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David Brown

Are You Neglecting Colored Stones? That Could Be a Big Mistake

How do you compare to similar-sized stores?

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March results across our same-store data showed a slight decrease on rolling 12-month sales achieved since February.

Same-store data showed a drop in year-to-date sales to $1,612,542 from $1,616,481, a decline of 0.24 percent for the month. Twelve-month unit sales declined from 4,147 to 4,116, a decrease of 0.74 percent, with a slight increase in average sale achieved from $390 to $392 helping to offset the drop.

Month-to-date comparison data for sales show March sales results are below the equivalent period in 2016 after increasing during the 2017 year. Total monthly sales came in at $103,571, down from last year’s $107,510 and the March 2016 result of $104,960. Sales units continued their decline to 247 items, a drop of 11 percent from 2017 and 21 percent from 2016.

The average sale of $356 was ahead of last year’s equivalent amount of $352 and the 2016 average sale achieved of $307. Margin held at 45 percent with the result that gross profit was down 2.4 percent on 2017 and 2 percent on 2016 respectively.

This month we focus on colored stones, an area often not given much priority by jewelers compared to other departments. Nevertheless, for most stores it can contribute up to 10 percent of sales and is an area that shouldn’t be neglected.

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With the recent split of our data gathering into stores under $1 million sales, stores over $1 million sales, and stores over $3 million sales, we are better able to compare the impact that colored ring sales are having in each respective area.

Understandably, larger stores doing $3 million per year are able to achieve more sales and a greater volume of unit sales across these areas. Where they also gain, however, is in average sale achieved in colored stones. The difference between the average sale for a store doing less than $1 million and those doing $3 million is $460 ($1,061 – $601). That represents an average sale that is 76 percent higher, a significant difference. The largest stores are achieving 4.8 times as many sales as their smallest counterparts but, due to a lower markup (99 percent versus 117 percent), this converts into a gross profit that is only 4.4 times higher ($155,358 versus $34,973). They are doing these sales on only 4.3 times as much inventory, meaning their stock turn comes in better at 0.45 turns per year compared to 0.38.

Not surprisingly, medium-sized stores doing between $1 million and $3 million are sitting in the middle with unit sales 66 percent higher than the smallest stores, and average sale coming in 38 percent higher. Markup sits comfortably in the middle at 106 percent, but their stock turn more closely resembles the smaller stores at 0.39 times per year.

The law of diminishing return would tend to suggest that the more items a store holds, the lower its stock turn is likely to be, as eventually there will be far more selection than buyers. Clearly the $3 million plus stores haven’t reached this point and smaller stores should be asking the question as to how they are able to achieve this.

Based on the relatively low stock turn, small to medium stores are not understocked relative to sales, but a clue may sit in the price point that the largest stores are achieving. Are the smaller stores carrying items in the right price range relative to what the market wants?

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This is a question to ask your own business. With diamond average sales sitting in the range of $1,500 to $2,500 for most stores, should colored stones be averaging a unit price as low as this? When compared to their diamond average, each store size looks like this:

There is a clear pattern of diamond averages being more than twice as high as colored stone averages, and that’s understandable given the more significant role that diamond plays in high-end bridal. The difference is slightly lower for stores doing more than $3 million, but still noticeable.

So what role do colored stones play in your store? Are you achieving an average sale in line with similar stores? Is the difference between your diamond and colored stone average sale similar? A comparison with your peers may just show an area of potential growth that you could be improving on.

David Brown is president of the Edge Retail Academy, a force in jewelry industry business consulting, sell-through data and vendor solutions. David and his team are dedicated to providing business owners with information and strategies to improve sales and profits. Reach him at david@edgeretailacademy.com

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David Brown

Here’s How to Succeed at Succession Planning

Be sure to consider these four areas to prevent unnecessary conflict.

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MONEY CAN BE A sensitive topic to talk about. Generally, people don’t like to discuss it even in the privacy of their own home. Yet, not talking about your financial situation can make a significant difference in how much of your wealth is passed on to other family members. Whether it’s a business being passed on or the wealth that it has created, careful planning is required.
Government legislation is constantly evolving in this area. It’s important to set up for the passing of wealth and to ensure this is compliant with the current laws.

Here are some things to consider:

1. Inform family members of what may be coming their way. Give them the opportunity to prepare for the financial impact an inheritance may have. More than one family has been undermined by a sudden arrival of wealth they didn’t expect and couldn’t handle. Such preparation can help them to plan their ownership and tax structures to handle it effectively.

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2. Be sure to involve key stakeholders. Be selective about who is involved in the decision-making process, the administration and the final beneficiaries. The process can be daunting and potentially alienate family members and cause unnecessary conflict.

3. Ensure a single unified vision. Particularly where parents are concerned, it’s important to ensure a consistent message is communicated about the ongoing management of the family business. If there is to be a successor, there needs to be an agreed upon approach as to who it will be and how it will be handled.

4. Don’t wait too long to pass on ownership and responsibility. If the business is to go to the next generation, a grooming process is recommended to ensure the transition is smooth and the successor has done their “time.” You should always be prepared for an unexpected event that may speed this process up faster than you intended — it’s better to be over-prepared in this area than under-prepared.

Whether a business is being passed on or the wealth that the business has created, it’s important that the vision is clearly communicated regarding how the legacy will be passed onto future generations. Sharing this vision can be an effective means of making sure the succession plan goes as smoothly as possible.

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David Brown

Why You Need to Talk to Your CPA ASAP

A conversation and some planning today can minimize your tax burden tomorrow.

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A CONVERSATION WITH YOUR CPA now can help minimize your tax burden later.

With the end of the financial year fast approaching, now is a good time to start thinking about your end-of-year financial results. No one wants to pay tax, and certainly no one wants to pay any more than they must. Tax evasion is a criminal act that will see you finish up in court. Tax minimization, however, is a perfectly legitimate way of keeping your tax to the most you’re required to pay.

Too often businesses wait until the financial year has ended, determine their financial result, then wonder how they can reduce their tax bill. This can be a little like closing the gate after the horse has bolted. Many tax minimization strategies can be implemented before the end of the financial year, and now is a good time to talk to your CPA about some possible approaches.

Much of this strategy can revolve around the expenses you might be planning to claim. Larger investments in assets can often have their cost apportioned over several years, and there can be an advantage, if you are planning to make this investment, in undertaking it before the end of the financial year.

Another aspect to discuss with your CPA is how income is allocated. It’s important to take advantage of different tax rates for owners and partners in a business. Again, this decision sometimes needs to be made before the financial year has ended to avoid making retrospective decisions that may be frowned upon by the IRS.

Before you talk to your CPA, try to have a handle on how your financial year is going, as this will make a difference to what they may recommend. Your accountant will want to know how the year is tracking and what performance you are budgeting on for the last month of the year. Obviously, some constructive estimating, especially around the busy December period, will be needed. Your CPA will then be able to best advise you of what actions will help your financial year-end before the 31st of December.

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David Brown

These Stores Have Seen Lower Silver Sales in the Face of Better Overall Results — How Do Your Results Compare?

Check out The Edge Retail Academy’s latest results.

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ROLLING 12-MONTH SALES for June averaged $1.897 million, up 1% from the June 2018 result of $1.879.

Storewide sales for the 12-month period averaged 6,118 units per store, down 5.5% to 6,474. Average sale per item increased from $290 per item to $310, a rise of 6.9%.

With sales increasing $18,000, gross profit grew from $859,000 to $871,000, a rise of 1.37% on the back of markups, which improved from 84% to 85%. This again illustrates how even a slight increase in margin can have a significant effect on bottom-line profit.

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We’ve spoken a lot through these results about the decline in units sold across store data, and this is most obvious when looking at the performance of silver sales. Our 12-month data through June shows average store sales of $99,000 for silver items, down from 2018’s figure of $113,000 (a 14% decline) and 2017’s figure of $136,000 (2019 result represents a drop of 27% from 2017). Unit sales match this decline with sales of silver items at 926 items, down from 1,210 in 2018 (a fall of 23.4%). The drop in units has been offset by a healthy increase in average sale of silver items, with the average increasing from $94 to $107 between 2018 and 2019 – a rise of 13.8%.

Based on this information, the typical store has seen silver’s contribution to overall sales decline from 7.7% to 5.2% in the last two years. How has silver been for your store? If silver sales have declined, has there been a trade-off in other areas? Clearly most stores have seen a rise in sales while silver has dropped, indicating that they are more than making up for it. Is this the case with your store? If silver has dropped but you haven’t made up for it elsewhere, its time to look at your store’s performance.

Inventory

Does your store still say silver? Have you continued to focus on an area that has become less profitable? Print an inventory by department list and determine what percentage of your store product is silver. Does it represent a greater percentage of your overall inventory than you are selling?

Silver will generally have a faster stockturn that most other items, so you should expect your percentage of inventory to be significantly lower than your percentage of sales in this area. If it’s not, you may be saying “silver” to your customers when you should be saying something else.

Marketing

What message are you sending your customers? Are you focused on the right type of product in your marketing? Are you still emphasizing cheaper silver product when the market wants something else?

Staff

Have your staff moved on from the bead market in what they are attempting to sell? Are they skilled up to sell higher-priced items? If the average sale in most stores has increased by 20% in the last two years, then your staff need to realize the performance goalpost has shifted for them, too. They need to be increasing their average sale to keep pace with the general trend – but they won’t know to do this if you don’t tell them. Print a salesperson performance report for your staff and compare it to a similar report from two years ago. Who has lifted their average sale? Who is still at the same level? Be prepared turn potential into profit to discuss this with them. They may not know what has been happening, and they cant change if you don’t tell them.

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