Opening a jewelry store: a profitable but risky business

hHistorically considered a safe haven, gold no longer attracts Moroccans as much. Jewelry purchases are no longer made for hoarding purposes, but rather punctually, on the occasion of family events, for example: engagements, weddings, baptisms, etc. In addition to the change in mentality, this change in attitude is driven by the combination of some factors, in particular the decrease in household purchasing power following the economic slowdown observed in recent years. “The activity of jewelry stores is closely linked to the purchasing power of customers. Buying gold has become an accessory in the current situation., confesses a local jeweler. The other factor is the high volatility of gold prices locally in recent years.

In fact, since 2012, prices have fallen almost 40% in the domestic market, as have international prices. From a peak of 550 DH per gram during the year in question, we went to a range between 330 DH and 350 DH in 2013. Since then, the gram of gold has lost a few tens of dirhams. Currently, the jewelry sells for between 300 and 305 DH. “Until the eve of Eid Al Fitr, a gram was priced at 310 DH; The next day it was 10 DH less”says a Casablanca retailer. And it is precisely this strong variation in prices that reinforces the skepticism of customers who are used to buying gold to resell it at some point in their lives, especially since resale prices are naturally at a lower level than that of the new jewelry.

Needless to say, jewelers are the first exposed to the volatility of gold prices. If they buy coins at a certain price and in the meantime the value of the gram depreciates, they will be forced to align with the current market price given the strong competition that characterizes the sector. “Before 2008, an amount of 10,000 DH could produce between 50 and 60 grams and leave a fairly comfortable margin that reached 5,000 DH, allowing the jeweler to cover his expenses and even save to reinvest. After 2008, 10,000 DH provided a maximum of 25 grams of gold for a margin of no more than 1,500 DH. Certainly the situation has improved slightly since then, but the context remains difficult.”reports a professional.

However, beyond the economic factors that are currently slowing activity, this sector remains intrinsically one of the most profitable. If we control the risks that weigh on this profession and if we make the necessary efforts to attract and retain customers, the income and profitability of a jewelry store can be interesting, as the example below illustrates.

Most of the investment budget is allocated to the acquisition of initial shares.

If you plan to open your own jewelry store, you should study several parameters, including location. Ideally, you would want to open a store in a well-known and dynamic shopping center, in a busy area or on a street adjacent to a major commercial artery. Of course, the rent will vary considerably depending on the area: for example, in Casablanca, the rental of a gallery in Hay Mohammadi would cost between 6,000 DH and 10,000 DH for surfaces varying between 9 and 12 m.2. In Maarif, the rent varies between 10,000 DH and 15,000 DH, while in the Golden Triangle the minimum payable would be 20,000 DH.

In any case, to open a 12 m jewelry store.2 In the Maarif district, an initial investment of just over 3.5 million dirhams should be planned, including initial stock of jewelry and working capital.

First of all, it will be necessary to fix the premises, and this requires an average budget of 300,000 DH. This sum covers the painting of the store, its equipment (a built-in air conditioning at 10,500 DH or a simple one at 4,000 DH, a showcase whose price varies depending on the materials chosen – the current trend is solid wood and stainless steel – which can go up at 60,000 DH, a 1m80 counter at 4,000 DH, an electronic scale at 3,000 DH, jewelry displays for an average amount of 20,000 DH (including small displays 15 cm high at 70 DH) and large ones at 250 DH) The store should also be equipped with a solid security system: for an amount of 5,000 DH, you can have 4 surveillance cameras, a DVR (video surveillance hard drive) that manages video recording and remote viewing. the installation of an alarm center, accompanied by two motion detectors, a siren and a remote control for a total amount of 10,000 DH, the store must be as bright as possible to attract the attention of customers. Therefore, it would be necessary to provide LED connections for a total of 30 meters, at 90 DH/meter. For every 10 meters of LED, it is necessary to have a transformer that costs 450 DH.

Once the store is operational, you will need to purchase the jewelry from a local wholesaler. The budget will depend on the financial capacity of the investor. “There is no rule in terms of budget to invest at the beginning, the jeweler can only invest one hundred thousand DH, as he can invest a few million DH, but the more he invests, the more he can expect a good return on investment. because billing is strongly correlated with the amount invested”says a local jeweler. For our example, we have decided on an investment of 3 MDH, the equivalent of just over 6.5 kilos of gold. Please note that thereafter the supply must be made monthly or even weekly, depending on demand. “A jeweler must maintain his storefront, it must be constantly well stocked to attract customers and maximize the profitability of the store”says a local retailer. To keep your shop window well stocked you need about 200,000 DH per month.

It's all about trust

The start of the activity generates several operating expenses, including the monthly rent of 10,000 DH (among the investment expenses a 3-month deposit of 30,000 DH is expected). Then you must hire 3 employees; among them a salesman, a security guard and a cleaning lady. Thus, the payroll amounts to 12,000 DH per month, or an annual cost of 144,000 DH. Other costs are expected, such as energy for an annual bill of DH18,000, taxes for an annual amount of DH120,000 and insurance of DH25,000. In total, operating expenses amount to 2.8 million dirhams.

As far as turnover is concerned, this depends on several parameters. Indeed, the business is based above all on the reputation that the jeweler has been able to build, on the trust and loyalty of its customers. “This is the basis of our business, a loyal customer trusts the items we offer and does not negotiate”, gives us a jewelry box. And to add: “To win in this sector, you have to focus on the long term; It takes time to prove yourself and build your network. You also have to be patient because profitability at the beginning of the activity could take 4 or 5 years!”. In any case, if the jeweler starts by having a network and offers items as varied as they are processed, he could reach an average monthly turnover of 300,000 DH.

In summary, the jewelry business can generate, at the beginning of its activity, an average annual turnover of 3.6 million dirhams and a net tax benefit of almost 541,000 dirhams. In this case, the net margin is around 15%.

(tabs)(tab title =”The elements that make up the price of a jewel“)The selling price of a gold piece of jewelry includes the purchase price by the jeweler, his commercial margin, which varies depending on the model and size of the piece, as well as operating costs, in particular labor, which varies from 50 to 200 DH. per gram worked, depending on the model: items called “beldi” that exceed 100 grams (gold belts, for example) are paid at a flat rate of 50 DH per gram. Working on this topic does not require any special setup and the allotted time rarely exceeds three business days. Although the model classified as a “jewelry item” is more refined and therefore more expensive, it requires more detailed recycling that can require up to two months of work in the workshop. In this case, the price per gram is 200 DH or even more. Note in this sense that the remuneration of artisans is increasing more and more due to the complexity of the models and the shortage of skills. Furthermore, the costs borne by the workshop are high, due in particular to the high cost of the equipment used, personnel costs, customs duties, recycling costs, chemicals, etc. (/tab)(/tabs)

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