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David Brown: Are Things Really Looking Good As Gold?

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Gold prices are rising, but that doesn’t mean uncertain times are behind us.

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[h3]Are Things Really Looking Good As Gold?[/h3]

[dropcap cap=G]iven the recent strong increases with the gold price passing through the $1100 mark in recent weeks it seems timely to turn our focus to this area of the jewelry retail industry.[/dropcap]

In uncertain times gold has always been the safety net that investors turn to, to protect themselves against economic storms and currency fluctuations and it would be fair to say it has been a long time since we’ve seen the levels of economic uncertainty that we have encountered in the last 12 months!

The speculative nature of gold has impacted on the cost of doing business for many store owners – items are often being replaced for twice the price they were originally purchased (depending on how long they have been in inventory) and the attitude of the buying public has been affected by the perception that gold is becoming too expensive to buy.

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The graph below illustrates the sales being achieved in gold items by the average jewelry store over the last eight months:

This graph doesn’t show results back to the start of the financial crisis in September 08 although it does show an initial increase in gold sales by jewelers when the crisis first struck. As can be seen, sales of gold product dropped during the year as the price escalated, and given the increase in prices this would seemingly indicate a sharp fall in the number of gold items being sold by most jewelers. Or does it?

The above graph shows the average number of gold items sold per store on a rolling 12-month basis and as the graph shows there appears to be no drop-off in demand for gold by the public, with a sharp increase occurring in October. So let’s look at the other factor that would affect total sales; the average sale being achieved in gold:

As can be seen, the average sale per gold item has dropped from a level of over $250 to a level of just over $190 since February. Given this is a rolling 12-month figure then we safely assume the monthly average sale over this period has gone considerably lower.

[inset side=right]The gold buying experience has become more about price than the quality of the item and as jewellers we have to except responsibility for this.[/inset]So with the price of gold climbing through the roof how is the average sale falling? If items were to double in value and customers were to spend half as much then it would be fair to assume that they are taking away gold, on a per ounce basis, at only a quarter of the weight they were buying previously. Since February the price of gold has increased 39 per cent from just over $800 an ounce to more than $1100 an ounce while the average spend has dropped from $250 to a little over $190 — a fall of 22 per cent. On that basis we can assume the average weight of a customer’s purchase has fallen by 43 per cent during this time. Now if you’re a smart retailer you won’t be selling your gold on a per ounce basis, but from the customers point of view they are now getting almost half the value from the shopping experience that they were getting previously in terms of the value of what they are taking home. By this I don’t mean monetary — I’m talking the item. Grab a troy ounce bangle and a half ounce bangle in each hand and you will see what I mean — they’re not even close to giving you the same level of enjoyment!

The gold buying experience has become more about price than the quality of the item and as jewellers we have to except responsibility for this. Sure the price has increased by 39 per cent but why should the customer being spending 22 per cent less than they were in February? Because, in many cases we have decided gold has become expensive and we are now only showing them what we think they should buy. If your average gold sale has fallen during this period, ask yourself why. Are you or your staff making assumptions? There is an old saying that the pleasure of an item is remembered long after the price has been forgotten. Make sure you show your customers the best you have to offer and let them decide the value they see. If you allow price to be the deciding factor rather than value your customer may have a long time in which to regret the experience.

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David Brown is president of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. You can contact him at [email protected]

[span class=note]This story is from the January 2010 edition of INSTORE[/span]

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