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David Brown

Dark Economic Clouds Loom on Horizon, Says David Brown

Negative sentiment is appearing.

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CONSUMER SPENDING IS a matter of confidence, and declining retail sales can often be one of the first barometers of economic sentiment. The trend we have seen since early in the year has been further backed up by the economic news which, despite positive reporting from many listed companies, has brought a storm cloud of negative sentiment.

Fears of rising interest rates, even though they may have been slow to happen, will dampen consumer spending. The threat of trade wars with China and an increased cost of imports and reduced income from exports are playing on investors’ mind. We’ve seen a drop in the Dow Jones reflect this fall in confidence, and it seems likely that there will be some further belt-tightening going on in the foreseeable future.

Below is a comparison of the individual monthly data for September versus the same month last year.

Our same-store September data year-to-date showed a decline of 0.52 percent in the rolling 12-month sales figure compared to September 2018. Average store sales for the 12-month period to September was $1,579,921, down from $1,588,204 at the end of August. This has extended our run of declining sales to eight months when our rolling 12-month sales stood at $1,629,755.

So what’s caused this to happen? Ever since the financial crisis in 2008, governments all around the world have increased the amount of money that is in circulation. Their logic? That more money encourages more spending.

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To a large extent their strategy has worked, as if you hand out cash to the “man in the street” he will naturally spend it. Now you might be wondering how this works. Governments don’t appoint cash dealers to stand on street corners doling out dollar bills. They will generally do it through the banking system in one of two ways. The first is to print money, either figuratively or literally. These days most money travels electronically, so it usually consists of blips on a screen. This money is made available to banks to lend as mortgages or credit card debt – which allows it to filter its way through to consumers. The other way they can do it is through debt – treasury bills and government bonds can be issued to finance the government deficits that are increasingly the norm for most countries. These are effectively a demand on the government to repay later. These debts are viewed as ironclad, as a government is always able to guarantee its payments (by printing more money, but this can cause its own problems as you will see!) So the government can control the money in circulation by selling more bonds (which takes money out of the system) or buying back their bonds (by putting more money into the system re-purchasing the bonds).

Now this all sounds pretty simple, but it can come at a price. Printing money can cause the value of a currency to decline (like any rule of supply and demand, the more of something there is the less anyone will pay for it). A declining dollar can make exports more competitive, but it does raise the cost of importing goods because you will need more dollars to buy the foreign product so this will lower demand for goods. Creating more government debt can be a way of mopping up the money, but it can lead to higher interest rates as lenders get more nervous the higher debt you have (even for governments) which is happening now.

There is a lot of debt, both personal and government, that is sloshing around the world. Personal debt is high because of all the money that the governments have injected in the economy through the banks.

Now that the government is tightening the money supply, there is a nervousness that many of those with high borrowings won’t be able to deal with the increase of interest rates that will now happen as money becomes tight again. The fiscal stimulus of money being injected into the economy may have kicked the can down the road, but to throw in another cliché, the chickens may be about to come home to roost.

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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He Thought It Was a Great Time to Retire — So He Called Wilkerson!

As David Kiselstein, owner of J. Albert Johnson Jewelers in Fairfield, CT says, it was a perfect time to close the store he’d owned for 45 years. “I’m 72-years old, the lease came due and I thought it would be a great time to retire.” A savvy businessman and one of the founders of the Continental Buying Group, Kiselstein urges others who want to conduct a retirement sale to pick up the phone and call Rick Hayes at Wilkerson. “He’ll talk you through it. He’ll help you understand it. He’ll give you the confidence you need to go through such a big experience.”

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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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