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David Brown

David Brown: Are Stores Now Leaner and Meaner?

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THEY SAY every cloud has a silver lining. There’s no doubt the recent economic crisis has been hard work for most jewelers across the country. It’s been the type of trading environment you wouldn’t wish on your worst enemy. However every hardship can bring with it an equivalent benefit, and it seems clear that the financial tightening that has been forced on most stores in the last two years has seen a leaner more efficient jeweler evolve as a result.

The average U.S. jewelry store has long carried a very high level of inventory relative to what they need to sell. Part of this is often memo product; but whether it is owned by the jeweler in question or their vendor, carrying excessive inventory has a cost. It can result in too much choice, which can be as much of an issue as too little in the eyes of the consumer, and it carries with it the cost of higher-priced product – after all, you won’t get the best deal from a vendor if you aren’t paying cash.

It seems that the average US jewelry store is happy to run at lower inventory levels than they have been in the past. November 2008 saw inventory levels in the average store at $815,000. This was shortly after the crisis began. By November of 2009 the situation was at it’s most dire; however inventory levels were still running at a similar level with the average store stockholding sitting at $804,000.

Fast forward to 2010, and despite a rebound in sales of close on 10 percent since last year the average inventory holding has fallen to $762,000 in November 2010, a decline of 5.3 percent over that one year.

But is it a planned reduction? Or have retailers simply failed to replace their better product as it sells, leaving themselves with an increasing percentage of aged inventory?

The news here is quite positive as the table below shows:

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The ratio of fast selling product (Fast fast sellers being less than 3 months old and fast sellers being 3-6 months) has increased from a combined 10 percent in October 2009 to 13 percent by October 2010. This may not seem significant – but to the customer they now have a 30 percent better selection of good sellers than what they were seeing before (13 percent being a 30 percent increase on 10 percent). Even new product has improved, showing that wallets haven’t closed completely. The ratio of new product sits at 21 percent, up from 18 percent back in October 2009.

The effect of all this is a significant a 6-point increase in the ratio of new and fast selling product with a corresponding drop in aged inventory. Old product represented 72 percent of the typical store 12 months prior – but is now down to 66 percent. Not as low as it needs to be, but a very strong step in the right direction.

Clearly retailers have been forced to reduce their inventory levels, often from economic necessity. But it is wonderful to see that this reduction has happened in such a planned manner. The result is an industry in better condition to cope with the increase in demand that will inevitably happen when things return to normal.

David Brown is the President of The Edge Retail Academy (sister company of The Edge), who provide expert consulting services to help with all facets of your business including inventory management, staffing, sales techniques, financial growth and retirement planning...All custom-tailored to your store’s needs. By utilizing the power of The Edge, we analyze major Key Performance Indicators that point to your store’s current challenges and future opportunities. Edge Pulse is the ideal add-on to the Edge, to better understand critical sales and inventory data to improve business profitability. It benchmarks your store against 1100+ other Edge Users and ensures you stay on top of market trends. 877-569-8657, Ext. 001 or [email protected] or www.EdgeRetailAcademy.com

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