Say you’re the owner of a 120-year-old family business composed of four stand-alone retail stores in different cities. It throws off a nice living, but you want more. In fact, you want your business to become a $500 million company within 10 years.
There’s a little wrinkle to smooth out, though: You’ve had three straight years of declining sales and contracting margins.
That’s the true story of Terry Betteridge and the company that he wholly owns, Betteridge Jewelers. He met with some consultants last year to talk about his ambitions. They told him: The first thing you need to do is hire a real CFO to come in and fix your problems.
As it happened, making a profit wasn’t one of the problems, even with the declining sales volume. The company was still bringing in almost $100 million of revenue per year, most of it from its high-end stores in Greenwich, Conn.; Palm Beach, Fla.; and Aspen and Vail in Colorado. The profits were such that Betteridge never needed any financing other than the free cash flow the business generated. But the status quo was not compatible with the goal to grow the company five-fold.
So, the owner took the consultants’ advice and last October hired a new CFO, Nick Fischer, who had been director of financial planning and analysis at Nordstrom and previously a financial analyst at Capital One. It’s his first CFO job.
Almost immediately upon starting, Fischer realized that the challenges he faced were greater than he expected, to say the least.
“I knew the business needed an operational transformation to achieve its goals and that there was work to be done on the finance and accounting team,” he says. “But I found out that very little data was being measured or analyzed. There was an interim CFO who was doing cash-flow forecasts from memory and making multimillion-dollar decisions in his head. I had never seen anything quite like it before.”
Betteridge wasn’t even close to being positioned to pass a formal audit so that it could qualify for loans or equity financing. “What I saw shocked me,” Fischer says. “When you’re coming in and interviewing with a $100 million business that seems pretty well run, you assume there’s an end-of-month closing process, and there wasn’t one. Financial statements were being produced only twice per year. I was basically starting from scratch.”
So, before he could get to work on a growth plan, Fischer had to build out a new finance and accounting infrastructure and leadership team. “Consultants like Deloitte talk about finance as a catalyst of strategy and the steward of the business,” he says. “But how can you possibly be a strategist or steward if you can’t even report out your numbers? What we’re doing this year is putting in place a platform that will enable growth.”
Ten years may seem like a long runway for growing a company, but Fischer judged that the situation called for fast action. To save time and gain efficiencies, he hired Consero Global, a provider of outsourced finance and accounting services, to handle all transactional work and drive the month-end close process. “Those guys are world class,” he says, adding that he learned of the firm from a 2014 CFO article.
Fischer also hired a vice president of FP&A to oversee business and strategic planning, conduct weekly and monthly business reviews, and create forecasts — something else that wasn’t being done before his arrival. Meanwhile, Fischer is working to optimize cash-flow management and looking at ways to build a capital structure to support growth.
To envision where Fischer and Terry Betteridge are starting from in their quest to grow the company, here is some context.
About 80% of the current revenue comes from the four stores, which largely curate high-end jewelry and watch brands. The company also employs some of the world’s finest jewelry makers, who produce Betteridge-branded items and make customized pieces that fulfill customer requests. But the branded products currently account for only $2.5 million of revenue.
There is also a smattering of e-commerce revenue, and the company attends about 15 jewelry shows per year in places like Las Vegas and Hong Kong, where wholesalers come to buy in bulk. “It’s primarily a liquidation channel for us, so the margins aren’t great, but it’s a great way to manage inventory,” says Fischer.
One nagging issue for the company is procuring diamonds for the Betteridge-branded jewelry. Typically when retailers buy products and materials from vendors, they have 60 to 90 days to pay, and often end-products can be manufactured and sold before the bill is due. But diamonds must be paid for up front, which requires a steady flow of capital.
To deal with that, Betteridge last year struck a deal with a New York hedge fund, which is providing leveraged capital for diamond purchases. It costs the company some points of gross profit margin but improves supply-chain efficiency. The first year of the deal was considered a test run, but proof of concept has been achieved, Fisher says.
The vision for getting to $500 million in revenue is multifold. The biggest piece calls for expanding to perhaps 10 to 15 more locations in the United States. The company has completed a build-vs.-buy analysis that concluded it would be far better to buy existing jewelry stores and transform them over time to Betteridge’s style and branding.
“There is about $80 billion of jewelry sales every year in the United States, and we’re only $100 million, yet we’re a top-five retailer across most of our big brands, like Rolex and Cartier,” Fischer says. “So there are a lot of moms and pops out there, and as those folks retire we can select markets and pick up a portfolio of stores that meet our criteria.”
The existing Betteridge stores are “extraordinarily productive,” he adds. “So if we can find the 10 best markets in the U.S. and acquire the best assets within them, we could add half a billion dollars of business right there.”
Financing for the acquisitions would come from a combination of the company’s own free cash flow and seller financing, Fischer says. Betteridge is also in the preliminary phase of exploring “an innovative approach to a private equity-backed acquisition strategy.”
The acquisition activity likely won’t launch for at least 18 to 24 months, while the company optimizes its existing operations and builds its platform for profitable growth.
From a sales standpoint, the rest of the national and global footprint would be covered by an improved and expanded online business. The first step is a complete revamping of Betteridge’s website, the current version of which “is frankly terrible,” Fischer acknowledges. The company is investing heavily to build a new site, which is scheduled to go live in this year’s third quarter.
The third main element of the growth plan rests on expanding the Betteridge Products Group, the unit that makes the branded jewelry. Fischer says the unit produces “Tiffany-quality” pieces, but the company doesn’t need to make Tiffany-level margins on them, providing a pricing advantage.
The company already is investing heavily toward the group’s expansion. The plan is to vastly ramp up the manufacture of “high-quality basics” like engagement rings, cluster earrings, and pendants, and market them to “aspiring millionaires,” as opposed to the high-net-worth crowd that comprises Betteridge’s core demographic.
The items will be sold in the company’s stores, but Fischer also is working on a wholesale strategy to move the products in large volumes.
A potential hurdle for the company’s overall expansion is the ability to hire enough top jewelry makers. “It’s a huge factor,” Fischer notes. But a goal for the high-quality basics line is achieving a heightened production volume, which will require a manufacturing facility in an area that’s “a lot less expensive than Greenwich, Conn.”
A further aspect of that vision may include starting up an apprentice program at the production facility, with some of the company’s top jewelry makers serving as instructors.
Plans are in place for a major branding initiative, told through the voices of the artisans from countries like France and Italy who are manufacturing the line in the United States.
So there’s lots for Fischer to do, but the goal of getting to $500 million is highly compelling and motivational. “We are on an exciting journey,” he says.