With December sales and restocking out of the way, March showed a small increase in sales over the same period last year. Same-store data from our survey group showed an average sales result for March of $107,510, up from $104,960 last year, an increase of 2.4 percent.
The trend toward a higher average sale but lower number of units has continued. Unit sales in March 2016 were 314 units, but for this year were down to 278, a decline of 11.4 percent. Average sale, meanwhile, has increased from $307 to $352, a rise of 14.6 percent. Margin has shown a slight drop from 46 percent to 45 percent.
Below is a comparison of results for the last three years.
I’m often asked, of all the data that comes out of our reports, which is the most important? Given that our reporting system doesn’t include expenses, and therefore net profit can’t be calculated, the most important figure at the end of the day -- the primary one I would insist on knowing -- is gross profit.
As business owners we can become a little obsessive about sales, and that’s perfectly understandable. On an hourly or daily basis it’s the easiest number to observe and record. Yet business is littered with stories of companies that achieved good sales, and often strong growth, yet failed. One of the biggest reasons for their failure was not managing the cost of the goods they sold, and hence not achieving enough gross profit to cover their expenses.
As our chart above shows, gross profit has increased from $47,153 to $48,149, a rise of 2 percent during the two-year period. Not huge but at least heading in the right direction. Could it be increasing further? Let’s take a look behind the numbers. If you want to increase your gross profit then there are only two ways to do it: increase your selling price or reduce the cost of the goods you are buying. The key factor is the difference between your selling price and the cost of buying the item – this is reflected in your margin.
As the data above shows, margin over the last two years has fallen slightly from 46 percent to 45 percent. As we indicated in a recent article, gross profit has been increasing over the last few years but it has been battling something of a headwind – here’s why …
The chart is fairly condensed due to the large amount of data in it but it shows the long term trend in margin achieved each month since 2008. Despite the increase in gross profit being achieved, the level of margin has been declining – from above 50 percent during the 2008-2012 period, down to around 45 percent now. The concern is that it is not showing any signs of levelling off yet. What this means for jewelers is that you have to run faster just to stay in the same spot – more sales are needed to continue to maintain the same level of gross profit if margins continue to slide.
We all know that a dollar now compared to a dollar in 2008 is not the same due to inflation. It also seems that this effect is being compounded by the drop in margins. A dollar of sales was certainly more profitable in 2008 than it is now.
There are various reasons for this, including the increase in higher-dollar-value sales, which naturally generate less margin, and coming back to my most important number, the level of gross profit is still rising. The question is, could it be rising faster? Is the profitability of each sale as high as it could be? Are we accepting a decline in margins too easily, and when will the decline stop?
Technology and the internet have done a lot to simplify the process of finding the best price for the customer. I believe technology will, in time, enable jewelers to maximize their profitability on every sale individually, taking into account the customers needs, timeframe, buying circumstances and other factors that are currently unknown to the seller. The price an item sells for is normally less than the customer is willing to pay and more than the seller is willing to take. The person with the most information will normally have the pricing advantage. At present this is the customer, and, until we reach a point where that information advantage can swing back to the jeweler, we owe it to ourselves to protect those margins as best possible.
This article is an online extra for INSTORE Online.
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