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Jeweler reins in service plan sales(Oregonian (Portland, OR) (KRT) Via Thomson Dialog NewsEdge) Nov. 18--Mike Thayer keeps track of $1 million worth of diamonds as he zigzags across four states staging sales for Fred Meyer Jewelers Inc. Like many in the business, Thayer's a detail guy. So when he noticed salespeople selling service plans on loose gems, he was alarmed. The policies they sold covered repairs to metalwork on bands, earrings or necklaces. They provided no coverage for unmounted stones, which come with free cleaning and require no other maintenance. Thayer began a one-man campaign to curb what he saw as a bad practice and a threat to the Portland company's reputation. He told his boss. He filled out an ethics questionnaire. He called a company hot line. He met with an executive. And he collected more than 75 receipts he questioned from 26 stores. Some involved loose gems, he said, and others reflected sales of two service plans when only one was needed. Executives of Fred Meyer Jewelers -- owned by the Kroger Co. independently from Fred Meyer Stores -- acknowledged the company took nearly two years to act on what it termed "misrepresentations" to customers reported by Thayer. "In some situations, it appears that (customers) could have been overcharged for something they didn't need," said Peter Engel, president of Fred Meyer Jewelers, which operates stores under Fred Meyer and two other brands in 35 states. "You look at it and say there's definitely an opportunity for things to slip through." Spokeswoman Melinda Merrill said the company waited for Thayer to document his claims. Thayer said he was not asked for details until earlier this year. Merrill said the company plans to audit past sales and refund money to any customer who paid for unneeded plans, which cost from $20 to $130. The 410-store chain also has revised its policies to address what it considers a small problem, compared with its overall business. However, Fred Meyer Jewelers said, the exact scale of the problem is unknown because customers are unlikely to be aware of erroneous charges and none has complained to the company. Service plans allow retailers to squeeze extra sales -- and return traffic -- from customers amid stiffening competition. As with other markets, discounters -- in this case, Wal-Mart and Costco Wholesale -- are building up diamond sales and, along with a few Internet sites, have shown customers how low gem prices can go when profit margins are trimmed. Still, such plans present a risky challenge for retailers: how to spur employees to sell the highly profitable plans without taking advantage of customers. Fred Meyer Jewelers pays its biggest percentage sales commission on the plans and asks employees to sell at least a dozen or so a month. But, according to Thayer and eight other current and former employees, the company has lacked internal controls to track and bar improper sales. Thayer and the other employees say the jeweler should install software in the sales register, as some competitors have done, to prevent such sales. Company executives said they can adequately tighten controls and police the problem without needlessly restricting how plans are sold. For a little extra money, the Fred Meyer Jewelers' pitch goes, customers with Value Service Plans receive three years' worth of free maintenance and repair services, from a $6 earring fix to a $175 ring repair. Sold properly, the policies provide valuable protection, employees said, especially on lower-cost metal items that might be more likely to tarnish or break. "You are doing your customer a service by offering the VSP, and a dis-service by not offering it," a company manual said. Fred Meyer Jewelers -- opened in 1973 as a spinoff of Fred Meyer grocers before Kroger purchased both -- began offering the plans in the late 1990s. Company documents indicate the chain sells about $12.5 million a year in service plans, which are priced depending on the value of the jewelry they're sold with. A high percentage of revenue from plan sales is profit, store managers said, because employees who administer and provide the service are needed in stores anyway. Executives said most erroneous charges seem to have stemmed from sales of loose stones. Executives estimate they annually sell 6,000 loose stones, one-fifth of 1 percent of its annual sales of about 3 million stones and jewelry pieces. However, Thayer and two store managers said the company's estimate on loose gems is low and the problem extends to other types of transactions, including the sale of two plans when one would suffice. The jewelry retailer emphasizes service plans in its sales strategy, company documents show. Current and former employees say store computers openly display salespeople's running tallies of jewelry and plan sales, figures that factor in job reviews. Store managers and regional supervisors with top service-plan sales receive kudos and bonuses. "Every week we would get some memo about VSPs; they were constantly trying to get us to sell them," said Paul Coca, who managed two Fred Meyer Jewelers stores in California from 2001 to 2004. Former 10-year employee Barbara Flores, who said she was a top seller of jewelry and service plans, recalled her regional supervisor telling salespeople at an Oregon store in May 2006 to "just add (plans) to the bill, just put them in there." The company would not comment on that assertion. In some cases, overcharges for various service-plan transactions may have been just $20, she said. But, Flores said, "Even if it's just $20, that's dinner for a customer." Thayer has worked for Fred Meyer Jewelers on and off since the early 1980s. For the past four years, he's worked as a "restyle consultant" who stages sales in Oregon, Washington, California and Idaho. A former company salesman, Thayer said he knew the rules about selling plans and began correcting others erroneously selling them. When he told managers, he said, some thanked him; others told him to mind his own business. Thayer said such remarks only bolstered him. "I knew I was right," he said. On Sept. 15, 2005, Kroger asked Fred Meyer Jewelers' managers and restyle consultants to complete an ethics questionnaire for a Kroger vice president. Thayer said it took him two weeks to get up the nerve to outline his concerns. His boss confirmed receipt, he said, but he heard nothing further until 2007. Engel, Fred Meyer Jewelers' president, said he learned of Thayer's questionnaire in 2005 and he and other managers asked Thayer several times to document his claims. Engel has said he will audit future receipts to check for improper sales. But he said that without direction from Thayer in 2005, he couldn't check company records for the problems. "We needed guidance; otherwise, we didn't know where to look," spokeswoman Merrill said. "I'm not defending our slowness. It just wasn't malicious or intentional. We just didn't know how serious it was." Feeling brushed off, Thayer later went higher. He called Dennis Hackett, Kroger's vice president for corporate auditing, early this year and faxed copies of his questionnaire and of 14 store receipts. In late March, Hackett flew from his Cincinnati headquarters to meet Thayer at the company's Florence, Ore., store. There, he said, he showed the executive some of the 75 receipts he had collected and told him he'd tried for two years to alert the company about erroneous charges. Thayer's contact with Hackett and other higher-ups continued to trigger some pushback. "Mike, what are you thinking???" Thayer's boss, Dan Farland, wrote in an April 16, 2007, response to an e-mail in which Thayer detailed his concerns to a regional supervisor. "Michael, Michael, Michael . . . please quit trying to sound like Perry Mason. No one is going to court," Farland e-mailed a day later. The company said it could not comment on the e-mails. Engel, Hackett and Jackie Evans, vice president of operations, reviewed service plan policies. "Based upon the investigation, that's where we realized that we weren't very clear in detailing out the instructions to our stores," Evans said. "Really, this situation has brought to light that there was an opportunity for misinterpretation." Executives reframed internal policies and customer brochures detailing service plans for all of its store brands. Under the new policy, for example, salespeople are expressly directed to sell no more than one plan when a loose stone and band are sold together. The new policy also banned a practice that executives said was previously OK. Formerly, Engel and Evans said, plans sold with loose stones could be valid if a customer wanted Fred Meyer Jewelers to mount a gem in another band, regardless of where it was purchased. In its new policy, released Nov. 7, the retailer took a different tack: "A VSP may not be sold for watches, alternate metal jewelry, or loose diamonds and gemstones without mountings." After the busy holiday shopping season, Engel said, the company also plans to adjust its cash-register software so that receipts clearly show which items were sold with service plans. The software itself, he said, probably won't prevent a clerk from selling a service plan on a loose stone. "A lot of customers want that VSP," Engel said, "and if you locked that out, they might want to buy a loose diamond and you would not be able to attach that." Thayer contends that only a software change barring sales that violate policy can fix the problem. He points to one of his employer's closest competitors, Zale Corp. The No. 1 chain uses a computerized checkout system that limits what items can be sold with service plans and automatically assigns correct prices, said David Sternblitz, Zale's vice president of investor relations. At present, Thayer said, Fred Meyer Jewelers' system allows employees to attach plans to any item at any price and regularly reminds employees to sell them, even on items that don't qualify. "A new policy won't stop this," Thayer said. "There's only one fix: a software change that will stop salespeople." To see more of The Oregonian, or to subscribe the newspaper, go to http://www.oregonian.com. Copyright (c) 2007, The Oregonian, Portland, Ore. Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |