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David Brown

Cash Flow Good? Here’s Why That Could Be a Problem

Changing market conditions could leave once-flush jewelers in a big hole.

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THE LAST THREE years have been a period of unprecedented positivity across the jewelry industry. Although there have been “good times” before, we have never seen the unique intersection between large amounts of money circulating in the economy and comparatively few options for spending it that was created during the Covid pandemic. I’ve often commented that the travel industry is one of the biggest competitors to jewelry for spending of discretionary money. Their hands were tied during much of this time, as were other spending channels, and we were amongst the largest beneficiaries.

The result of all this money sloshing around has been healthy sales for many store owners. This has seen better than average cashflows and bank balances — but with improved sales can come an air of complacency. Given many people are in the habit of spending what they make, it becomes easy to justify a looser spending policy, leaving the bank balance back where it was if trading hadn’t been so good.

Unfortunately, this increased spending can result in the health of the balance sheet, and in particular inventory, being far worse off. I like to compare it to the lottery winner who, having blown all the cash from their winnings, is still left with the hangover of the monthly payments on the Ferrari they’d signed a lease on. Without the lottery win, there wouldn’t have been the Ferrari commitment. Likewise, without the cashflow from increased sales that has led to looser spending attitudes, many jewelers wouldn’t be sitting on bloated stale inventory on their balance sheet.

Fixing this requires a change in mindset and an acceptance that the “good times” of the last couple of years may now be replaced with fresh challenges — especially if a recession does kick in, which even the Federal Reserve is predicting. You don’t want to be realigning your attitude to cash once things get tight. Instead, focus on releasing your old inventory now and building up your cashflow in preparation for the next few months.

Continuing my metaphors, those who don’t put away some chestnuts for winter might find themselves going a little hungry later when the nuts will be harder to harvest. Clear your surplus inventory now before the second half of the year puts more strain on restocking, and before pressure comes on you to do so when you’re least equipped to handle it.

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