David Brown
President of The Edge Retail Academy | |
Gold Loses Some
of its Luster
Normal transmission resumed in October after a slight fall in rolling 12 months sales in September. Our compiled data for the 12 months ended October showed average store sales climbing by 0.63 percent annualized on the September result. This means a store doing $1 million in annual sales would have seen an improvement of just on $6,300 between their October 2011 and October 2012 results.
David Brown
President of The Edge Retail Academy | |
Gold Loses Some
of its Luster
Normal transmission resumed in October after a slight fall in rolling 12 months sales in September. Our compiled data for the 12 months ended October showed average store sales climbing by 0.63 percent annualized on the September result. This means a store doing $1 million in annual sales would have seen an improvement of just on $6,300 between their October 2011 and October 2012 results.
There has been a steady increase in October results over the last three years for the stores we measure. Sales of $71,017 on average for October 2010 have increased to $83,412 for 2011 and $91,541 for October 2012. This represents a growth rate of just under 29 percent for October over the two year period — very healthy by anyone’s standards.
Interestingly, the quantity of sales has not changed significantly (and in fact declined between 2010 and 2011) with unit sales increasing again during 2012. The growth in items sold from 502 units to 532 represents an increase of just 5 percent. The average sale has been the biggest factor, jumping from an average item value of $135 including repairs to just on $164 during the 2-year period, representing a rise of 21 percent.
Despite these positive numbers, gold, normally one of the higher value transaction items, has been on a steady decline over the last few years. Even though we have seen significant increases in the price of gold this has done little to add to the value of gold sales. In fact, the negative impact of the rising gold price appears to have acted as a bigger deterrent. Gold sales have dropped from an average level of around $120,000 in February 2009 to hover around $90,000 for the average store for most of the last two years.
The plateau of gold since 2010 however doesn’t show the full story. During this time, storewide sales have generally increased (as our October data above showed) so a static level of gold sales is actually a decline in the overall contribution of this category to store sales.
The graph above tells a more detailed story. When looking at gold’s contribution to store sales since early 2009 we see that it has been in a state of constant decline, dropping from around 12 percent of total store sales to now being approximately 6 percent of store sales. The dollars contributed may have stayed the same during the last 18 months but given the level of growth experienced then this represents a true decline in the metal’s popularity. It isn’t keeping up with other product lines.
When we look at the impact in terms of quantity sold, we find that gold has suffered a decline in units sold as well. The sales dollars achieved have been on the back of an increased average sale (brought about partially by the increase in price) and in fact customers are turning away from gold more than we first thought.
Peaking at around 550 units per annum in early 2010 gold now contributes just on 300 unit sales per annum, a drop of 45 percent in unit sales in a little over three years.
Can this decline be addressed? As it is largely due to external circumstances there is little stores can do to change this in the short term. The important thing is to understand the extent of the change and adjust accordingly.
It must be emphasized this data is accumulated from more than 200 stores across the United States. Your own individual circumstances will vary. But your decision-making needs to be based on the information you have at hand. If your gold sales have declined by 30 percent, for example, then your selection of product and the amount you invest in gold inventory needs to adjust accordingly. Continuing old buying habits, or simply choosing product you like without taking these factors into consideration is a recipe for cash-flow problems. Likewise your staff training and display emphasis needs to reflect the situation. Displaying gold product in prominent windows and store selling areas is not necessarily a good use of this space. Adjust your activity according to the percentage change you have seen in this product. Bear in mind however that it needs to be about the dollar return. If unit sales have dropped 45 percent but dollar sales have only declined by 20 percent then don’t reduce your inventory by 45 percent if the return on investment (markup achieved multiplied by the stock turn) hasn’t declined by this amount … and be ready for a change in the market. All product lines have their time and gold will come again. It’s a case of being ready for it so you can be leading the market when the upturn comes.