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David Brown

Interest Rates Rise? Be Prepared to Deal with the Ramifications

What should a retailer do?




IF THERE IS one thing we’re not short of at the moment, it’s a surplus of money sloshing around in our financial system. Since 2008, central banks globally have been printing money and injecting cash into the marketplace at a rapid rate in order to keep demand for products at a healthy level.

The Federal Reserve has clearly stated that a plentiful supply of cheap money is here to stay and that interest rates won’t be increasing anytime soon as they attempt to restimulate the economy after the COVID-19 pandemic. The question is, do they get to make the final decision on this?

In recent weeks, we’ve seen rumors of inflation beginning to appear as many economies come out of self-imposed restrictions and demand for goods begins to return. Prices for many commodities used in the manufacturing process such as oil, copper and iron ore have begun to increase.

Inflation fears have a direct impact on interest rates — no one wants to earn a return that is less than the cost of money, even if it’s a safe investment — and one of the safest that has been caught in the crosshairs of inflation concerns is government bonds. Recently, the price of government bonds has begun to decline on the secondary market, which reflects investors wanting to earn a higher return (the lower the price of a bond, the higher the yield the investor earns in interest). This is bad news for central banks, as new bonds issued to raise funds will have to be priced at a higher interest rate to match the market price. If existing bonds start trading at, say, a 3 percent yield, then new bonds issued must be offered at a similar rate to meet the market, regardless of central banks’ desires to keep rates at, say, 2 percent. Central banks, in those circumstances, will be forced to increase interest rates whether they like it or not.

So far, the Federal Reserve is making soothing sounds that it has everything under control. Whether the market will test the limits of the Reserve remains to be seen. An increase in interest rates can present two problems for those in the jewelry industry: an increase in the cost of borrowing, and an increase in the price of the market’s favorite asset in times of inflation – gold.

What should a retailer do in the meantime?

  1. Don’t panic or overreact.
  2. Make sure you have a comprehensive financial plan. Speak to your CPA about your current debt, short-term and long-term financial goals.
  3. Pay down your credit card debt. Credit card rates are generally tied to the prime rate, a national index used by banks to determine consumer interest rates, and therefore can move up or down.
  4. Protect your cash. If interest rates do increase, you can take advantage of these increases by putting your money into certificates of deposit. Be careful not to lock up all your cash reserves. Consider using the ladder technique, which involves buying CDs with varying terms.
  5. Most businesses who own mortgaged property will be on variable rates. You should speak to your bank to discuss options of possibly locking into an interest rate, especially while they’re still low.

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



Time to Do What You've Always Wanted? Time to Call Wilkerson.

It was time. Teri Allen and her brother, Nick Pavlich, Jr., had been at the helm of Dearborn Jewelers of Plymouth in Plymouth, Mich., for decades. Their father, Nick Pavlich, Sr., had founded the store in 1950, but after so many wonderful years helping families around Michigan celebrate their most important moments, it was time to get some “moments” of their own. Teri says Wilkerson was the logical choice to run their retirement sale. “They’re the only company that specializes in closing jewelry stores,” she says. During the sale, Teri says a highlight was seeing so many generations of customers who wanted to buy “that one last piece of jewelry from us.” Would she recommend Wilkerson? Absolutely. “There is no way that I would have been able to do this by myself.”

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