Rapaport Magazine

A Trip Down Memo Lane

By Jennifer Heebner

While consignment can be a touchy subject for jewelry creators, both they and their retail clients can benefit if there are firm and respectful guidelines in place.

When Barney’s was about to go bankrupt in February 2020, jeweler Jackie Cohen got a tip from one of the New York department store’s sales clerks. The employee hadn’t gotten paid that week and suspected the company was having financial trouble. Cohen had about $50,000 of goods on consignment there — a massive sum for the single mother and self-funded entrepreneur behind My Story Jewelry — and the clerk urged her to go collect them before it was too late. Cohen, who was not in Manhattan when she got the message, sent her brother as a proxy; he waited two tense hours at the store until it released Cohen’s inventory.

“It was my money, my assets,” she recollects. “It was very personal.”

Now she avoids deals that are exclusively consignment. While the move cuts down her retail distribution, the flipside is that she won’t assume that level of financial risk again. Lesson learned.

Not quite free

Consignment and memo practices in retail stores vary widely, but the basic principle is that the retailer gets to keep the merchandise in store for a set period without having to pay the maker until the goods sell. Specifically, the term “consignment” usually refers to a longer-term arrangement — a couple of weeks to a few months — while “memo” tends to be a shorter-term loan, about a week.

Both policies make the goods essentially “free” for retailers to stock. Instead, the financial burden falls on the jewelry designers, who still need to pay their suppliers immediately for the metal and stones that go into making said goods.

Given that jewelry stores typically sell only about one of each product per year on average, it’s understandable that owners might prefer to get pieces on memo or consignment rather than buy wide and deep in a designer’s line. Purchasing up front carries the risk of locking up cash in items that are slow to move, if they move at all. That makes it difficult to meet rent, payroll, advertising and other bills.

“If a line [I’ve purchased] doesn’t sell, it’s all on me — I still have to pay for it and then liquidate it,” explains Andy Koehn of Koehn & Koehn Jewelers in West Bend, Wisconsin, which offers brands such as A.Jaffe, Tacori, and John Hardy. And if the creator won’t take the unsold goods back, the burden on the merchant is even greater. “I know makers have hard costs and risk not being paid [when they do consignment], but so often it seems [that with buying,] the burden of risk is just on the retailer.”

Of course, if the consigned pieces turn quickly and the merchant pays quickly, the deal can be a positive one for both parties. But problems arise when designers — particularly independent artists who self-finance — agree to supply pricey inventory to shops with lax reimbursement policies or unrealistic memo expectations.

Potential pitfalls

For designers and manufacturers, there are several challenges that come with the consignment model. For one thing, they’re giving over their merchandise without getting paid for what may be a long time. For another, they have to worry whether the merchants will treat the loaned goods with proper care.

“We’ve had things returned [from consignment] broken,” reports Meaghan Flynn Petropoulos, cofounder of For Future Reference, which acts as a sales agent for several independent jewelry designers. If a retailer’s business model is consignment, she says, then its inventory becomes “someone else’s liability.”

Having a lot of unpaid merchandise tied up as consignment in a store also means artists have less freedom to sell it elsewhere, such as at private events or in pop-up shops. And what happens when a retailer sells a consignment item and doesn’t report the sale right away? The maker doesn’t get paid in a timely manner.

“I’ve had situations where I find out my jewelry is no longer in the case and I’ve not been told,” says Gina Ferranti of the GiGi Ferranti label.

Designer Julie Lamb can relate to the struggle of not knowing her goods’ fate. Early in her career, she would ship her best works, including one-of-a-kinds, across the country to stores on consignment in the hope of making sales. It was massively stressful to wait until items came back — less so for local stores, because she could just pop over to check in person, but the onus was ultimately the same. “I’m not a bank,” she declares.

The store’s responsibility

Still, the upsides of consigning — the possibility of sales and establishing distinguished-looking retail relationships — are enough of a lure to keep many brands open to trying it or even seeking it out. And there are retailers out there that make it worthwhile.

Reinhold Jewelers in Puerto Rico is renowned for the respectful way it transacts with creators: The merchant buys a good 98% of what’s in its cases. Because of that, Reinhold is a trophy account in the eyes of makers. “We have many designers who call us and say, ‘We would love to be in your store, we can give you jewelry on consignment,’” says Mildred Marcano Abrams, the company’s sales, marketing and buying director.

Of course, she can’t accept everything. “If it doesn’t fit in our store — if it’s too similar to goods we already have, or it’s poor quality — we don’t take it.” But with the pieces she does take, Abrams is meticulous: She texts designers when they sell, pays every Wednesday, and shares monthly sales reports with vendors.

Koehn does his part as well. A third of his inventory is consignment, and his wife — who is also his bookkeeper — immediately reports and pays for the goods that sell. Failing to pay in a timely fashion is not just unfair to the vendors that trusted the retailer with their jewelry, he believes; it also becomes an accounting nightmare for the store itself, as debts can add up fast. “Our store exists to be an extension of manufacturers, so we take reporting and paying seriously,” Koehn says.

Kathy Zaltas of Zaltas Gallery in Mamaroneck, New York, acknowledges that little-known designers have it harder under the consignment model, especially since big brands like Cartier have seemingly endless funds to advertise. This fact doesn’t stop her from stocking the works of more than a dozen independent creators, though.

“Customers aren’t necessarily coming in asking for designer goods,” she says. “My people just want what’s new and beautiful.”

Among the designers she carries is Lori Friedman of Loriann Jewelry. “I’m like her showroom,” says Zaltas, who features Friedman’s work in store cases, on social media, and in email and direct marketing campaigns.

Padding out paid merchandise

Artists and store owners agree that consignment is good for supplementing paid-for inventory, particularly at trunk shows.

“Special pieces complement what we already have in store,” says Abrams, who generally prefers purchasing to consignment. “We believe when you like a designer’s work, you buy it. Then, when it’s your inventory, you sell it; it’s not optional.”

Ferranti uses consignment to reward stores that are ready to place minimum orders. “I’ll support them with larger pieces they are afraid to take a risk on,” she elaborates.

Petropoulos recalls such a piece by client Harwell Godfrey. Brand founder Lauren Harwell Godfrey unveiled a gold and gemstone mandrill monkey pendant at the 2022 Couture trade show. “I knew it would not go home with a store [as a stock purchase],” explains Petropoulos, but she was confident that a distinctive design like this would find a buyer if she could get it into the hands of the right retailer.

Even Cohen doesn’t mind supplementing some paid orders nowadays with a few extra consigned best-sellers, despite her Barney’s scare. “I wouldn’t manufacture something to consign, but I always have extra Julia rings in stock because they turn,” she says, referring to a popular baguette-centered stacking ring that she named after her daughter.

Keep the message in mind

As retail strategy goes, Koehn’s differs from those of stores like Zaltas and Reinhold, since he doesn’t sell independent designer lines; he only carries large brands. From some, he gets diamond basics and bridal styles on consignment.

“[These] core products are what we’re selling [anyway], so it’s a win-win for each side,” he says, as both parties know the goods will move quickly.

This doesn’t mean he’s limiting consignment to bread-and-butter items, but any inventory must make sense for the store brand. Eleven years ago, he fell in love with an avant-garde pearl line that just didn’t vibe with any of his existing merchandise. “I thought it was the coolest jewelry ever, but it was a hard fail,” he relates. “Customers thought it was weird.”

Longtime jewelry industry executive Peter Smith, who has authored three books on retail, is well acquainted with the Pandora’s box that is consignment. “[Store owners] load it up because it’s ‘free,’ but there’s a big cost associated with it” if they fail to consider how it fits into the store’s messaging and what drives its revenue, he cautions. He has found that consignment choices are often “devoid of common sense,” and can come across as “noise” when skillful use of negative space might better honor existing paid products.

Hard to maintain

In the early days of a designer’s business, consignment may seem like the only way to get into a store — and sometimes it can get you started. But it’s not a sustainable long-term strategy, according to those with industry experience.

“The downsides are infinitely greater than the upsides,” asserts Smith. “If you’re bringing in bucketloads of memo, you have a questionable business model. And if it’s in a vault and not in front of the customer like assets for sale, then shame on you.”

Even seasoned makers like Sonny Sethi of Tara Pearls stopped doing consignment. “We pulled it all back because it was sitting under cabinets, not in cases,” he says. “Now we just give it short term to good customers.” He learned the hard way after New York-based jeweler Fortunoff went bankrupt — twice — and Tara lost more than $500,000.

“It’s difficult to sustain a business on memo only,” agrees Friedman, who discontinued full-consignment practices three years into her design business. “I reached a point where I felt comfortable asking stores to place orders.” Happily, most accounts were understanding.

For Ferranti, the lightbulb moment for ending her gratis shipments of goods was the dwindling sum in her bank account. Expenses were growing, but sales were not.

Lamb empathizes. “We’re all just trying to make a buck. Why should I give someone free jewelry?”

Fair play

Consignment and memo do have a place in jewelry, but the terms must be fair to both lender and borrower. The vast landscape of mom-and-pop jewelry stores and independent artisans must find an equitable way to work together. Stores need to sell, report, and pay for consigned goods within a clearly defined period of time. Makers should believe in themselves, avoid overextending resources, and insist on terms that safeguard their business.

One new move that artists have been making lately is to provide consignment goods only if retailers are willing to take a lower percentage of the sale price. This ensures that more of the profit goes to the designer.

“My controller would love us to have more memo,” says Abrams, referring to her coworker who keeps an eye on finances. “But I only take pieces that I believe have a good chance to sell.”

Image: Gigi Ferranti

Article from the Rapaport Magazine - August 2022. To subscribe click here.

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