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By the Numbers: Average Sale is on a Slippery Slope (Full Edition)

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Most store owners find it tough to say no to a request for a price break but the effects can be ruinous.

If you’re seeking an above average return then you need to be above average

With the tough times over the last 12 to 18 months, many jewelers have been wondering where their sales are going to come from. The general perception has been that the number of customers has dried up and that this has caused the slowdown in store performance.

As we’ve covered in previous articles this has not necessarily been the case as many stores are still achieving significant growth in number of transactions. The failure to achieve budget has been more a case of a dwindling average sale value.

As the above graph illustrates, the rolling 12-month average sale of the typical jeweler has dropped from $214 in April 2008 to a new low of $143 as of February this year. This represents a drop in the average sale of more than 33 percent in the value of each transaction completed. In order for a store to maintain sales dollars they would need to see an increase in sales volumes of more than 50 percent on April 2008 levels to compensate for this. It’s thus not difficult to see why store revenues have declined!

Of greater concern is the monthly trend line, which shows few signs of improvement. Only twice in the last 12 months has the monthly trend shown any sign of reversing, and with January and February being significantly below the long-term average this figure looks destined to fall further.

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So where is the decline happening? Let’s have a look at a few key areas:        

The above graph shows the rolling 12-month average sale value for diamond jewelry. Over the period since August 2008 there has been a drop of approximately $200 in the average price of diamond jewelry sold, but the interesting thing is the timing of this decline. There was no noticeable decline until April 2009, some six months after the start of the crisis, and no significant slump until October 2009. This would be against the trend expected from a public tightening its belt — you would expect the decline to happen much sooner. Could it, in fact, be a reaction to the average retail value of diamond inventory held by jewelers during this period, due to the perception that customers won’t be spending as much? Are jewelers reducing the average value of the inventory they are carrying? A drop in average value of inventory held would carry through to average sale figures.

And if the owners don’t believe customers can afford beautiful jewelry it won’t take the salespeople long to start showing and selling lower-priced items either … because they’re easier to sell.

The picture is very similar with the average price of gold. The true impact of a drop in average sale did not kick in until July 2009, again raising the question: is this a delayed reaction because retailers were cutting the average value of their stockholding rather than customers requiring lower priced pieces?

Even silver, which has enjoyed strong growth over the last two years (a factor that will have contributed to the lower average sale overall) has not been able to sustain its own average despite the popularity of the product (although February saw this result bounce back somewhat).

So what do you need to do to improve this situation?

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As we have stated before in this column, you have to be very careful not to turn your belief that customers are scarce, or not spending as much, into a self-fulfilling prophecy. Many of our clients have not seen any decline in their sales, and in some cases sales have grown during this recession. Believing the sales are there to be made is the first step. But there are a number of other steps that will help lift your average sale value:

Buy Up: Make sure the products you carry are priced at least 30 percent higher than your required average sale value, i.e. as a rule of thumb, if the average retail value of your inventory was $100 you would only achieve an average sales value of $70 (30 percent less) due to discounting and the greater volume of lower priced items sold, which would drag the average lower. It may seem a no brainer but achieving an average of $200 when the average value of your inventory is $100 isn’t going to work. If the average value of your inventory holding has dropped then pinpoint the areas that are underperforming the average and look to buy product that increases this average retail price.

Mark Up: Many jewelers don’t appreciate that increasing mark-ups increases average sale as well. It stands to reason that another $5 put onto a $100 item will lift the average sale.

Round Up: Like mark-up, getting your price points up can increase the average sale. Look at those items that are priced at unusual price points i.e. $172.50 and round up to the nearest point, i.e. $179. The typical store has 5,000 items and with an average increase of just $3 per item that’s $15,000 of extra profit!

Sell Up: This is the most obvious. Showing customers what you think they are prepared or able to spend will limit your potential sale. Whatever price you start at sets the ceiling and it is very hard to move up from there. Do yourself and your customers a service by showing them the best they deserve to buy. Give them a chance to say “NO” to the expensive pieces — because they may just say “YES”.

Shut Up: No we’re not insulting you! This refers to discounts and the tendency to offer them a little too soon during the sale. Sometimes it can be hard to avoid but bear in mind that every dollar of discount is a dollar lost in average sale (and in profit).

Advertisement

Above all be proactive. The average sale in your store is a factor you can control more than you think.

Should you require further assistance in increasing your average sale contact carol@edgeretailacademy.com

If you would like help growing this part of your business, the Edge Retail Academy is offering two free reports to Instore readers. The first is How to build your Bridal Business and the second Making Money from Bridal Shows. Follow the links to get your copies of the reports, or e-mail carol@edgeretailacademy.com

How to Build your Bridal Business

Making Money from Bridal Shows Report


David Brown is co-founder and president of the Edge Retail Academy. For information on preparing a GAP analysis or budget, contact carol@edgeretailacademy.com.

[span class=note]An abbreviated version of this story appeared in the May 2010 edition of INSTORE[/span]

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David Brown

By the Numbers: Average Sale is on a Slippery Slope (Full Edition)

Published

on

Most store owners find it tough to say no to a request for a price break but the effects can be ruinous.

If you’re seeking an above average return then you need to be above average

With the tough times over the last 12 to 18 months, many jewelers have been wondering where their sales are going to come from. The general perception has been that the number of customers has dried up and that this has caused the slowdown in store performance.

As we’ve covered in previous articles this has not necessarily been the case as many stores are still achieving significant growth in number of transactions. The failure to achieve budget has been more a case of a dwindling average sale value.

As the above graph illustrates, the rolling 12-month average sale of the typical jeweler has dropped from $214 in April 2008 to a new low of $143 as of February this year. This represents a drop in the average sale of more than 33 percent in the value of each transaction completed. In order for a store to maintain sales dollars they would need to see an increase in sales volumes of more than 50 percent on April 2008 levels to compensate for this. It’s thus not difficult to see why store revenues have declined!

Advertisement

Of greater concern is the monthly trend line, which shows few signs of improvement. Only twice in the last 12 months has the monthly trend shown any sign of reversing, and with January and February being significantly below the long-term average this figure looks destined to fall further.

So where is the decline happening? Let’s have a look at a few key areas:        

The above graph shows the rolling 12-month average sale value for diamond jewelry. Over the period since August 2008 there has been a drop of approximately $200 in the average price of diamond jewelry sold, but the interesting thing is the timing of this decline. There was no noticeable decline until April 2009, some six months after the start of the crisis, and no significant slump until October 2009. This would be against the trend expected from a public tightening its belt — you would expect the decline to happen much sooner. Could it, in fact, be a reaction to the average retail value of diamond inventory held by jewelers during this period, due to the perception that customers won’t be spending as much? Are jewelers reducing the average value of the inventory they are carrying? A drop in average value of inventory held would carry through to average sale figures.

And if the owners don’t believe customers can afford beautiful jewelry it won’t take the salespeople long to start showing and selling lower-priced items either … because they’re easier to sell.

The picture is very similar with the average price of gold. The true impact of a drop in average sale did not kick in until July 2009, again raising the question: is this a delayed reaction because retailers were cutting the average value of their stockholding rather than customers requiring lower priced pieces?

Even silver, which has enjoyed strong growth over the last two years (a factor that will have contributed to the lower average sale overall) has not been able to sustain its own average despite the popularity of the product (although February saw this result bounce back somewhat).

Advertisement

So what do you need to do to improve this situation?

As we have stated before in this column, you have to be very careful not to turn your belief that customers are scarce, or not spending as much, into a self-fulfilling prophecy. Many of our clients have not seen any decline in their sales, and in some cases sales have grown during this recession. Believing the sales are there to be made is the first step. But there are a number of other steps that will help lift your average sale value:

Buy Up: Make sure the products you carry are priced at least 30 percent higher than your required average sale value, i.e. as a rule of thumb, if the average retail value of your inventory was $100 you would only achieve an average sales value of $70 (30 percent less) due to discounting and the greater volume of lower priced items sold, which would drag the average lower. It may seem a no brainer but achieving an average of $200 when the average value of your inventory is $100 isn’t going to work. If the average value of your inventory holding has dropped then pinpoint the areas that are underperforming the average and look to buy product that increases this average retail price.

Mark Up: Many jewelers don’t appreciate that increasing mark-ups increases average sale as well. It stands to reason that another $5 put onto a $100 item will lift the average sale.

Round Up: Like mark-up, getting your price points up can increase the average sale. Look at those items that are priced at unusual price points i.e. $172.50 and round up to the nearest point, i.e. $179. The typical store has 5,000 items and with an average increase of just $3 per item that’s $15,000 of extra profit!

Sell Up: This is the most obvious. Showing customers what you think they are prepared or able to spend will limit your potential sale. Whatever price you start at sets the ceiling and it is very hard to move up from there. Do yourself and your customers a service by showing them the best they deserve to buy. Give them a chance to say “NO” to the expensive pieces — because they may just say “YES”.

Advertisement

Shut Up: No we’re not insulting you! This refers to discounts and the tendency to offer them a little too soon during the sale. Sometimes it can be hard to avoid but bear in mind that every dollar of discount is a dollar lost in average sale (and in profit).

Above all be proactive. The average sale in your store is a factor you can control more than you think.

Should you require further assistance in increasing your average sale contact carol@edgeretailacademy.com

If you would like help growing this part of your business, the Edge Retail Academy is offering two free reports to Instore readers. The first is How to build your Bridal Business and the second Making Money from Bridal Shows. Follow the links to get your copies of the reports, or e-mail carol@edgeretailacademy.com

How to Build your Bridal Business

Making Money from Bridal Shows Report


David Brown is co-founder and president of the Edge Retail Academy. For information on preparing a GAP analysis or budget, contact carol@edgeretailacademy.com.

[span class=note]An abbreviated version of this story appeared in the May 2010 edition of INSTORE[/span]

Advertisement

SPONSORED VIDEO

Moving Up in the World? Wilkerson Can Help You Get There

Promoted Headlines

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