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David Brown

Silver Dollars Being Left on the Table

Last month we turned our attention to gold, which has been going through a dramatic rise in price with the recent economic uncertainty in the U.S. and internationally.

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THIS MONTH WE look at silver, which has been lagging in price relative to gold but has still been enjoying excellent sales growth over the last couple of years.

With the exception of a couple of blips, the above graph, which shows average store sales achieved on a rolling 12-month basis, climbed steadily throughout 2009. In February, the average store in our sample was achieving just over $80,000 per year in silver product sales. As the graph shows, by November that annual sales figure had climbed to almost $115,000 per annum, an increase of over 40 percent during this time. Two factors have been large contributors to this — the first has been the rocketing price of gold, which has seen many consumers turn towards the cheaper alternative of silver. This has been most clearly illustrated by the strongest increase in silver sales, which occurred between October and November. This coincided with one of the strongest increases in the gold price during the year, with an increase from $1,060 to $1,180 per ounce during November.

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The second influential factor has been the growth in the bead market — which has predominantly been driven by sales of silver bracelets and beads. This trend shows no sign of slowing and should ensure demand for silver product continues for some time to come.

Unsurprisingly, this has resulted in an increase in the impact of silver product on a store’s overall sales, with silver showing a steady trend upwards on a percentage of overall sales basis

As the graph illustrates, the year-on-year percentage of sales attributable to silver (the grey line) has climbed steadily from 8 percent of stores’ overall sales to over 11 percent of total sales (the monthly percentage is represented by the fluctuating red line).

Quantity of sales has been significant during this period. The number of silver units being sold per store on average over a 12-month period has increased from 1,500 units per annum to almost 2,500 units, an increase of 66 percent in sales volume. This increase is considerably higher than the growth in total sales, which would indicate a drop in the average sale price of silver. Our graph below confirms this to be the case.

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As the figures show, the average sale price of silver has dropped from $55 to $45 since February.

The question is why? Given the relatively low average price of silver to begin with, it would seem surprising that the average silver sale should drop like this. It’s certainly not attributable to the rise of the bead market as the average price there is actually higher and this is helping to support the overall average. An average sale of $55 was never high and should be maintainable. In fact, had the average stayed at $55 the average store would generate an additional  $55,000 in sales over 12 months from their silver range – not a sum to be ignored!

Looking to increase your average silver sale should be a priority at the moment to make the most of this opportunity while it lasts. A number of steps can help here:

  1. Review the average price of your silver inventory. This should be at least 20 percent higher than your current average sale in order to grow this average. If not, make sure the average price of new inventory you bring in is higher than your current average inventory price.
  2. Check your mark-up on this product. Are you getting enough for your efforts? An increase in prices not only increases profit but also average sale.
  3. Set your staff’s (and your own) expectations. Don’t be fooled into believing that everybody wants to spend less. Many of your silver customers will have switched to silver from more expensive products as a means of reducing their spending. There is no reason why that silver spend then needs to be lower than the average. You have to think up before you can sell up!

Historically the ratio between the average price of gold and silver has been 15:1 (gold being 15 times the price). That ratio now stands at over 60:1 (gold being more than 60 times the price of silver). This has contributed to silver’s relative affordability – but it may not last. With inventories of silver at near historic lows we may begin to see a rebalancing of the silver price relative to gold.

It’s time to make hay while the sun shines.

This story is from the January 2010 edition of INSTORE.

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David Brown is the president of Edge Retail Academy, a leading jewelry business consulting and data aggregation firm that provides expert business improvement plans to help with all facets of your business, including improved financials, healthier inventory, sales growth, increased staff performance, recruiting and retirement/succession planning, all custom-tailored to your store’s needs. They offer Edge Pulse to better understand critical sales and inventory data, to improve business profitability, benchmark your store against 1,200-plus other Edge Users, and ensure you stay on top of market trends with their $3 billion-plus of industry sales data. Contact (877) 569.8657, ext. 001, [email protected] or EdgeRetailAcademy.com.

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