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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 Make Your Biggest Sale Ever … Again

To reproduce your highest-priced sale, you have to show the right product.

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CHANCES ARE YOU easily recall the single highest-priced item that you’ve ever sold in your store — the adrenalin rush of seeing it appear on your terminal or as a line item in your reporting or maybe a deposit on the bank statement. The excitement of moments like this makes retail worthwhile.

Assess how it happened. What were the circumstances of that particular sale? Did you consciously create the opportunity, or did it fall in your lap?

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A better question is, have you consciously tried to reproduce it?

Perhaps you thought you got lucky and it was a one-off sale. Yet, the reality is that if you did it once, you can do it again.

Let’s assume the item was a diamond ring, as that’s the most likely scenario. Do you have anything in your inventory at that price range? Perhaps it was a custom piece made for someone; nevertheless, chances are you do not have a similar piece displayed in your store.

The challenge is that your current inventory influences your customer’s perception. If your diamond rings range between $10,000- $20,000 retail, your customer will see you as a store that offers fine jewelry up to $20,000. A customer who is willing to spend $50,000 may not see you as the place to shop, causing you to lose these potential luxury sales.

We are not suggesting that you rush out to buy a lot of $50,000 rings. Instead, work out an arrangement with one of your top performing vendors that will allow you to showcase these higher-priced items. Remember, if you hope to sell a $50,000 ring, you may need to show a $70,000 one to get the market interested. Customers will seldom spend more than you show them.

The best way to reproduce your highest-priced sale is to make sure your inventory includes those price points and to prominently display them in your store.

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David Brown

April Sales Were Up – But Is Your Focus Where It Needs to Be?

Sales increased 2.3%.

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SALES FIGURES FOR the 12 months ended April 2019 showed a healthy increase across Edge Retail Academy’s database of stores.

Annual sales of $1.87 million were up 2.3% compared with the same period last year, when sales came in at $1.83 million. The rate of growth has slowed from the 2018 increase of 6.4% but nevertheless represents a solid increase.

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The increase continues to occur on the back of lower sales quantities and higher average retail sale. Sale units moved during the 12-month period amounted to an average of 6,205 items per store, down 4.8% and 9.5% respectively on 2018 and 2017. Average sale achieved per item increased to $301 from $280 and $250 respectively for 2018 and 2017.

Gross profit of $858,000 was up from last year’s $837,000 and the 2017 result of $789,000.

Margin has held at 85% for each of the last three years.

This month we will focus on silver, which has been the main contributor to the decline in sales volume.

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Sales dollars of silver dropped to $100,000 on average per store from the 2018 level of $115,000 and the 2017 level of $143,000. This represents a drop in silver sales of 30% across the two years. Unit sales makes even more interesting reading; quantities of silver sold declined from 1,844 units in 2017 to 994 units for 2019. This is a drop of almost 50% in a two-year period. Part of the decline has been offset by an increase in the average retail value of silver being sold – with the average sale increasing from $77 in 2017 to $100 today. However, this has not been enough to offset the volume decline. Markups have stayed the same at 113%.

So how do your numbers compare? If silver has been a significant part of your business, what has been the impact of a decline in the last two years? Given the significant drop across all stores, it’s most likely that the majority of stores have seen this happen. If you haven’t already reinvented yourself in this area, it might be time to do so.

Start by analyzing your sales departments. What percentage contribution is coming from each of your key areas – diamonds, gold, silver and watches? Now if you have a report from two years ago, how do these percentage contributions compare to what happened back then?

If your sales have changed, then you need to look at how you have responded to this within your store.

1. Review your merchandising. How is your store set out relative to sales? Are you still trying to promote product that is no longer selling? Does your store setup reflect your sales and what you want to sell?
2. Review your staff training. What are your staff members focused on? Are they still preoccupied with product lines that are no longer selling? You sell what you are focused on.
3. Concentrate on marketing. What message are you sending to your clients and potential customers? Are you still emphasizing a focus on what used to sell well for you? Are you promoting what your customers want to buy now?
4. Review your inventory. Return on investment is an important metric for any business. Do you have more inventory concentrated in silver than you should? Can this money be better utilized elsewhere?

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It’s important that your business is constantly responding to the marketplace – what your customers need is what you are best to concentrate your sales efforts on. You need to be aware of sales trends within your business. This may not be the end of the drop in silver sales, and if you have concentrated your efforts too strongly in this area, then there may yet be an even lower return on your efforts to come in the foreseeable future.

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David Brown

5 Steps To Make Your Business More Salable

Build net profit and control your inventory tightly.

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AFTER YEARS OF hard work building up an asset that they hoped would provide for them in retirement, many business owners are finding there is nothing left at the end of the day when they come to cash in their chips. And we’re not just talking businesses that struggle — I’m talking about businesses that are making a very healthy profit each year.

How many of you know a fellow store owner who has been in this situation? I had friends recently close down at the end of December in a store that had traded for over four decades and was making a large six-figure profit. They were in their 70s, had decided to quit but could not find a buyer interested in taking over their store. Sadly, this scenario is far too common.

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Here are five steps you can take to help this situation:

1. Drive every possible dollar of net profit. Most business owners generally try to minimize their net profit to reduce tax, but this ends up costing them as they approach retirement. Jewelry stores are bought and sold nowadays based on a multiplier of net profit, so every dollar could be worth $4-6 to them when they sell … not to mention they can use that net profit to retire debt or create retirement wealth while they still own the business.

2. Establish and achieve an optimum inventory level … one that delivers maximum GMROI while still satisfying your customers. Most stores are heavily over-inventoried, and the store is not an asset unless it generates turn and margin. Many are emotionally invested in their inventory, but no prospective buyer is going to want their old stock at any price. Nor do customers. Guess what is left after a successful GOB? The old stuff!

If Business A has $100,000 of profit on $400,000 of inventory, and Business B has $100,000 on $700,000, then both would sell for the same multiplier of profit. Store B may well be left with either an inflated value that would put a buyer off because they have inventory to clear, or be forced to find a way of disposing of the surplus product.

3. Transition the owners’ personal skills and responsibilities from “business operator” to “business owner.” No one wants to buy a business (or certainly not at full price) where the current owner is the No. 1 asset in the business (i.e., does a lot of personal sales, buys all of the inventory, does the marketing, is the main bench jeweler, etc.). There is too much uncertainty about what will happen to the performance of the business the day after the highly involved owner departs.

4. Build a strong team. Sometimes this involves outsourcing such things as repairs, custom design, marketing, social media, bookkeeping, etc. to effectively handle all day-to-day responsibilities. Note: this takes time, patience and perseverance.

5. Be visible online and on social media … it’s one of the first places prospective buyers will look.

In a market where supply exceeds demand, you need to give yourself a competitive advantage if you want to cash in that nest egg. It can happen, but it requires a strong level of grooming and preparation. The return, however, is well worth it.

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