, though individual lengths go from 20 minutes to an hour. Films are available in 16mm; videotapes come in either VHS or Beta formats. Costs from private film rental companies: Preview fee, usually $25-$50, often deducted from rental cost; rentals range from $25 to $300, on a per-showing or time (i.e., three-day) basis. Films and tapes also can be purchased from these companies, usually for $200-$700. Rentals and purchases from non-profit or industry groups are cheaper than from private firms. The International Gold Corp., for instance, has films about mining, manufacturing, and karat gold jewelry–one on retail selling is being revised–for $35-$40 (tapes) or $30-$120 (16mm film).
“Promotion doesn’t mean talking sales all the time,” says Jack Gredinger, vice president of the Independent Jewelers Organization. “It means promoting your pearl collection. It means birthstone-of-the-month jewelry promotions. It means using the store window by putting in nice arrangements and changing them often. Put prices in the windows with the merchandise, and signs that tell passers-by that terms are available (you can’t get terms from many discounters and not everyone has a credit card).
“And make your promotions year round, not just seasonal.”
Many jewelers who stay clear of the price wars use such good basic merchandising to bring in customers and make sales. Here are some examples. In the store
In Evansville, Ind., Oscar Droste adds a touch of romance. Every diamond customer is invited into one of his “Diamond Parlors”–two gazebos in the store where a trained gemologist gives a brief seminar, using diamond tester and ‘scope, on the differences between diamonds. He lets customers know why they may not get as good a deal as they thought from someone selling diamonds at supposed discounts.
At the four stores owned and operated by IJO, “We train our staff to show diamonds to every customer who comes in, even if only for a watch battery replacement,” says Gredinger.
“Someone in the store should always have customers looking at diamonds, ‘new rings that just came in’, and so on.
“That does two things: It educates consumers to what’s available. They may find something they like and buy it. Second, even if they don’t buy now, they may come back for something later for a special occasion.”
New Haven, Conn., is a hotbed of discounting–the state jewelers’ association is actively pushing for legislation to control phony discount ads and pricing. Yet jeweler Peter Indorf puls in plenty of traffic by using promotions which combine education with soft sell.
He holds at least five all-day (noon-5:30 p.m.) seminar/shows in his store annually, each geared to a theme. A recent one was a fundraiser for the local symphony orchestra. In return for a 15% donation of the day’s sales, the orchestra helped promote the event, and members served as hosts to customers.
While consumers browse, munching on hors d’oeuvres and sipping chapagne, Indorf escorts groups of 15 to 20 people into his office/meeting room where he presents short seminars on how to buy pearls, the 4C’s in diamonds, etc. Advertising and catering are the only costs.
Such promotions “make good press,” generating positive coverage in local paper. They also reinforce the store’s image and name in the community, especially in the market Indorf wants (upper middle class). Though they don’t always generate large cash sales, they bring traffic. “And people remember. They come back and buy later,” the jeweler says.
There’s another, less obvious, advantage. Such events “create enthusiasm in employes,” making their jobs less routine. “It gives them events to look forward to, making them interested in learning more about the subject we’re discussing that day. That makes them more knowledgeable with customers.”
Here’s an example of one recent promotion’s cost:
* Advertising: $220–local newspaper ads (5 in.-by-5 in., twice a week, once in the society section of the Sunday morning paper).
* Invitations to customers: $250–designing cards; $250–printing costs for 1000 invitations; $450–direct mailing.
* Refreshments: $40–hors d’oeuvres (self-cated with fruit, cheese, crackers, finger food); $50–a case of champagne (acquired at cost).
Indorf is active in his community as a member of the local Chamber of Commerce, president of the Connecticut Ballet Co. These are more subtle, but still effective, forms of professional advertising. He plans to send a twice-a-year single-page newsletter to his customer lists and direct mail it to the city’s “best neighborhoods,” (based on a study by Indorf and the direct mail house). Questionnaire
- Mervyn Myers, of Brand Jewelers, San Diego, Cal., found a novel way to educate customers and bring in traffic. He mailed postcard questionnaires (headlined in red “60% off what?”), which he wrote, to 10,000 customers. The cards explained deep jewelry discounts in this way: “Marked prices are inflated by big discount jewelers to compensate for the higher discounts. [They] mislead the public into thinking they are buying retail or even wholesale.”.
Myers then explained his own store’s marking policy (“Cost plus fair markup and promotional sales of up to 30% off”) and asked whether his store should “join the big discount wagon.” To encourage people to return the cards to his store, he offered a small gift and a chance to win theater and symphony tickets. He was pleased with the response: 225 or just over 2%.
Total cost: $1910, made up of $500 for printing, $1140 for postage, $170 for direct mail handling and $100 for gifts and tickets.
The results encouraged him to continue “pricing on a traditional basis, with a small margin for discount on sales.” He says the postcard questionnaire (which he has copyrighted and is selling to other jewelers) also:
*Educated consumers about phony discounts and traditional jewelry store pricing.
*”Drew traffic–some people came in just because they saw that ‘60% off what?’ in red. The questionnaire helped us catch up to our 1983 sales level.” Group advertising
Group advertising by several jewelers joining together, or with the local or state jewelers’ association, can be an effective option in fighting the price war.
The New Mexico Jewelers Association in late 1983 conducted a state-wide radio and newspaper ad campaign against phony discounts, using money produced by manufacturers’ advertisements in NMJA’s annual convention program. Some 400 radio spots were bought in 17 cities in a three-week period from mid-November to early December. “Discounting [is] the biggest game in town. And YOU might not be a winner,” the ads warned and urged consumers to use the “jeweler with the ‘J’ on the door.” NMJA members received free newspaper ad slicks, tying in with the radio spots, which they could place (at their cost) in local papers.
The 30-second radio spots and the newspaper ads were based on advertising used by Ernest Bernard Butterfield during the fall for his own store in Albuquerque, N.M. He is a past president of the NMJA and current advertising chairman and donated the ads to the association “for the good of hte industry.” Response to the NMJA campaign was “very good,” says Butterfield.
* Many consumers specifically mentioned seeing or hearing the ads to jewelers.
* Some members were “discouraged” from using discount advertising.
* Jewelers in 12 other states, who learned of the campaign from traveling salesman, contacted NMJA for copies of the ads they could use.
* Some NMJA members liked the radio spots so much they purchased their own copies to run them more often on local stations.
Cost: Less than $2500. Production of the radio spot master tape (using facilities and talent at a local Albuquerque radio station) was $125. Duplicates of master tape: $75 (about $4 each). Production of the original newspaper ad: $75. Purchase cost of 400 radio time spots: $2000 ($5 on small town stations to $50 on large ones). Cost to NMJA members: None, other than placing the newspaper ads, if they chose.
The American Gem Society has a subscription service of ghost-writen ad columns called “Gemwise” which members can put in local papers under their own names. Recent articles deal with the illusion of “deep discounts” and tell readers to use their AGS jeweler.
Cost is minimal. The annual subscription (including exclusivity for the jeweler’s market area) is $110 (less than $4 per column). Yet only 25% of all AGS members use it.
And if a jeweler wants to take his case directly to the people, both AGS and JA have “spokesperson” programs which help local jewelers arrange to speak about the jewelry trade with press people in their area. Comparisons
Comparative displays are another way to put the spotlight on questionable discounts. Some jewelers purchase merchandise on sale at the discount price and display it next to their own, to indicate similarity of actual price and/or the inferior quality of the discount priced item. One jeweler encouraged customers to weigh his and a discount competitor’s gold jewelry to get an idea of the difference in weight, and price.
In Clearfield, Mass., Cleary’s Jewelers–owned and operated by IJO–has an effective method to show customers that price isn’t the only factor in buying jewelry: The “three of diamonds” display. When a customer talks about getting better prices at discount operations, manager Jeff Roberts pulls out a tray with three quarter-carat diamond solitaire pieces. Each slot has a price–$750, $1000 and $1200. Roberts removes the three, mixes them and offers the customer $25 if he can put them back in correct order. Few people can, explains Roberts. That’s why they need to rely on a professional, trained jeweler who can spot the differences, uses his equipment and who sells quality merchandise at a fair price. With a discounter, Roberts indicates, the $750 diamond price might be inflated to $1500 to allow a markdown to $1000–and the customer, who doesn’t know the differences of clarity of color mistakenly thinks he’s getting a bargain.
It’s almost a cliche. Quality and price are important, but service, we’re told by the experts, is the white line that separates retail jewelers from the discounters. Indeed, to maintain traditional markups, it’s a necessity: “If a jeweler is going to charge more, he’s got to provide his customers with service–little extras that are ego-satisfying [to the customer],” says management consultant Richard Laffin.
But what are these services and what do they cost to provide? Here’s what two successful jewelers say: You’ve got to have heart
“Attitude. That’s the most important service,” says Edward L. Bridge, vice president of merchandising and operations of Ben Bridge Jewelers, the northwest retail chain headquartered in Seattle, Wash. “We treat the customer who walks into our stores like a king.
“Too often, salespeople in stores are clerks who only know how to write up an order and work the cash register. But our people are professional, well-trained sales associates. They do whatever they can for customers because we want them to come back again and let us be their professional jeweler. That’s why we hire people who love people, who are service-oriented.”
But that attitude has to start at the top, with the bosses. Bridge’s employes treat customers well, because their supervisors treat their workers well. They pay them well. They provide necessary product and sales training. Indeed, they don’t even call them “help,” or “clerks,” or even “salespeople.” The word is “associates.”
Why? “Because they are,” says Bridge. “Our success is very dependent on them. They’re our partners, and our biggest asset.”
“Attitude” also means going the extra mile. For instance, to insure that a specially-ordered wedding set from New York arrived in time for the ceremony, Bridge Jewelers delegated an employe to deliver it personally to the customer–in California. That’s wasn’t unusual, says Ed Bridge.
“We have a distribution department of half a dozen people just to handle special requests. And with our computers, we’ll track down any item for a customer. If it’s not in our inventory, we’ll check with our contacts in the U.S., Europe, anywhere in the world, if necessary.” The cost of the little ‘extras’
The cost of “big” services like repair can be tallied fairly easily. But what does it cost to provide the little extras–the free services many jewelers offer–to keep customers satisfied and coming back?
William Underwood, owner of Underwood’s Jewelers in Fayetteville, Ark., recently explained some of the “freebies” his store provides customers, and what they cost him:
* Gift wrapping: About $500 a year ($90 per roll of paper; $20 per roll of ribbon; 15-20 cents per sheet of tissue.) “We believe in creating an impression even before the person opens the gift. We use rich, high quality, heavy wrapping paper, very fine ribbon and tissue, and make our own elaborate bows here.” (Bow machine: $200).
* Boxes: 15-20 cents for cloth boxes; 75 cents for ‘leatherette’ boxes; $2-plus for velvet boxes. “The boxes used depend on the value of the purchase. We use the fine velvet boxes for gifts costing $150 or more.”
* Engraving: $3.50 per hour for a student who comes two hours a day, each day, to engrave jewelry (about $35-40 a week). Engraving machine cost: About $3000. “We arrange this service to discourage discounting. We only engrave merchandise we sell.”
* The “Underwood” name, a mark of quality and stamped on the shank of expensive mountings: Machine cost, $700. Policy similar to that for engraving policy. “We don’t sell our high-quality mountings, with the ‘Underwood’ name stamped on them, for stones purchased elsewhere, (except for extenuating circumstances, i.e., a family hierloom).”
* Insurance policy (Jewelers’ Mutual) for merchandise bought in store. No cost to store, except for the salesperson’s time in filling out forms for customer. The insurance sometimes “provides the incentive for a purchase, especially for young people who can’t get insurance yet.”
* Certified appraisals, with color photos and descriptions (given with very expensive jewelry purchases): About $1700 a year. (Color photo $1, paper and quality binder, about $2-$2.50). Plus: Cost of 35mm camera setup to make and produce the photo, plus the 35mm film, about $800-$1000.
* Cleaning: Ultrasonic cleaning solution, $4-$5 a week. (Equipment: Ultrasonic cleaner, steamer in the repair department).
* Brochures: 10,000-15,000 AGS statement stuffers mailed out annually (about $500-700); in-store AGS brochures (about 7 cents each), plus his own brochures, which he wrote and had printed, 2000 for 15 cents each (about $300), all to “educate the customer about what he’s actually getting. That’s the best way to combat discounters.” Is it worth it?
There are other jewelers’ services: Free home delivery (cost–gas, cost of vehicle, maintenance, insurance); in-store financing; store warranties for diamonds, watch repair, etc. But any “free” service costs something to provide. So it’s important for a jeweler, especially a small jeweler, to calculate what he can provide for his customers. He or she should base decisions on operating expenses, turnover and profit margin and what the competition may or may not be doing for customers.
Costs of materials and equipment are easy to get from suppliers and trade organizations (Jewelers of America, the American Gem Society and Jewelry Industry Council, for instance, have price sheets for their brochures, statement stuffers, counter and window displays, etc.).
The individual jeweler has to decide what he can afford. There are bound to be times when he asks himself, “Is this service worth the price?” Just ask Ed Bridge and Bill Underwood. They’re successful examples that service sells–if the retailer is willing to pay the cost.
Only the rarest of jewelry stores can succeed without a major supply of bread-and-butter lines, the staples that appeal to the broad range of shoppers. Depending on the store and its type of customer, the prices may be low, medium or high and the styles may be conservative or contemporary. But one thing is sure: The same price ranges and styles will show up in hundreds of different jewelry outlets in hundreds or even thousands of cities and towns.
Some of those outlets will be jewelry stores; some will be department and discount stores. That’s where the price crunch starts.
But a jeweler can stand out from the crowd and still keep his bread-and-butter lines. He can seek the unusual. Every year at every jewelry show there are fresh ideas on display. The store that wants to be different should consider buying some of these new ideas. Often they come from small, new suppliers who never could produce the big numbers so important to the mass merchandisers.
Some traditional jewelry store suppliers may help, too. They may have special limited-edition lines or they may have one-of-a-kind pieces available. These are the pieces the jeweler can display–with a profitable markup–knowing that no shopper can come in and say, “I saw that ring for $XX less at the Good Guy Emporium on Main Street.”
The pieces a jeweler makes himself are the ultimate in being different. This jeweler truly stands alone–and if he is a good designer and craftsman himself, or employs such a person, success and profit follow as night does the day. Martin Dubler of 18 Karat Inc. in Atlanta is one who follows this path. Here’s what he has to say:
“There’s no direct competition from discounters. I’ve carved my own niche by doing something different. A customer can’t come in, comparison-shop and go to a discounter to get it for less.” Dubler makes most of the jewelry he sells.
Then there’s the second very good reason for making your own jewelry. Hear from Peter Kavee of Main Line Jewelers in Haverford, Pa., a Philadelphia suburb: “The wisdom of doing your own jewelry is that you can take a higher markup [on jewelry you make yourself] because you’ve eliminated the middle man–the manufacturer.” Kavee estimates that 30% to 40% of his volume is custom work.
Here are three examples from jewelers in different parts of the country illustrating the cost of custom-made jewelry versus the cost of purchasing it direct. (The jewelers who provided the estimates of manufacturers’ costs say they are conservatively stated.): Example #1: Ring with a 50mm oval aquamarine, six 2-pt. diamonds and a mounting with 1.5 dwt. of gold. Jeweler’s cost to do himself For materials: Aquamarine $25 Diamonds 42 Gold 24 For labor: Polish $3 Clean up 15 Set stones 20 Jeweler’s cost $129 Price with markup $258 Estimated manufacturer’s charge For materials: Aquamarine $35 Diamonds 60 Gold 36 For labor 40 Manufacturer’s price $171 Jeweler’s price with markup $342 Example #2: A gold mounting and head. Jeweler’s cost to do himself For materials: Gold (18 dwt.) $360 Head 27 For labor: Waxwork (subcontract casting) $60 Solder 5 Set customer’s stone 18 Polish/finish 5 Jeweler’s cost $475 Price with markup $950 Price with discount $712 Estimated manufacturer’s charge For materials: Gold $522 Head 190 Labor 175 Manufacturer’s price $887 Jeweler’s price with markup $1774 Jeweler’s price with discount $1330 Example #3: Remount Jeweler’s cost to do himself Gold (5 dwt) $75 Waxwork (2 hours) 26 Casting charge 4 Clean/polish/finish (3 hours) 39 Labor overhead (55% of total) 79 Outside diamond setting 50 Jeweler’s manufacturing markup (30% of total) 82 Jeweler’s cost $355 Price with markup (keystone plus “aesthetic value”) $750 Estimated manufacturer’s charge Materials $200 Labor 125 Manufacturing markup (30%) 98 Outside diamond setting 50 Manufacturer’s price $473 Jeweler’s price with markup $975
Even if you don’t make your own jewelry, buying stones and mountings separately and having someone else put them together can save you as much as 40% off the manufacturer’s price, according to Oscar Droste, Droste Jewelry Shoppe Inc., a retailer/manufacturer in Evansville, Ind. “You save money by going to Germany or New York or Tucson to buy your colored stones direct,” he says, “and you can look them over and choose the ones you want.
“Then, you save money on mountings if you have someone cast them for you. If you have a good jeweler, he can finish and set them for you.”
Being different obviously can give a jeweler a great competitive edge. But he’s got to be smart, too. And, say many of the jewelers JC-K talked to for this series of articles, buying is one of the smartest places to be smart. Whether you make your own jewelry, purchase pieces separately and have them made or buy direct, you still need to “buy right” to control the cost factor in your pricing.
Oscar Droste gives these tips on “buying right” when purchasing stones:
* “Remember, if you’re buying diamonds ‘on time,’ you’re not getting them for nothing. Is it better to take your money and buy diamonds or to take the credit? If you buy $100,000 worth of diamonds in Antwerp, you’re gambling on the market going up or down–but that still probably costs you 25% to 50% less than taking them on credit for a year.
* “Look at your inventory system. Good record-keeping will control costs by showing when, what and how much to buy.”
* Look for new, different or less expensive suppliers. “Even little mom-and-pop shops can save money by breaking away from traditional suppliers and shopping [for new ones] at [local and regional] trade shows.” Droste, for example, makes it a point to go to several shows a year because, “when I go to San Francisco, I see suppliers from Oregon or Washington, too, that don’t show anywhere else. In Dallas, there are suppliers from San Antonio who never show in New York.”
Frank H. Maier Jr., head of Maier & Berkele in Atlanta and a former American Gem Society president, is another jeweler who believes you shouldn’t become locked in to the same suppliers year after year. “You’ve got to consider all the time whether this line is right for your store and your customers,” he says. It’s possible that as a manufacturer changes his styles or develops new business, he may no longer match your needs. “Always be on the alert for new sources of supply,” Maier suggests.
Don’t misunderstand. Making your own jewelry and “buying right” will cost some: The salary of a good benchman or two; the equipment, maintenance and supplies; the cost and effort to seek good buys; the price of travel, lodging and promoting your special buys.
But the bottom line is your bottom line: Does the investment give you the competitive edge?
Until two years ago, Evansville, Ind.–a pleasant university town in farming country across the Ohio River from Kentucky–was almost untouched by the rampant discounts and price cutting in jewelry markets elsewhere.
Then the new Eastland Mall opened in town.
It sharply raised the level of jewelry competition by almost doubling the jewelry merchandisers in town. “It was a bad situation,” says Roger M. Levi of Kruckemeyer & Cohn, one of Evansville’s leading jewelers. “Within one Christmas season, there were 12 more jewelry retailers [local and national chain stores, independents, department stores], all within a few yards of each other.”
More significantly, the jewelry chain stores introduced “a pricing method we hadn’t used,” says Michael S. Ellenstein Sr. He’s co-owner with his son Michael Jr., the firm’s president, of Rogers Jewelers, the area’s largest jewelry operation with five stores. It was “a philosophy Evansville hadn’t seen before,” says Ellenstein: Aggressive off-price retailing. ‘The sale never ended’
The chain stores held grand opening sales with watches up to 40% off–but “it was an opening sale that never ended,” says Evansville Press consumer reporter Polly Bigham. Promotions on high-demand gold and diamond jewelry, pens and watchbands followed.
“It was something different every week,” says Michael Ellenstein. “Gold chains sold at ‘50% off’ when your regular price then was lower than their sale price! Diamond solitaries, 30% off. Diamond rings, 30% off. Diamond pendants, 30% off.”
The effects came quickly: Consumers bought. Evansville’s established jewelers lost business–and started cutting prices. They went head-to-head–first with the chain stores, then with each other.
“Competition got fierce,” says Ellenstein, whose firm–the areas’s largest jewelry advertiser–was the first to join the price war. Rogers discounted watches, plus brand-name products like pens, then diamonds and other jewelry. Other stores followed suit as each, recalls another jeweler, “tried to out-discount one another.”
“We got into a rat race,” says Ellenstein. “One store sold a half-carat diamond at $800. Then someone else sold one at $750. Then someone else at $700, $650, 600…”
Some stores–“the ones not aggressive enough,” says Ellenstein–lost volume. Now there are sales every week, with pens, low-end diamond jewelry, watches and watch-bands the most common loss leaders to pull traffic.
“It’s a price war,” says Normagene Murray, executive secretary of the Indiana Jewelers Association. “There’s no place else like this in the state. Evansville has the worst problem of discounting” in Indiana.
“It’s drastically changed the whole market,” agrees another jeweler, who declines to have his name used. “I wasn’t going to play the game, but I’ve had to change my tactics.” He reduced merchandise mix to a few high-turning items and “inflated prices like everyone else so I can mark down. [i.e., 3.2-time markup, then 30% off]. I have to do this in order to complete. The public is so ‘discount oriented’ you need price tags showing savings.” But, he stresses, his actual profit margins “are no different than a couple of years ago. I’m not inflating prices to gouge people. I have to [inflate markup] to keep operating on keystone.” ‘40% off everything’
A year ago, Rogers’ management reevaluated the policy of price one-upmanship and adopted a new marketing strategy. “We saw where this was leading,” says Michael Ellenstein Sr. “Each time we reduced prices to stay competitive, quality had to drop. We realized eventually we all would be selling junk.”
The new strategy made off-price retailing the keystone of the 50-year-old firm’s marketing. Everything in Rogers’ stores is sold for 30% to 40% off “retail,” backed by heavy advertising of “savings,” not price.
The pricing policy is based on volume selling; buying direct and in large quantity from the factory; loss leaders, like pens, and large markups to allow sizable markdowns on jewelry and gems, without lowering the quality of goods purchased.
The strategy works for Rogers. For example, before the mall, a Cross pen, $5 wholesale, keystoned at Rogers for $10. “We sold 40 a month,” says Ellenstein. “Now we sell them for $6 and sell 1000 to 2000 a month. The percent of profit isn’t much, but we more than make up for it in the dollars.”
And there has been an impressive increase in overall buyer traffic: Up 55% a month, from 4000 to 6200.
But off-pricing alone isn’t the key to success, says Ellenstein. Rogers’ staff is well-paid and well-trained. (An operations manager oversees an intensive, on-going training and education program.) There are several gemologists on staff. Opertions are completely computerized.
Most important, says Ellenstein, “We’ve kept traditional jewelry store amenities: Free gift-wrapping, free delivery, free appraisals, free engraving, free watchband installation.
“And we follow an old-fashioned philosophy. No matter how busy things are, even at Christmas, when any customer walks in the door, there should be a courteous, knowledgeable salesperson there to help them immediately.” ‘Know who you are’
Not everyone discounts in Evansville. “We avoid it,” says Roger M. Levi, of Kruckemeyer & Cohn, founded in 1895, which successfully operates two elegant stores–in town and mll–without discounts.
The mall store, for instance, has 5000 square feet, two floors (with elevator), 10 Waterford chandeliers, two diamond rooms, an AGS lab, and “every piece of equipment GIA makes,” says Levi. Emphasis is on providing customers with high-quality products and full, professional services. His firm, says Levi, is “proof on old-line, traditional store can do good business in a mall.”
The key to success: “We know who we are and do our own thing. We’re an AGS guild store, the only one in the area, not a ‘discount house.’ The mistake a lot of retailers make is being too greatly influenced by what’s happening around them.”
Oscar Droste, operator of Droste Jewelry Shoppe Inc., is another non-discounter. “We don’t play in that ballgame,” he says.
Yet he’s able to keep prices competitive. “Stores advertise diamonds for 30% off and still are higher than my regular retail,” he says. Droste operates, and makes a profit, at less than keystone markup. The reasons:
* Low overhead–rent is far below mall costs for both his freestanding store (a former gas station) and for his second, strip center, store;
* Shrewd buying methods;
* Production of much of his own jewelry;
* Catchy advertising that underlines the firm’s professionalism. (The firm’s slogan, “Let us show you a diamond inside and out,” is backed by eye-catching visuals.)
He also competes with education. Every customer who comes into his store is invited into a brief diamond seminar, complete with ‘scope and diamond tester, in one of Droste’s “diamond parlors.” Discounting’s effects
Even so, discounting has affected even non-discounters. Kruckemeyer & Cohn does more mid-week advertising than it used to because “the mall’s [discount advertising] is very strong in the papers on weekends,” says Levi. And Droste sold off his china and giftware to concentrate primarily on diamond merchandise. He also makes much more of his own jewelry.
Some in Evansville are bitter about the advent of discounting, blaming it on the mall or the chain stores or Rogers. Others are more philosophical. “If the chains hadn’t done it, someone else would have eventually,” says another jeweler. “It’s happening nationally, it was going to happen here. You just have to play the game.”
PRICE LAWS: NO ONE PAYS MUCH ATTENTION
Price-cutting is out of control, like a wild man running amok in the streets, threatening honest citizens. Only the law can stop it–but too often won’t.
The federal government’s big gun against deceptive pricing and advertising–the Federal Trade Commission (FTC) Guidelines–is virtually useless. The state laws–many more specific than the federal guidelines–are seldom enforced effectively.
Why? Lack of money and manpower are big reasons. But more important, federal and state officials too often are unwilling or unable to do anything about deceptive jewelry pricing. ‘Reluctant to pursue’
FTC Chairman James C. Miller III, for instance, readily admits the government’s “reluctance to pursue deceptive pricing cases” in jewelry. In a March 1984 letter to Joel A. Windman, executive vice president and general counsel of the Jewelers Vigilance Committee (JVC), Miller agreed that “honest jewelers are frustrated by ads they believe falsely claim large discounts and tremendous savings [and find it difficult] to refrain from responding with their own exaggerated claims.” But, said Miller, “our relative lack of activity in the area of deceptive pricing of jewelry [is based on] a matter of priorities.
“We have a small budget and must focus our law enforcement activities on those practices that have the potential for causing the consumer the most injury.”
Price advertising–even so-called deep discounting–apparently isn’t among them because “economic studies indicate that price advertising tends to lower overall price for goods,” Miller wrote. “If the commission tried to deter price advertising, it would lessen healthy competition among jewelers. This wouldn’t be in the consumer’s interest.”
(In response, Howard Michaels chairman of JVC’s “Deceptive Pricing Elimination Committee,” says government officials like Miller must realize that while “honest discount advertising is healthy…exaggerated discount claims are dishonest and fraudulent…and such pricing benefits no one but the perpetrator of the deception.”) Lip service
Lack of urgency isn’t limited to Uncle Sam. Oregon’s Department of Justice, for instance, considered toughening its rules on deceptive pricing three years ago, but never completed the task. Since then, says an assistant attorney general there, “the subject of deceptive pricing has received little attention from the department.” Some state laws do little more than pay lip service to fair dealing–often in mind-numbing language. Here, for example, are Maryland’s definitions of deceptive pricing: “Unfair or deceptive trade practices include any false or misleading representation of fact which concerns the reason for, or the existence of, a price reduction, or a price in comparison to a price of a competitor, or to one’s own price at a past or future time.” And a few states, such as Kentucky, Montana and Wyoming, don’t even have specific laws dealing with deceptive pricing. They rely instead on the FTC guidelines.
Sometimes, state enforcers get little help from jewelers themselves. The biggest problem Iowa’s Department of Justice has is “what to use as a fair starting price,” says Attorney General Thomas Miller. In dealing with complaints about jewelry price advertising, “[we’ve found] it is an industry without any uniformity, science or continuity. In trying to gather expert testimony, we find no two experts agree on the price of a particular piece of gemstone jewelry or gemstone.” Indeed, the state had to drop one recent case because, says Miller, it was “almost impossible to charge someone with deceptive pricing since two different diamond experts appraised the diamond with a fair sales price substantially less than the complained-of advertised price, one appraised it about the same, and one appraised it as higher.” [The appraisal situation is improving. Standards are being developed both by individual associations and by Congress. See stories in JC-K June Upfront and August issue.] Changing legal climate
The legal climate is changing now, though, thanks in large part to JVC. It has fought for more than a decade for tougher federal laws against deceptive pricing and ads, and now is pushing for tougher state laws, too.
Wisconsin’s 1972 Comparison Price Advertising REgulations (which require advertisers to prove advertising claims) has been sent to all 50 state attorneys-general by JVC. It’s now being studied by several, including Connecticut and Georgia, as a model for toughening their own laws. And California is considering legislation on “Sale and Comparative Price Advertising” which, if passed, would be one of the nation’s strongest laws against the “deceptive pricing dragon,” says Windman. (much of the report on the proposed California law follows this story, along with extracts from effective laws in other states.)
The Connecticut Jewelers Association didn’t wait for the state to act. It convinced officials of the state’s consumer protection department to hold a special hearing in February. There it offered a proposal, based on te Wisconsin law and supported by testimony from CJA, JVC, Jewelers of America and other interested parties. (The department is continuing to collect data and will submit a report, with recommendations, to the legislature by Jan. 1, 1985.)
The Connecticut jewelers’ action illustrates an important point: Final responsibility for getting fair pricing laws depends on jewelers–acting as individual citizens and in groups–lobbying, gathering information, testifying. Indeed, says one Midwest state official, “state enforcement [of laws against deceptive pricing] could benefit by assistance from the jewelry industry.”
This section concludes with a list of officials in every state and territory which you, the jeweler and the jewelry organization, can contact to lobby for passage and/or enforcement of strong laws–and penalties–against deceptive pricing.
Make your voice heard. Remember (paraphrasing a famous proverb):
“Deception will triumph if good people do nothing.” California’s recommended law The current law
Of most universal application to California advertisers is Business and Professions Code section 17501. It states the following:
“For the purpose of this article the worth or value of any thing advertised is the prevailing market price, wholesale if the offers is at wholesale, retail if the offer is at retail, at the time of publication of such advertisement in the locality wherein the advertisement is published.
“No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement.”
Since added by the Legislature as chapter 63 of the Statutes of 1941, the section has not been amended.
The only reported case which mentions section 17501 does so tangentially in upholding the propriety of a trial court issuing a preliminary injunction based upon misleading representations of many types, including the “value” of a gift.
An Attorney General Opinion of 1957 held that the Bureau of Furniture and Bedding (now the Bureau of Home Furnishings) could not “arbitrarily” establish a “prevailing market price” for specific items, but could arrive at such a figure by investigating the local market to determine the predominating price at a given time for which the item or comparable merchandise is sold.
Section 17501 does not, however, stand alone. Business and Professions Code section 17500 is also used by law enforcement agencies when dealing with problems caused by sale and comparative price advertising. In pertinent part, section 17500 provides as follows:
“It is unlawful for any person, firm, corporation or association, or any employe thereof with intent directly or indirectly to dispose of real or personal property…or to induce the public to enter into any obligation relating thereto, to make or disseminate or cause to be made or disseminated before the public in this state…in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, any statement, concerning such real or personal property or services, or concerning any circumstances or matter of fact connected with the proposed performance or disposition thereof, which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading….”
Thus it is unlawful for an advertiser to make any untrue or misleading statements in sale or comparative price advertising. A number of law enforcement officials expressed the opinion that their offices rely on section 17500 and not 17501 when dealing with advertising problems. Section 17500, may, because of its broader, yet more readily understandable, language, have supplanted section 17501 as a tool of law enforcement.
Unfortunately, much of the confusion surrounding sale and comparative price advertising in California arises from the existence and language of section 17501 itself. Recommended changes
17501: Legislative findings & intent
The Legislature declares that the seller who does more than state his asking price for items he has for sale must accurately make such representations in a way that cannot be misunderstood. Failure to do so has created numerous problems in California for purchasers and competitors which are inimical to good business practices. This is because price comparison advertising is a form of advertising commonly used in the sale or offering for sale of items whereby current prices are compared with former or future prices or other stated values to demonstrate price reductions or cost savings. While price comparisons accurately reflecting market values in the trade area provide consumers with useful information in making value comparisons and market buying decisions, price comparisons based on arbitrary or inflated prices or values only serve to deceive or mislead. Further abuse occurs when sellers fail to disclose material information essential to consumer understanding of the comparisons made. The use of arbitrary, inflated or inaccurate price comparisons is injurious to both the consuming public and competitors. Thus, it is the express intent of the Legislature to insure that the reference price used inprice comparison advertisements is a figure which provides meaningful guidance to the consumer and to this end sections 17501.1-17501.3, are to be liberally construed.
17501.2: Substantiation of price comparison advertisements
It shall be unlawful for any seller doing business in California to use price comparison advertisements in California, unless:
- For a period of one year following the last date on which a specific price comparison advertisement appears, the seller maintains adequate records to substantiate the facts upon which the specific price comparison is based.
- Within 14 days after receipt of a written request from the Director of Consumer Affairs, the Attorney General, any city attorne or any district attorney, for substantiation of the price comparison claim made, the seller shall provide to the department or official making the request evidence of the facts on which such price comparison claim is based. If the request for evidence seeks copies of invoices, receipts, manufacturer’s pricing information, surveys, tabulations or other business records whatsoever, which do or may relate to the validity or invalidity of the price comparison claim, the seller must, if in possession of such records, turn such evidence over to the department or official making the request, notwithstanding any trade secret privilege which may in other contexts be available to the seller. Any such request for substantiation shall be made within one year of the last day on which such advertising claim was made.
Any city attorney or district attorney who makes a request pursuant to this subdivision shall give prior notice of such request to the Attorney General.
(1) The Director of Consumer Affairs, Attorney General, any city attorney, or any district attorney may, upon failure of the seller to respond within the time limit set forth above, or if the Director of Consumer Affairs, Attorney General, city attorney or district attorney shall believe that the response submitted does not substantiate the price comparison claim contained in the seller’s advertisement such official may: (a) seek an immediate termination or modification of the claim by the person in accordance with Section 17535 and may disseminate information, taking due care to protect legitimate trade secrets, concerning such claims to the consumers of this state: (b) seek civil penalties from the seller in accordance with SEction 17536: provided, that in such an action if the Court finds that the seller either failed to respond to the request for substantiation of the price comparison claim contained in the seller’s advertisement, a minimum penalty of one thousand two hundred fifty dollars ($1250) shall be assessed for each day the seller repeated the unsubstantiated advertisement.
(2) The relief provided for in subdivision (1) is in addition to any other relief which may be sought for a violation of this chapter. Section 17534 shall not apply to violations of this section.
(3) Nothing in this section shall be construed to hold any newspaper publisher or radio or television broadcaster liable for publishing or broadcasting any price comparison claims unless such publisher or broadcaster is the person making such claims.
17501.3: Prohibited representations and practices
In using price comparison advertisements, a seller shall not:
- Represent that the seller is conducting a “Clearance Sale,” whether by the use of such term or comparable term, unless: (1) the seller is reducing seasonal surplus or problem items from its current inventory: (2) the items offered at “clearance” prices do not revert to some higher price after the sales event is concluded; and (3) the items offered at “clearance” prices will not be offered at any price by the seller for at least 90 days following the last day that the item is offered at a “clearance” sale price.
- Represent that the seller is conducting a “Going Out of Business,” “Selling Out,” “Closing Out,” “Liquidation,” or any similar type of promotion, unless: (1) the seller complies with any “Going Out of Business” ordinance which may be in effect in the community wherein the seller is located: (2) the items offered to the public during the promotion are restricted to those items that as of the date the promotion is first announced are on the seller’s premises, in the seller’s warehouse, or in transit from orders already placed by the seller; and (3) the seller is actually discontinuing business and not merely changing business location, business name or type of business entity. Provided, however, nothing herein shall prevent a seller from advertising that the seller is “liquidating” or disposing of particular items in the seller’s current inventory as long as once the advertised items are disposed of the seller does not again offer these items for at least 180 days following the last day that the items being “liquidated” are offered. A seller may not use the term “liquidating” or similar term if the seller is attempting to dispose of certain items so that he may replace them with more current models of the same item.
- Represent that the seller is having an “inventory reduction” or “overstocked” or any similar type of sales event, unless: (1) the items offered for sale, or to be sold during the sales event are restricted to those items that as of the date the sales event is first announced are on the seller’s premises, in the seller’s warehouse, or in transit from orders already placed by the seller; and (2) the seller does not re-order the same item, or a more current model of the same item, for at least 30 days following the last day of the sales event.
- Represent that a seller is selling an item for less than the “manufacturer’s suggested price,” “distributor’s suggested price,” “list price,” or any similar term implying a suggested or list price established by anyone other than the seller, unless either: (1) the seller has used the suggested price as the seller’s regular selling price for the item; or (2) the seller can substantiate that at least 40% of the sales of the particular item which were made in the community wherein the seller is located, within the 90 days immediately preceding the date the seller’s advertisement is first announced, were made at the advertised suggested price. A seller shall be considered to have advertised that he is “selling an item for less than the suggested or list price,” if in the advertisement the seller informs prospective purchasers of the suggested or list price for the item and his then current selling price for the item.
- Represents that the seller is conducting a “sale,” unless: (1) the termination date of the “sale” is clearly set forth in the advertisement and such date is no more than 30 days after the first date the “sale” price is announced; (2) the day after the “sale” ends, the item reverts in price to the price charged by the seller for the item before the “sale” began or to a higher price; (3) the item is not offered at any other reduced price for at least 45 days following the last day that the item is offered at the “sale” price; and (4) the seller offered to the pubic, at the price to which the “sale” price is compared, in the regular course of business, the item offered at the “sale” price for the entire 45 days immeditely preceding the first date the “sale” price is announced. If, during the 45 days immediately preceding the first date the “sale” price is announced the seller has made no sales of the item at the compared to price, or sales so few in number as to suggest that the asking price was not reasonable, the seller cannot use advertisements which refer to the price used for comparison purposes as the “regular price” or “former price” of the item offered.
- Represent that the seller is having any type of sales event, or use any similar term indicating a price reduction, if the advertisement therefor contains both reduced price items and items offered at their regular price, unless: (1) the items not reduced are clearly identified as being offered at their regular price; and (2) the sales event, or used similar term indicating a price reduction, heading is clearly, conspicuously and in close proximity thereto qualified by a statement which indicates that all items are not offered at reduced prices.
- Represent that the seller is having a sales event by use of terms such as “Save up to X%,” “Regularly $X-$Y, now $N-$M,c “Up to X% off,” “Save X%, and More,” “Save X%-Y%” or any similar term unless: (1) all advertised items are available at the percentage reduction stated and such reduction is off of the seller’s regular price for such items. If all items are not available at the percentage reduction stated in the advertisement, then the advertisement shall state both the maximum and the minimum percentage discount available; (2) when both the maximum and the minimum percentage discount are stated, of the items offered on the date the sales event is first announced, at least 10% are offered at the highest percentage discount stated and no more than 10% are offered at the lowest percentage discount stated. The remaining items shall be offered at various discounts within the range stated by the seller; (3) when the range of the regular prices of the items offered is stated, then of the items offered on the date the sales event is first announced at least 10% must be items which had a regular price of the highest price stated and no more than 10% can be items which had a regular price of the lowest price stated; (4) if the range of the discount prices of the items available is stated, of the items offered on the date the sales event is first announced, at least 10% are offered at the lowest stated discount price.
- Represent that the seller undersells other sellers within the community wherein the seller is located by use of terms such as “Never Undersold,” “We Beat Any Deal,” “Lowest Price,” “Guaranteed Lowest Price,” or similar words, unless on each date that the seller uses such an advertisement, the seller has data to substantiate that on that date the price at which he is offering the particular item or items advertised is lower than the price at which at least 80% of the other sellers in the community wherein the seller is located are offering the same item or items.
- Represent that the seller is conducting a sales event by use of terms such as “Will be $X,” Introductory Price-$X,” or similar term, unless: (1) the advertisement clearly sets forth the date on which the higher price will become effective and such date is no more than 45 days after the date such advertisement is first made; (2) the compared to higher price will be the seller’s own future regular price; and (3) the item will not be offered at any price less than the compared to higher price for at least 45 days following the date that the higher price becomes effective.
- Represent that the seller is conducting a sales event by use of such terms as “Originally,” “Formerly,” “Offered At” or similar terms, unless: (1) if the regular price for the item offered was established by the seller more than 120 days preceding the date when the sales event is first announced, the date, time or seasonal period when the item sold at the referred price is disclosed; or (2) if a regular price for the item was never established by the seller, the referred to price is denominated anything but “Offered at $X” and the date, time or seasonal period when the item was offered at the referred to price is disclosed.
- Compare his prices to the prices of other sellers in the community wherein the seller is located through the use of terms such as “Our Competitor’s Price $X, Our Price $Y,” “Sold Elsewhere for $X, Now $Y,” “Comparable Value $X, Our Price $Y,” or like terms, unless; (1) the referred to competitors’ price represents the regular price at which at least 60% of the other sellers in the community wherein the seller is located are offering and selling the same or comparable items; or (2) if the referred to competitors’ price represents the actual selling price of the same or comparable items during a period more than 90 days preceding the date on which the seller’s sales event is first announced, the date, time or seasonal period when the item was sold at the referred to price must be disclosed and such price must represent the price at which at least 50% of such items were actually sold; or (3) if the referred to competitors’ price does not meet the test of either subdivision (1) or (2) of this subsection K, then the seller must include within his advertisement the name of at least one competitor whose price matches the referred to price and for whom the referred to price is the current regular price for the same or comparable item.
- Make false or misleading statements of fact concerning reasons for, existence of, or amounts of price reductions.
The above proposals are aimed at allowing competitors to compete openly and honestly with one another while at the same time ensuring that consumers can rely on the accuracy of the sale and comparative price advertissing to which they respond. Other states’ laws
A number of states have laws to curb phony pricing and advertising. Some of the sections and definitions used may be helpful to retailers seeking passage of similar laws in their areas. Here are some extracts (slightly edited, condensed or paraphrased).
* Florida defines in detail what constitutes misleading advertising (from Rules of the Department of Legal Affairs: Advertising and Sales):
Misleading advertising. It is unfair or deceptive to:
Misrepresent the owner, manufacturer, distributor, source or geographic origin of goods. However, a seller may label goods received from others and sold by him with his own brand, tradename, trademark, or other designation customarily used by him;
Misrepresent the age, model, grade, style or standard of goods;
Misrepresent the affiliation, connection or association of any goods, services or business establishment.
Misrepresent the nature, characteristics, standard ingredients, uses, benefits, warranties, guarantees, quantities or qualities of goods or services.
Disparage the goods, services, or business of another by false or misleading advertising.
Advertise goods for services with the intent not to sell as advertised.
Advertising “free,” “reduced,” “discount,” or “below cost.” It is unfair or deceptive to:
Advertise any product or service as “free” if they aren’t. However, the consumer may be required to pay actual delivery charges of the U.S. Post Office or regulated public carrier, if that is prominently indicated in the advertisement.
Advertise a price as a discount, reduced or dated price, or to compare it to a higher price unless the advertised price is lower than the actual, bonafide price regularly offered by the advertiser for a reasonable time prior to the ad; or unless the advertised price is lower than that being charged for the same product or service by other sellers in the area.
Advertise any price as being below cost, unless it is.
Advertise a product or service as “free” or its price as discounted or reduced, if receipt is contingent on purchasing something else for more than the actual, bonafide price at which the product or service was regularly offered to the public by the advertiser for a reasonably substantial period of time prior to the ad.
* Hawaii defines “sale” and comparison prices (from the Office of Consumer Protection Regulations).
Use of word “sale” and words of similar import:
Consumers rightfully expect whenever a seller uses the word “sale” in any advertisement, he is offering to sell the merchandise at less than his regular price.
It is unfair or deceptive for any seller to:
Use the word “sale” or words of similar import in any advertisement when the advertised price isn’t less than the seller’s regular price.
Fail to clearly identify merchandise not offered at a price less than the regular price in any advertisement when “sale” or similar words are used.
Fail to state in any ad, when “sale” or similar words are used, the period when the advertised price is effective. But when the seller believes in good faith that the quantity of items won’t be sufficient to meet the reasonably anticipated demand for the planned duration of the “sale,” he needn’t specify the period if he states the exact quantity available at the price.
Fail to conspicuously post the advertised “sale” prices in the store.
Use “going out of business” or similar terms when the store isn’t.
It is unfair or deceptive for any seller in any ad to make a price comparison:
Not based on his regular price, future price, competitor’s price or manufacturer’s suggested retail price.
Where the prices compared aren’t disclosed.
Of merchandise which differs in composition, grade or quality, style or design, model, name or brand, kind of variety, or service and performance characteristics, unless the general nature of the differences is clearly disclosed.
Seller’s future prices. A price comparison may be made by any seller based on his future price list if:
The effective date of the future price increase is within 90 days after the price comparison is first stated in the ad or the effective date is disclosed in the ad.
The future price increase takes effect as stated in the ad or, if not stated in the ad, within 90 days after the price comparison is first stated in the ad.
The merchandise is conspicuously offered at a price not less than the advertised future price for a reasonable period of time after the effective date of the price increase, except where compliance becomes impossible because of circumstance beyond the seller’s control, and the merchandise is displayed in a reasonable manner consistent with the display of merchandise of a similar type.
Competitor’s prices; manufacturer’s suggested retail prices; seasonal prices. A price comparison may be based on a competitor’s price, a seller’s seasonal prices or manufacturer’s suggested retail prices only if substantial number of sellers in the trade area are selling merchandise at that price.
Miscellaneous price comparisons. A price comparison is unfair or deceptive if it states or suggests conditions which aren’t true. Examples: Advertising prices as wholesale when they aren’t, or as factory prices, when they aren’t the prices paid when buying direct from the factory.
* Idaho specifically forbids the practice of inflating comparison “former” prices (from Idaho Consumer Protection Regulations).
Comparisons of seller’s present prices to seller’s former prices: It is unfair and deceptive to compare seller’s present prices to former ones:
Unless the former price is the bonafide, regular price, or the seller clearly states the date, season or time period when the former price was the regular one.
If he establishes a fictitious or inflated former price for a short period of time for the purpose of subsequently offering a reduction. Example: A seller usually sells a pen for a regular price of $7.50, but inflates the price of $10 for a short period of time. He then cuts it to its usual level of $7.50 and advertises, “Terrific Bargain. Were $10, now only $7.50.”
If the former price is merely an asking price and not the bonafide price at which goods or services are actually offered for sale.
* Massachusetts defines different types of prices (from Retail Advertising Regulations of the Consumer Protection Act).
“Price for sale,” “On sale,” “Clearance”–It is unfair or deceptive for a seller to use these or similar words without clearly disclosing the actual price or reduction to be made, unless the items offered for sale are (1) from his stock and are being offered at least 10% below his own former price, if $100 or less, for the same items, or 5% below his former price, if more than $100, for the same items; or (2) were formerly in another seller’s stock and are being offered for at least 10% less then they were in the regular course of the former seller’s business, if the former price was $100 or less, or 5% less than the former price, if it was more than $100.
“Special purchase”–It is unfair or deceptive for a seller to use these or similar words in any advertisement unless:
Special savings can be demonstrated from a price determined [according to provisions of this legislation].
The merchandise isn’t generally available in the trade area or isn’t generally available in the sizes or colors the seller is offering.
The seller is passing on a value to customers based on a purchase of exceptional quality merchandise and the basis of determining that value is clearly disclosed.
The seller is passing on to customers some other provable dollar savings.
“List prices”–It is unfair or deceptive for any price comparison to be made by a seller based on a list price or manufacturer’s suggested retail price unless they are the usual selling price of the advertised merchandise at the principal outlets, in the seller’s trade area, which don’t do business on a discount basis.
However, a seller doing business on a regional or national basis may use list or manufacturer’s suggested retail prices in comparison to the current selling prices in a seasonal or annual catalog if they are based on a reasonably substantiated survey of area prices and don’t substantially exceed prices at which sales of the merchandise are made.
“Prices of other sellers”–It is unfair or deceptive to compare the seller’s price with that of other seller/s unless the original comparative price (1) is one at which goods or services have been offered by the other seller/s in good faith for a reasonable period of time; (2) was established outside the trade area in which the comparison is advertised, and the trade area where the former price was established is clearly disclosed.
“Comparable value”–It is unfair or deceptive to base any price comparison on the currently advertised prices charged by others in the seller’s trade area for other merchandise of like grade and quality, unless:
The comparable merchandise is currently offered for sale at the stated higher price by the seller or a reasonable number of outlets in the seller’s trade area, or
There are no substantial differences in quality, grade, materials, and craftsmanship between the comparable merchandise and that being offered for sale, and
The seller is able to disclose to the Attorney General upon request the outlets at which the comparable merchandise is available, the brand and model of the comparable merchandise, and the basis of comparison.
Price suggestive of a reduction without mention of a former price–It is unfair or deceptive to suggest a seller’s price represents a saving from a former price, without disclosing the actual amount of reduction taken. Example: “Reduced to $9.99,” “On sale for $9.99,” “Now $9.99.”
Establishing a regular price–No seller may advertise the same goods for sale at a reduction from his usual price for more than four months out of any 12 month period, unless:
The majority of sales are at the higher “regular” price.
A series of reductions have been taken with no one “sales” price being established for more than four months.
The merchandise is part of a clearance sale which will continue at reduced price until sold.
* New Jersey defines unfair business descriptions and tells what must be included in a price reduction claim (from General Merchandise Advertising Regulations).
It is unlawful to describe the advertiser with terms with “warehouse,” “factory outlet,” “discount,” “bargain,” “clearance,” “liquidators,” “unclaimed freight,” in the advertiser’s corporate, partnership or trade name, when those aren’t a bonafide description of him.
It is unlawful to fail to substantiate through documents, records or other written proof any claim regarding…availability, quality or price of advertised merchandise, nature of offering, or quantity. Such records shall be made available on request for inspection [by the state] for 90 days following the effective date of advertisement.
Price reduction requirements. Advertisers must specifically state:
When the price reduction is applicable.
The retail selling price or price range for all advertised merchandise.
A reference price or price range for items advertised for sale at $100 or more based on either:
The advertiser’s usual selling price or price range for identical or comparable merchandise.
The usual selling price of competitors in the advertiser’s trade area for identical or comparable merchandise.
The manufacturer’s suggested retail price for identical or comparable merchandise.
* Wisconsin explains the purpose of such laws (from the Wisconsin Administrative Code, Dept. of Agriculture).
Declaration of policy–While price comparisons accurately reflecting market values in the trade area provide consumers with useful information in making value comparisons and buying decisions, price comparisons based on arbitrary or inflated prices or values only deceive or mislead. Further abuse occurs when sellers fail to disclose information essential to consumer understanding of [the] comparisons. Use of arbitrary or inflated price comparisons…as an inducement to the sale of property or service is injurious to both the consuming public and competitors, and is an unfair trade practice and method of competition.
Seller’s actual sale prices. No price comparison may be made by a seller based on a price other than one at which some property or services were actually sold by him in the 90 days immediately preceding the date on which the price comparison is stated in the advertisement.
However, a price comparison may be made by him, based on a price [used] by him prior to the 90-day period, if the ad discloses, with the price comparison, the date, time or seasonal period.
No price comparison may be made based on a price which exceeds his cost plus normal markup regularly used by him in the sale of such property or services.