Gross profit is falling for jewelers nationwide.

February’s results for our comparative store data show rolling 12-month sales figures staying similar to last month’s. February’s sales of $118,532 was slightly down on February 2016’s figure of $119,356 but again the trend of falling unit sales and an increasing average sale saw the sales mix considerably changed from last year’s figure. Unit sales of 328 for February 2017 were down by just a little over 20 percent from unit sales of 413 in 2016.

Average value of retail units sold in each of the two comparative months increased from $269 to $328, a rise of almost 22 percent, which helped to maintain overall sales. Gross profit for the month of $54,840 was down from 2016’s February GP of $55,158.

This month we turn our attention to gross profit which, despite the trend in sales figures over the last few months, has been in a steady state of decline.

Despite sales largely moving in a range that has not deviated a great deal, gross profit has been on a slow and steady decline over the last 12 to 18 months. During the last 12 months, the level of decline in sales of around $20,000 has been matched by an equivalent drop in gross profit. As we’ve discussed in previous articles, some of this will be a reflection of lower margins for higher priced items, however, there will also be some leakage of margin and profitability around each item sold.

Maintaining a healthy margin is imperative to a successful jewelry store. Increasing the focus on sales while losing much of the gain from the bottom line is a recipe for failure as increased sales will generally bring with it increased costs that will need a growing gross profit to help cover.

If you haven’t reviewed your policy on gross profit here are a few suggestions on how you can protect your margins:

Reprice fast sellers. If you actively reorder fast selling items you need to review the pricing when you reinclude it into inventory. Price is not a factor of cost but supply and demand along with perceived value. Your customers don’t care what something costs you — they are only interested in what it is worth to them. If an item consistently sells quickly each time you reorder it, you may be providing a higher perceived value than you are asking in price. Consider repricing any item that has reached a fast seller status of three; you can always drop the price again if it slows significantly.

Start with higher margins. We can become a little obsessed with margins and our perception of what the customer will pay. It’s not just about the price however — if it was, we would all be driving the cheapest car we could find. What is your policy on pricing? When did you last review it? Do you include freight and boxing in your pre mark up price? Have you used your KPI reports to compare your pricing and margin against your peers?

Control discounting. Discounting is difficult to eliminate and there are times when it needs to be part of your inventory reduction plan, but uncontrolled discounting is what you need to be wary of. A customer request for a discount is just that — a request. It is also a buying signal. Test their determination with a little resistance rather than caving immediately to their demand. Before coming back with a price ask questions such as “How do you plan to pay?” and “Are you making a buying decision today?”

A further way to control your discount is by seeing which staff members are more likely to offer a discounted price. A quick look through your salesperson reports will show you which staff members achieve the lowest margin/highest discount and hence are more prone to use discounting as a soft approach to get the sale. This may be an issue you need to discuss with them further or provide some training to staff generally to help them handle it.

Margin is one the most valuable KPIs in your business. Protecting it is as important as protecting your inventory. We spend thousands of dollars each year on security for our diamonds yet allow an equivalent amount in profit to walk out the door unchallenged. Decide that you will revisit your margin policy today.

DAVID BROWN is president of the Edge Retail Academy. To learn how to complete a break-even analysis, contact inquiries@edgeretailacademy.com or (877) 569-8657.

This article is an INSTORE Online extra.