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Memo Goods: Safe When Used as Directed
Questions about the retail jewelry industry's use of memorandum
merchandise evoke terminology usually reserved for controlled
substances. It seems that a little is OK, but too much can kill you.
This was the consensus of retailers questioned in a recent survey.
The vast majority claimed to indulge only very moderately, and to be
using the same or slightly less memo than they had been a year ago. On
the other hand, however, many reported that memo is being offered by
their suppliers far more frequently, and that it represents the way of
the future.
Memo has long been a two-edged sword for the jewelry industry. It
provides retailers with a way of rounding out their inventory while
holding onto their capital -- especially for more expensive items that
require a major outlay and might sit in the case for many months
waiting for a buyer It allows them to show larger, more expensive
stones without laying out the cash first. And, it allows them to
experiment with new merchandise without paying for a misjudgment.
However, it also interferes with their ability to compete in the
price wars, since, once the bill comes in, it will almost always be
higher than it would have been had the merchandise been bought
outright. And, it sometimes dampens the sales staff's enthusiasm for
selling the memo piece, since it's more pressing to move the
merchandise in which the store has already invested its money.
From the supplier's side, memo also has its downside, taking
inventory out of the marketplace for potentially long periods of time,
with no guarantee that a sale will result. It's a drain on cash flow,
requires careful tracking and puts merchandise at risk should a
bankruptcy, robbery or other disaster befall the store holding it.
More Good than Harm
Yet, both sides have largely found the arrangement to do more good
than harm, and suppliers are now apparently more willing to take the
risks in return for the benefit of getting their goods out there, into
the stores, where they need to be.
At Helzberg's Diamond Shops, based in North Kansas City, MO, Senior
Vice President Marvin Beasley describes the operation's use of memo as
minimal.
"We use it a lot less than we used to," he said. "If you look back
over 10 years, you would see that 10 years ago we took a lot more.
Five years ago it was already less, and now it's much less."
The reasons for the gradual cut-back, he said, are several. First,
the store has grown to the point where it is financially equipped to
buy more of its inventory, and that, said Beasley, is "less hassle."
"With memo, there's paperwork, tracking....it's not worth it if you
can buy your own inventory," he said.
Helzberg's policy is to maintain substantial inventories in all its
store. Each carries at least 18 stones in solitaires of a carat and
up, as well as a wide range of other diamond jewelry. The ability to
buy also means more choice and more control over what appears in the
store's cases. More Choice, Lower Price
"You buy what you want, rather than having to take what's in stock,"
Beasley said.
And of course, the lower price of paid-for inventory allows Helzberg
more flexibility in its pricing. It has room to compete, and it has
room to make a decent profit.
Nevertheless, even for this chain, memo has its place. It does take
some items on consignment, and also utilizes its supplier relations to
call for a stone that a customer requests.
At Fox's Jewelers, a Michigan-based chain, memo is also used
sparingly and with caution. There, its major purpose is to provide
some added sparkle to the stores' holiday offerings.
"We only use it for high-end items," said Jack Bowen, president and
CEO. "We're more interested in offering the merchandise we've bought.
This way we can control our mark-up."
Despite the chain's reluctance to take goods on memo, Bowen reported
that he's seen a major increase in the number of suppliers offering
it.
"They see that this is the way they're going to have to go," he said.
The same was noted by Kenneth Braude, president of the Chicago-based
Braude Jewelry Corp. His stores have been using slightly more memo
recently, although, he maintained, it is still "not a major amount."
The increase, he said, has been due largely to increased availability.
Filling in at the Low End
An unusual twist in the use of memo was reported at Rogers
Enterprises, based in Park Forest, IL. There, Executive Vice President
Juell Kadet reported that her stores use memo for the lower end
merchandise.
"We don't stock anything under a third of a carat," she said. "And we
want to sell what we have."
In order to offer the lower range merchandise, she said, the store
takes it on memo, thereby reserving its capital for the more
profitable, higher-end pieces.
"The lower qualities go out at a lower price," she said. "We'd rather
put our money into the better qualities."
Like credit cards, memo appears to be something everyone uses, nobody
particularly likes using, and everybody would eschew if the vault were
always filled with cash. In the stop-and-start, uncertain economic
weather that now seems to have become the country's permanent climate,
retailers are using memo with caution, restraint and focus.
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