David Brown
President of The Edge Retail Academy | | Gross Profits Come Off Their Recent Highs After a positive run of performances since the global financial crisis, most jewelers are finding their profitability has been affected in recent months with the typical store seeing a dip in the amount of gross profit being earned.
With the occasional pause to gather its breath, gross profit has been on a steady uphill path since the depths of 2009 with the average jewelry store now showing a level of profitability well in excess of the pre-crash levels experienced. But since March of this year, profitability has peaked and then declined for the longest period experienced since the financial crisis hit. During the last 12 months, the average store has achieved a GP higher than the corresponding month last year on only one occasion. In two of the months, gross profit matched the corresponding month from the year before. That leaves nine months when gross profit was below the level in the equivalent period last year. So why the drop-off in gross profit margin? Why are so many jewelers now struggling to maintain keystone? With the growth in diamond sales again most stores have found a switch in their income from more profitable lower-priced items to more competitive, lower-margin but higher priced sales. We all know you can’t get the same margin from a $5,000 ring as you can from a $100 one. The benefit has been the opportunity to achieve more sales with fewer units (and hopefully less effort!) but the downside is that these bigger sales come at the expense of margin. Many jewelers are now achieving over 50 percent of their sales from diamond jewelry, up from 37 percent during the low of the financial crisis. It can be difficult to achieve good margin on these higher items…or can it? Perception can be an interesting thing and in many cases I see jewelers who immediately “fold” when it comes time to negotiate with a customer over a more expensive item. Yet often these items are sold for less than they need to be. I had a client the other day who was bemoaning a sale he had made. The customer had gone to 25 different jewelers to get a quote and in the end it came down to him and another store. Interestingly although it had been all about the price when it came down to the last two stores the customer had chosen the client ahead of the other store even though he was still $1,000 more expensive than his competitor. Why? All along the customer had made it clear it was about price but when push came to shove he chose the more expensive ring. Interesting. This re-enforces a belief that I have had for some time that a customer will only buy on price if there is no other factor more important. In this case, something else was more significant to the customer and shaped his decision. I have urged the client to think carefully about the sales process and work out what he feels made the difference. Better still, ask the customer. If you can build more value around the sale than just the item you are selling, then you have something to compete with. Electrical goods retailers are excellent at adding more value to the sale through extended warranties, and in their case they charge for it (and in some cases make more money from this than the original item). There are countless opportunities to build additional value into the sale process for your customers by identifying what they really want. In most cases it’s not the jewelry but what the jewelry represents. How can you add more value around this equation? If you can find the answer to this question you may just find that margin never becomes an issue again. David Brown is president of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. For further information about the Academy’s management mentoring and industry benchmarking reports contact inquiries@edgeretailacademy.com or Phone toll free (877) 5698657 |