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David Brown

David Brown: Taking Stock

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David Brown makes no apologies for taking the jewelry industry’s inventory to task.

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[h3]Taking Stock[/h3]

[dropcap cap=R]egular readers of this column will remember me lambasting the state of jewelry inventory in this country not two months ago, and may wonder why I seem to be going there again this month. For those who read the last article I make no apology if I appear to be thumping the drum hard again – this message is one that needs to be heard. Last month’s Big Survey (INSTORE October edition) results provided some good insights into the state of the jewelry industry across the U.S. Among the data was a telling question that shed some light on the state of inventory across the majority of stores. The question asked “What was the biggest change made in the way you do business in the last year?” What was pleasing about the result was the No 1 change for the majority of jewellers was tighter control of inventory. What was disturbing was that only 13% of respondents had taken any steps to control this area. In almost every jewelry store, inventory is the single largest investment that the business can make — and in too many jewelry stores this asset almost becomes a liability. [/dropcap]

[inset side=right]Time and again I witness jewellers with levels of inventory that are well in excess of the levels they need to conduct their business.[/inset]Time and again I witness jewellers with levels of inventory that are well in excess of the levels they need to conduct their business. Not only is the level of inventory excessive but in many cases the inventory is old. It is not unusual to find a store with over 90 per cent of its items having gathered dust on the shelves for 12 months or more. Many of these jewellers justify the continued existence of this product on the basis that it is “just as likely to sell tomorrow,” or “it is worth more now than when it was purchased,” or the old favourite that “you have to carry this sort of item or you will miss out on the sale”. Furthermore the items that do sell well are never reordered back in because “we need to offer something new” or “the customer that bought that item wouldn’t want to see it back in-store.”

Let me ask you this question, If you wanted to purchase a new Chevrolet, and your local dealership carried nothing but new models from 2006 at the same price as the dealership across town carried 2009 models, which would you rather buy from? What if the most popular Chevrolet was a red 2009 Impala but your dealer had sold out of these and didn’t want to get anymore back in because “the customers that bought these would prefer to think they had them exclusively” or “I don’t need to get them back because I still have some mushroom-coloured 2006 Impalas to sell first and they are just as popular as the red 2009 model.” What if the dealership had a yard full of 2006 Chevrolets plus a storage shed with another 20 or so 2005 Chevrolets in it but he didn’t want to reduce these models because “they were part of my retirement fund”?

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The average U.S. jewelry store has less than 10 percent of its inventory in fast selling inventory, yet close to 80 percent of a good store’s sales will come from fast selling product. This means the success or failure of a store’s performance depends on little more than a handful of items. To use our vehicle comparison again, 80 percent of the population wants a red Chevy Impala and you only have two in your yard. Does this make economic sense?

What concerns me about the survey results is that although 13 percent of respondents say they have tightened inventory control the question I would ask is have they tightened the right part? With fast sellers being such a lifeblood for many stores you can little afford not to have them, however I sadly suspect that much of the inventory control tightening will take the form of putting a stop on all buying — good sellers and new. This can be worse than not controlling buying at all. Between September 2008 and August 2009 the percentage of “good inventory” (new and fast sellers) from our industry data had reduced from 29 percent to 27 percent of total inventory holdings while the total average value of inventory per store had increased from $720,000 to $790,000 as the chart shows:

Even allowing for September’s reduction in average inventory back to $760,000 this means the average store has had a significant increase in inventory holding costs without necessarily contributing more “good” inventory to the mix. This is dead money at a time when the return on investment is poor. A more aggressive old inventory program is needed to deal with this.

[inset side=left]When it comes to jewelry margins and inventory control however, the average U.S. store has lost ground to others.[/inset]Modern retailing has largely been invented in the U.S. When it comes to jewelry margins and inventory control however, the average U.S. store has lost ground to others. In Australia and New Zealand, for example, few jewellers would accept the mark-ups and stock-turn figures that are seen as normal in this country. Unfortunately, these poor results will continue to occur in the U.S. as long as stores continue to accept it as the norm and refuse to demand more from themselves and their inventory. Oversized retail premises with bloated old inventory and poor margins offer poor results to retailers who are spending, on average, more than 50 hours per week in their store (not counting the sleepless nights they may have thinking about it). Many are barely earning a wage let alone a return on the investment they have put in, and, according to the survey 22 percent don’t know whether they are making an adequate return on sales or not.

Retailing can be tough — sometimes you might feel it would be easier trying to swim a kilometre to shore through shark-infested waters! But let me ask you this; would you try the swim without swimming lessons? Would you attempt it by tying a 30-pound weight around your leg? Of course not. Yet so many store owners do exactly this by not getting adequate business help and lashing themselves to $500,000 more inventory than they need to, while not asking a high enough price for it when they put it on display. Come on folks, if you must run the gauntlet of enemy fire don’t do so while pointing a gun at your own head as well! Be smart. Stack the odds in your favour. There is so much good information available and so many good operators you can learn from. If it’s the fourth down with 16 yards to go you wouldn’t run the play without calling a huddle first so don’t do it in business. Demand more of every jewelry item in your store. If it hasn’t sold after six months, it isn’t going anywhere. You wouldn’t let a staff member sit around that long doing nothing so why tolerate it with your inventory? Take action now and make your store work for you.

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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 December 20009 edition of INSTORE[/span]

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