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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

Five 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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David Brown

How to Make The Most of Your Department Reports

Allocating the appropriate time, money and space to each department is critical to success.

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DEPENDING ON THE TYPE of business you run, chances are your sales will be coming from perhaps 30 or 40 different departments across your store. Some, such as bridal, are more obvious. Others, such as silver earrings, may not make a big difference — yet it’s important to understand the contribution from each department and where it fits into the overall performance of your store.

A department report in order of sales will reveal the biggest contributors, and it should come as no surprise to know that the top 5 or 6 departments might be contributing 50 percent or more of your storewide sales. What might surprise you is which departments make up the top 5 or 6. Take a guess now and then compare it to your actual results; chances are you’ll see at least one department that wasn’t in your estimate.

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Knowing this will enable you to allocate your resources towards these areas. These resources are, in no order of importance:

1. Time
2. Money
3. Space

Time refers to the energy you and your staff devote, both physically and mentally, to this area of your business. You might have a love of watches and enjoy spending time checking out the latest models available, but if watches represent 3 percent of your sales, this category doesn’t warrant a lot of effort.

Money will predominantly be spent on two fronts: one is your inventory, while the other is marketing. Is the inventory you carry in each department relevant to that department’s contribution to your sales and profitability? If not, consider reallocating it. Are you running ads for an area of your business that is neither a significant contributor to sales or profit? Do you allocate your marketing spend by area based on what product you are advertising? It’s not unusual to find a business spending 90 percent of its marketing on diamonds when that category represents only 30 percent of sales.

Space refers to how you allocate the merchandise within your store. Are your best sellers front and center? If your store is 50 percent bridal, does your merchandising say this when your customers walk into your store?

Review your departmental contribution and determine how you are allocating your resources of time, money and space across each area. Make a decision to rebalance each area as required so it more closely aligns to your store’s performance. The exception to this is if you are hoping to grow a particular area, in which case your resources should align with your anticipated results and performance.

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David Brown

What Business Owners Can Learn from Abraham Lincoln’s Failures

He would never have been in position to succeed if he hadn’t failed first.

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WE ARE CONDITIONED BY society to fear failure. Our education system defines performance as “getting the answer correct.” This result-based measurement is an effective method for assessing a level of knowledge, but it doesn’t encourage the hands-on learning process so necessary to develop true understanding and retaining of information — nor encourage the discovery of new knowledge.

Sadly, this aversion to getting things wrong starts at an early age and continues our whole life. Despite the copious number of successful people who have failed spectacularly before achieving success, we still attempt to follow a path that has more to do with avoiding ignominy than with enjoying the benefits of stretching ourselves into uncharted territory.

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Abraham Lincoln never feared failure — he could little afford to. His list of unsuccessful endeavors in both business and politics would have forced a lesser man to give up. Here are just some of his “failures.”

1831: Failed in business.
1832: Ran for state legislature — lost.
1832: Also lost his job — wanted to go to law school but couldn’t get in.
1833: Borrowed some money from a friend to begin a business, and by the end of the year was bankrupt. He spent the next 17 years paying off this debt.
1838: Sought to become speaker of the state legislature — defeated.
1840: Sought to become elector — defeated.
1843: Ran for Congress — lost.
1846: Ran for Congress again — this time he won — went to Washington and did a good job.
1848: Ran for re-election to Congress — lost.
1849: Sought the job of land officer in his home state — rejected.
1854: Ran for Senate of the United States — lost.
1856: Sought the vice-presidential nomination at his party’s national convention — got less than 100 votes.
1858: Ran for U.S. Senate again — again he lost.
1860: Elected president of the United States.

What sort of president would Lincoln have become if he had not had his failures? Had his life been a succession of unbridled achievements, would he have had the fortitude or fighting qualities to drag the country through its toughest challenge ever? Or would he have been ill-prepared for the physical and mental battle the presidency required? I believe his history of failing provided him with the steel and determination he needed to see the job through. Had he not “failed” so many times, he would not have become the man he was — and the history of the United States may have looked sharply different.

Learning to fail helps you overcome the fear of testing your boundaries and ultimately helps you grow and succeed. When it happens, embrace it for the lessons it can teach.

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