On Finances : Make Inventory Beat Your Other Investments
But there’s a point Where the returns don’t get any better.
BY DAVID BROWN
Published in the September 2012 issue.
Many jewelers see their inventory as an investment in the future — and understandably so. When gold prices rise it’s tempting to hang on to older inventory as the gold price rises almost beat the return from selling!
But only so much product is required to generate a maximum level of sales. A store in a town of 10,000 people with $500,000 of annual sales and $250,000 of product isn’t going to sell more if it increases its inventory to $1 million. There is a maximum level at which the returns don’t get any better — and in fact start to get worse. Finding this level is a tough task.
Still, even a bad inventory return can offer a return much better than any bank account or stock investment — provided you reach that maximum level without throwing more money into inventory without getting any increased sales.
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So how do you know when you’ve reached this level? The answer is return on investment: how many dollars you get back for every dollar invested in product. But this isn’t the only factor. Your return from buying an extra $1,000 of product may fall but if it still yields more sales, then it is money worth spending. Err on the side of too much product to ensure you aren’t choking off your sales without realizing their full potential.
Inventory not only gives you a better return than most investments but it is more liquid, and as such, will be more forgiving of your errors. But if you are seeking forgiveness you have to first ask! To gain forgiveness from your bad buying you need to take action to purge the demons from your product range! Here are some ideas to help do that:
1Make it look as good as new! Good, clean product with nice, clean tickets has a much better chance of walking out your door.
2Declutter. Make sure each piece has room to sell itself.
3Train the staff! Talk about your aged inventory with staff regularly. Have them present old items whenever possible each time they make a sales presentation. Remember, it might be old to you but it isn’t necessarily old to your customers.
