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Critical Mass

A Case Study in Virtual Inventory and the Benefits of Mass Customization
Before the Great Recession had even started, jeweler David Nygaard knew his business wasn't working. Even though he had several bench jewelers on staff to do repairs and custom design, and he himself was a designer, his days had become focused entirely on one goal: To promote the branded lines he kept in stock. Those lines had required a big investment-too big to be profitable, it was turning out-and he struggled everyday to move them at his seven stores in southeastern Virginia.

He needed a new way to do business he knew that too. So he decided to try using prototype samples. Known throughout the industry as "brass-and-glass," these samples would allow him to test-drive style variations with his customers, without having to carry live inventory in all of his stores. He first asked two of his vendors to create some samples based on their bestsellers, but they were very skeptical and resisted.

So instead, Nygaard himself chose two of his most popular styles and had versions made in silver, each one customized to reflect local customers' preferences (as well as protect him from copyright issues). Each prototype could then be further customized according to a customer's tastes – including the choice of metal, gemstone, side stones, and setting. In this way, the cost of precious metals and gems to make the pieces could be deferred until he actually had an order in hand.

"We reduced the number of live versions of those styles to just two or three, and replaced [what we removed] with prototypes in each of our seven stores," he remembers. "I discovered that we were able to save our company about $300,000 in inventory holdings for just those two styles".

Even more important to Nygaard was that his customers could now have fun and participate interactively in choosing their jewelry. Prototypes mean they could look over a range of rings (instead of just inspecting one at a time for security reasons) and pick them up and touch them freely. A long- time fan and personal friend of business expert Joe Pine, author of The Experience Economy and Mass Customization, Nygaard had taken to heart Pine's exhortation to retailers to transform their businesses into ones that entertained and delighted customers, giving them an experience they'd never forget."

Pine pointed out that in order to transform a product [like jewelry] into a service, one simply needed to customize it for the user," says Nygaard. "To turn a service into an experience, however, one had to 'stage' the service into something memorable, engaging, and educational. Jewelers have a unique opportunity to provide truly transformational experience we have the ability to help clients become who they really want to be with a customized purchase." Nygaard developed more prototypes, and was encouraging his sales team to be open to this new idea "they were as resistant as the suppliers had been"-when the downturn hit.

A bank called his loan at the beginning of the recession, and despite his good credit history, Nygaard lost all but one of his seven locations, his live inventory, and his employees. All he had left in his Chesapeake, Virginia, store were his prototype samples-and a license for Gemvision's Matrix CAD System that his bench jewelers had used. And that system would help Nygaard to create a new business, one based primarily on virtual inventory and mass customization.

Virtual Reality
Nygaard had for years been intrigued by the pioneering work of Greg Stopka, owner of JewelSmiths in Pleasant Hill, California, who had long ago given up his investment in live inventory. Instead, Stopka had chosen a digital alternative. He had installed computers throughout his store, on which he could show his customers a range of CAD renderings-renderings that could often be modified right in front of them. No inventory, no unsold items gathering dust. Just customers able to get what they wanted.

"Greg's model seemed to address the whole problem of unsold inventory and low stock turn, which is the bane of the industry," says Nygaard. "In addition, I was noticing that even the most successful designer lines I stocked needed slight modifications to satisfy my customers' desires for personalization. Yet most designers are not set up to easily modify their designs. It would take them a long time to make the customized version-and then I was still left with the original live piece, which I still hadn't sold! But I knew that I wasn't capable of customizing jewelry either, because I wasn't CAD – or bench – trained, even though I am a designer and a gemologist."

So Nygaard took that Matrix license and set out to learn CAD designing for himself, because he knew that was the key to Stopka's virtual inventory model. "I had essentially viewed CAD as just a way for my bench jewelers to move beyond hand carved waxes [when they did custom work]," says Nygaard. "Learning CAD helped me to see its potential as another very powerful tool-in addition to prototypes-to help create that customizing experience for my clients."

It took Nygaard about four months to learn the essentials of CAD and to be able to handle basic ring designs. As his skills increased, he began to amass a library of styles. If he had prototypes that were particularly strong sellers, he created digital versions that he could show to customers and manipulate. And he used his prototypes to help customers learn about styles and proportion. Nygaard recognized early on that people had as much trouble articulating what they wanted as he had trying to predict it with live inventory. Clients also struggled to translate big images on a computer screen to tiny life-size pieces until they saw a similar prototype.

"I also redesigned the store by removing unnecessary showcases and adding more comfortable seating and a working desk where I could do custom design directly with clients – like an office-type setting," he says. When he had seven stores, he had spent more time on management and less time on the selling floor. Now Nygaard was back to designing jewelry, working directly with customers one-on-one and liking it. When he sold a customized version of a design, he used a number of subcontractors to "clean up" his self-admitted newbie's efforts in CAD, make the models, cast them, set the stones, add personalized engravings (where needed), and finish them.

When the bead bracelet craze took off, Nygaard found another way to offer customers an inexpensive customizing experience: He used his CAD program to create a bead collection that was localized to his area. A popular East Coast historic and seashore destination, Chesapeake [Virginia] and the surrounding region offered lots of opportunities for nautical, flora, fauna, and other motifs that customers could buy as vacation souvenirs. The customized beads, made for him by his subcontractors, fit on all the popular bracelet systems, such as Pandora, Chamilia, and Troll Beads. If customers didn't yet have a bracelet system from a branded line, he could help them there, too. He sourced bracelets as well as other beads, from Silverado Designer Beads by Argenti Oro, a bead line made from Murano glass, silver, and 14k gold.

Nygaard liked his new business model, selling his beads and virtual designs, doing some custom CAD work for those customers who required it. But he wanted efficiency, too, and he began to see the flaws in working with only his own designs, which then required many different individual subcontractors to make and finish.

"Not every service could do every aspect of a job – and because I don't do any of it beyond the design, my virtual inventory model was turning out to involve a lot of coordination and time." He also wanted to have more of a selection of designs to show his customers, beyond his own creations. He knew there were very successful bench-trained jewelers, like Stopka, who worked efficiently on the complete in-store custom-design experience. But he wanted to explore what was available beyond his doors.

What he found took him to the next stage of his business- building journey.

Custom en Masse
In 2009, two of Nygaard's vendors, [one a manufacturer and distributor of jewelry and jewelry-related products and the other a well known CAD software company] partnered on introducing a mass-customization, virtual-inventory program. It is a countertop computerized custom-design system, which enables jewelers to work with clients to customize designs on screen from a starting point inventory; those designs were then turned into finished pieces by the distributor typically within eight to 10 days.

As soon as he heard about it Nygaard thought it might help to reduce his reliance on subcontractors, while at the same time increasing his selection without expanding inventory. And when he became so engrossed in playing an early version of the program that he missed a connecting fight at an airport, he was hooked.

Though he continued to create his own custom designs and use his network of subcontractors, Nygaard was among the first purchasers of a license to use the system. "It provided a nice increase in basic models I could show customers, and they loved being able to make changes on the computer screen and instantly see a realistic rendering of a ring – not a CAD drawing," he remembers. (He later added to his operation another software suite from the same group which enabled him to work with clients to find a diamond, design earrings, engrave wedding bands, and other custom tasks.)

Around the same time as he purchased the software license, he also began working closely with another vendor, Overnight Mountings. Overnight was just at the beginning of its own exploration in providing prototype services, in which it creates designs, supplies silver models, and creates finished pieces for jewelers. Nygaard also ultimately incorporated prototype programs from Unique Settings of New York and Gabriel & Co. He now had an abundance of designs to show customers – without the need for additional subcontractors. His mass customization model was complete.

Mass Success
Nygaard puts all of the elements of that model to good use. When a customer comes in, Nygaard does what every good jeweler should: He listens. As the customer begins explaining interests and needs, the jeweler formulates a plan. With some clients, their specific requests will indicate to Nygaard that they need the "from scratch" custom experience, and they get to work on an original design, which he'll complete in CAD and send to his subcontractors. Turnaround time for this method is usually three to four weeks.

Other customers may begin describing wants and needs that the jeweler knows he can fulfill quickly with that design software, his own virtual designs, or one of his prototype sample lines. Then it's a matter of figuring out which to start with: prototypes or on screen design.

"Many women-though not all want to dig through case after case of styles, so I'll ask my customer if that's [her preference],"Nygaard says. "If she expresses interest, I take her over to the prototypes." Depending on the style interests she has shared, he selects from among his various sample lines to help her begin her search. "Each supplier's line has a different look, so it's great to have all of them," he says. "And the more styles you have to show a customer, the more likely you'll sell one." For customers in a hurry, he can turn around the customized designs he gets from his vendors in as little as one to two weeks.

On the other hand, many men (though again, not all) love the idea of designing something using computerized technology. So after establishing that interest, Nygaard will take those customers over to his computer and they get to work designing something via the software. "But regardless of that, most people still want to hold the jewelry – and I have enough prototype styles now that I can usually show them something similar to what we're designing on screen."

His new strategy of virtual inventory and mass customization has worked. "We have actually grown our business today in the Chesapeake store location above that store's highest point in 2006-7. Our sales volume is up 20 percent compared to that high point, and our margins, which were always good, have increased, too.

"The jeweler does have some live inventory, he points out, which he eventually recovered from the bank that called his loan-but he uses that exclusively for those (usually male) customers who run in at the last minute and need something instantly for a special occasion. "I've [also] broken down some of the old inventory, as the price of gold has risen, or I needed the gems," he says. "But I can tell you that when it's gone, I won't be buying more."

Nygaard has experienced enough success to hire two full-time and one part-time employee, all of whom are completely sold on his new selling model. "My new store manager hadn't worked in the jewelry industry before, so she wasn't tarnished with the pre-conceived idea that you could only sell live inventory. She was completely open to learning my custom systems.

"As Shakespeare once said: "Oh brave new world that has such people in't!"

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david nygaard fine jewelers

754 First Colonial Road,

Virginia Beach, VA 23451

Phone. 757-965-3337

Email. david@davidnygaard.com

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