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David Brown

Sales Declined Last Month — But Where Did the Money Go?

Your competition is not just other jewelers.

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July monthly sales data from our store comparisons has shown a decline in sales activity for the month compared to last year with a corresponding drop in our rolling 12-month sales also being evident.

Twelve-month year-on-year data for July was down 0.49 percent on June’s result with total sales of $1,589,470, down from June’s average store sales figure of $1,597,325. This represents the sixth straight month our rolling 12-month sales figure has declined, with this period having shown a total decline of 2.5 percent over the period in question. This would annualize to a sales drop of 5 percent for the year should the trend continue.

This represents the first six-month period of decline since April to October 2016, when the rolling 12-month sales showed a drop of 2.9 percent.

 

Monthly Percentage Change in Sales – YTD Sales Data

The trend line above shows that the monthly change in sales percentage has been running much closer to zero over the last two to three years following the initial heavy declines during the recession and strong growth coming out of it. That’s indicating that increases have been modest and declines haven’t been major when they have happened. What will be interesting to see, however, is next month’s result. A decline will be the seventh straight month that year-on-year sales dropped, and that is a figure we haven’t seen since the recession. Whether it is an indicator of a sustained period of sales decline will be the question.

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A quick comparison of monthly sales for July shows where the trend is coming from.

As the numbers show, July monthly sales saw a drop of just under $8,000 from $107,397 to $99,542. Unit sales were down 13.2 percent on last year’s number of items sold, with average retail sale increasing by 1.37 percent to partially offset the drop. Margins held firm at 45 percent, with gross profit dropping from $48,477 to $44,750, a fall of 7.68 percent.

So where is the decline coming from? Overall diamond sales continue to be healthy, with the fall coming across other departments, particularly silver, but this will vary on a store-by-store basis. It’s important to analyze your own numbers and see how they compare to this trend.

Grab a YTD report by department for this year versus the same time last year. How do you compare in sales over the two periods? If your sales are down, which areas are dropping? Is it diamonds? Colored stones? Gold or silver? How about watches? It’s important to isolate the problem area in order to take action.

Once you’ve determined the area that needs addressing, you need to delve further. Are you losing sales volume, or is there a drop in the average value being sold? If it’s sales volume, then you will be mirroring the trend across our same store-data. This raises questions: Are these people no longer buying, or are they buying elsewhere? Have they substituted the product that has declined in sales with other jewelry products. Other products altogether? Or are they not buying at all? The economic data seems to indicate that customers are still spending, so where is their money being spent if not on jewelry?

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It’s important to understand that your competition is not just other jewelers, but anywhere else your customers can choose to spend their money. There has been a trend toward spending money on experiences over material items in recent years, particularly among millennials, and thanks to social media it’s not hard to see why. Before the internet, many would buy products as a means of displaying their wealth or uniqueness to others. Now they can enjoy an experience (a fancy restaurant, an overseas trip) and post it to their Instagram or Facebook as a means of demonstrating their success and to garner the admiration of their friends.

The successful jeweler of the future will recognize this and ensure that shopping becomes more than just a material purchase, but an experience in itself. Packaging the buying of jewelry into an overall experience just might be a way to establish a point of difference and claw back some of the money that has moved into other areas.

David Brown is president of the Edge Retail Academy, a force in jewelry industry business consulting, sell-through data and vendor solutions. David and his team are dedicated to providing business owners with information and strategies to improve sales and profits. Reach him at david@edgeretailacademy.com

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David Brown

Five Steps To Make Your Business More Salable

Build net profit and control your inventory tightly.

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AFTER YEARS OF hard work building up an asset that they hoped would provide for them in retirement, many business owners are finding there is nothing left at the end of the day when they come to cash in their chips. And we’re not just talking businesses that struggle — I’m talking about businesses that are making a very healthy profit each year.

How many of you know a fellow store owner who has been in this situation? I had friends recently close down at the end of December in a store that had traded for over four decades and was making a large six-figure profit. They were in their 70s, had decided to quit but could not find a buyer interested in taking over their store. Sadly, this scenario is far too common.

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Here are five steps you can take to help this situation:

1. Drive every possible dollar of net profit. Most business owners generally try to minimize their net profit to reduce tax, but this ends up costing them as they approach retirement. Jewelry stores are bought and sold nowadays based on a multiplier of net profit, so every dollar could be worth $4-6 to them when they sell … not to mention they can use that net profit to retire debt or create retirement wealth while they still own the business.

2. Establish and achieve an optimum inventory level … one that delivers maximum GMROI while still satisfying your customers. Most stores are heavily over-inventoried, and the store is not an asset unless it generates turn and margin. Many are emotionally invested in their inventory, but no prospective buyer is going to want their old stock at any price. Nor do customers. Guess what is left after a successful GOB? The old stuff!

If Business A has $100,000 of profit on $400,000 of inventory, and Business B has $100,000 on $700,000, then both would sell for the same multiplier of profit. Store B may well be left with either an inflated value that would put a buyer off because they have inventory to clear, or be forced to find a way of disposing of the surplus product.

3. Transition the owners’ personal skills and responsibilities from “business operator” to “business owner.” No one wants to buy a business (or certainly not at full price) where the current owner is the No. 1 asset in the business (i.e., does a lot of personal sales, buys all of the inventory, does the marketing, is the main bench jeweler, etc.). There is too much uncertainty about what will happen to the performance of the business the day after the highly involved owner departs.

4. Build a strong team. Sometimes this involves outsourcing such things as repairs, custom design, marketing, social media, bookkeeping, etc. to effectively handle all day-to-day responsibilities. Note: this takes time, patience and perseverance.

5. Be visible online and on social media … it’s one of the first places prospective buyers will look.

In a market where supply exceeds demand, you need to give yourself a competitive advantage if you want to cash in that nest egg. It can happen, but it requires a strong level of grooming and preparation. The return, however, is well worth it.

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David Brown

How to Make The Most of Your Department Reports

Allocating the appropriate time, money and space to each department is critical to success.

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DEPENDING ON THE TYPE of business you run, chances are your sales will be coming from perhaps 30 or 40 different departments across your store. Some, such as bridal, are more obvious. Others, such as silver earrings, may not make a big difference — yet it’s important to understand the contribution from each department and where it fits into the overall performance of your store.

A department report in order of sales will reveal the biggest contributors, and it should come as no surprise to know that the top 5 or 6 departments might be contributing 50 percent or more of your storewide sales. What might surprise you is which departments make up the top 5 or 6. Take a guess now and then compare it to your actual results; chances are you’ll see at least one department that wasn’t in your estimate.

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Knowing this will enable you to allocate your resources towards these areas. These resources are, in no order of importance:

1. Time
2. Money
3. Space

Time refers to the energy you and your staff devote, both physically and mentally, to this area of your business. You might have a love of watches and enjoy spending time checking out the latest models available, but if watches represent 3 percent of your sales, this category doesn’t warrant a lot of effort.

Money will predominantly be spent on two fronts: one is your inventory, while the other is marketing. Is the inventory you carry in each department relevant to that department’s contribution to your sales and profitability? If not, consider reallocating it. Are you running ads for an area of your business that is neither a significant contributor to sales or profit? Do you allocate your marketing spend by area based on what product you are advertising? It’s not unusual to find a business spending 90 percent of its marketing on diamonds when that category represents only 30 percent of sales.

Space refers to how you allocate the merchandise within your store. Are your best sellers front and center? If your store is 50 percent bridal, does your merchandising say this when your customers walk into your store?

Review your departmental contribution and determine how you are allocating your resources of time, money and space across each area. Make a decision to rebalance each area as required so it more closely aligns to your store’s performance. The exception to this is if you are hoping to grow a particular area, in which case your resources should align with your anticipated results and performance.

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David Brown

What Business Owners Can Learn from Abraham Lincoln’s Failures

He would never have been in position to succeed if he hadn’t failed first.

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WE ARE CONDITIONED BY society to fear failure. Our education system defines performance as “getting the answer correct.” This result-based measurement is an effective method for assessing a level of knowledge, but it doesn’t encourage the hands-on learning process so necessary to develop true understanding and retaining of information — nor encourage the discovery of new knowledge.

Sadly, this aversion to getting things wrong starts at an early age and continues our whole life. Despite the copious number of successful people who have failed spectacularly before achieving success, we still attempt to follow a path that has more to do with avoiding ignominy than with enjoying the benefits of stretching ourselves into uncharted territory.

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Abraham Lincoln never feared failure — he could little afford to. His list of unsuccessful endeavors in both business and politics would have forced a lesser man to give up. Here are just some of his “failures.”

1831: Failed in business.
1832: Ran for state legislature — lost.
1832: Also lost his job — wanted to go to law school but couldn’t get in.
1833: Borrowed some money from a friend to begin a business, and by the end of the year was bankrupt. He spent the next 17 years paying off this debt.
1838: Sought to become speaker of the state legislature — defeated.
1840: Sought to become elector — defeated.
1843: Ran for Congress — lost.
1846: Ran for Congress again — this time he won — went to Washington and did a good job.
1848: Ran for re-election to Congress — lost.
1849: Sought the job of land officer in his home state — rejected.
1854: Ran for Senate of the United States — lost.
1856: Sought the vice-presidential nomination at his party’s national convention — got less than 100 votes.
1858: Ran for U.S. Senate again — again he lost.
1860: Elected president of the United States.

What sort of president would Lincoln have become if he had not had his failures? Had his life been a succession of unbridled achievements, would he have had the fortitude or fighting qualities to drag the country through its toughest challenge ever? Or would he have been ill-prepared for the physical and mental battle the presidency required? I believe his history of failing provided him with the steel and determination he needed to see the job through. Had he not “failed” so many times, he would not have become the man he was — and the history of the United States may have looked sharply different.

Learning to fail helps you overcome the fear of testing your boundaries and ultimately helps you grow and succeed. When it happens, embrace it for the lessons it can teach.

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