The memo trap

Memos are a big part of the jewellery business. It is a way to bring in goods for a short time to fill a specific request. But some stores operate almost entirely on memo goods. It has become a quick, easy way to get in the jewellery business without a large investment in inventory New stores often turn to memos to get their stores open with the intention of building their own inventory as their business progresses. Unfortunately, this rarely happens. They get caught in a memo trap that is very difficult to escape.

Memo is expensive

Even though there is no money spent up front, memo goods are very expensive. The supplier may need to get bank financing to produce the line and deliver it to the retailer. The interest on that loan is added to the wholesale price on the memo. Since the supplier is lending a substantial amount of value to the retailer, he expects to get an additional return on his investment; further increasing the price of the goods. If the competition is buying goods for cash they will get a substantially lower price. In some cases a store buying large quantities to get volume discounts can retail an item for the same price or less than the memo store must pay for the item. That makes it difficult or even impossible to compete.

Memos siphon cash flow

If you own your inventory the proceeds of any sale belong to you. It can be used to pay overhead, payroll, buy new goods or send your kids to college. In a pinch you can even sell at a slight loss to cover an immediate payable. Cash from sales of memo goods is not yours. You owe money on those goods. You cannot decide to allocate the money elsewhere. But often you need to spend that money to cover an urgent bill or emergency expense. From that point on, you are playing catch up. When a supplier shows up to get paid, you use whatever cash is on hand to pay him, hoping you’ll have more money to pay the next supplier. You end up paying yesterday’s bills with tomorrow’s sales, leaving nothing for yourself

Memos are a big part of the jewellery business.

Memos are a big part of the jewellery business.

Memos are not assets

You do not have legal title to memo goods. They belong to someone else. You cannot borrow money from a bank on inventory you don’t own. In the event that you want to retire or are forced to go out of business, you may walk away with nothing. In fact, you may still be in debt while someone going out of business with owned goods leaves with money in their pocket.

Memos as a tool

Memo certainly plays an important role in our industry. A memo can be a very useful tool. Besides a quick short term memo to fill a particular call, memo can add that special item to your offering that may be too expensive to buy for stock. Sometimes having that exquisite high end piece can help create interest in the rest of a line that you currently stock. It can also help fill in a few gaps in a line during your slow season instead of waiting for the good times to buy more goods.
Over reliance on memo is a trap that you want to avoid. You could end up just being a commissioned salesman for your suppliers rather than building a thriving business with your own assets. Use memo carefully or you could end up in a memo trap.

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