This past week was focused again on my jewelry start-up client. The owner is an accomplished business person but new to this field. Since my entire career has been in the retail sector I know a little about this area, if not everything. A passionate student of gems and precious metals, my client has been building a sizable inventory while transitioning from her residential construction business. Her launch strategy is to combine an e-commerce channel with a consignment/leased-space retail channel. At this time her objective is to gain exposure and distribution.
Working the retail channel is a learning experience for my client. She negotiated an agreement with an up-scale, woman’s ready to wear consignment shop just before Christmas, a promising start. The store owner wanted a low retail price point for the initial selection and agreed to take 25% of the gross profit margin plus $.99 for each item sold. The low price point target put a bit of a burden on my client but she was optimistic about the potential. The sales for the first few months were surprisingly good. Not stellar, but a good sign that my client was on the right track. The average sale was almost 50% more than the store owner’s target, which was very positive. My client made some money and the consignment shop owner made a little too. The shop owner was not pleased with her cut, however, and demanded that my client agree to new terms giving the shop owner 30% of the total sale, plus $.99 per item. Did I mention that there was no formal written agreement. A red flag to be sure! My client agreed to those terms and increased the mark-up to accommodate her client. She re-priced the stock and updated the display. Within days, the shop owner decided to end the deal entirely and returned my client’s merchandise. We don’t understand what led her to this decision although the shop’s first quarter sales have been weak. Payment for the balance of the sales is now in question. Lesson learned. If one fails to begin a relationship with a written agreement it is likely a bad sign for the long run. My client’s attitude is to move forward and bank the learning. She will play hard-ball to collect on that invoice however. This situation was no surprise to me. I have seen this movie many times before.
As one door closes another one opens. My client found another business nearby with a buttoned-down business model. This is a large, established retail operation that leases space to dealers. The operator provides an inviting environment, marketing support and a central check-out counter. They collect and pay all sales taxes. Most importantly, the agreement is in written form, signed by all parties concerned. My client’s focus now is to find the right product mix and price points for this location and then find other similar outlets.
Experience builds confidence and leads to intuition, often called “gut feel.” The experience we bring to the table helps predict outcomes of decisions made and to implement strategies to mitigate risk. As a consultant, one can point out risks and opportunities, however, in the end, the client makes the decisions. Each of you are experienced professionals. Your intuition should be pretty well-honed by now. When you find yourself in a situation that just doesn’t feel right it is time to take pause. Reflect on the situation to understand your lack of comfort. If you let you head override your heart, recognize the risk and prepare for the likely bad situation to follow.
Thank you for visiting my blog.
Your feedback helps me continue to publish articles that you want to read. Your input is very important to me so please leave a comment.
Jim Weber, President
New Century Dynamics Executive Search
www.newcenturydynamics.com