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David Brown

These Jewelry Stores Reported Sluggish Sales for October

Plus: something to think about.

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OUR SAME STORE DATA for October 2018 again showed a drop in sales performance across the stores being measured. Monthly sales of $102,602 were down 4.85 percent compared with the same period last year. Average sale of $399 for the month was an increase of 8.7 percent on last year’s monthly average retail value of $367. Sales volume, however, continued the decline, dropping from 262 units to 218, a drop of 16.7 percent, which has dragged the overall performance down.

Our rolling 12-month figures show a decline of 0.33 percent in the result from last month, representing the ninth straight month that numbers have fallen across the data pool. Year-to-date sales figures have now declined from $1,629,755 in January to $1,574,687 at the end of October, a drop of $55,000 in sales. Given a profit at keystone this will have reduced the average store’s bottom line, assuming all other costs stayed consistent, by over $27,000 during this period.

As the numbers above show, keystone is becoming increasingly harder to achieve, with margins consistently being below 50 percent over the last three years of data. Within these figures is also another story. When you look at the result achieved for October 2018 of 48 percent margin, the breakdown shows the smaller stores under $1 million in sales achieving 50 percent margin and those up to $3 million in sales per year achieving 46 percent. The largest stores have a margin of just 41 percent for the month.

“Well, they must be selling more high-priced diamonds at a reduced margin,” I hear you say. Certainly the bigger stores are achieving a much better average sale in diamonds, which will be contributing a squeeze to margin where there are higher ticket items. However, the best-performing stores for diamond sales, as a percentage of overall store sales, are stores doing between $1 million and $3 million, with diamonds representing 55 percent of total sales. Next are stores with less than $1 million in sales, which are making 53 percent of their sales from diamond product. The biggest stores are only seeing 46 percent of their sales coming from diamonds.

Where the biggest difference lies is in the area of watches. Here’s a look at the numbers across all stores.

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As the chart shows, the bigger the store, the more significant the percentage of sales for watches, with the resulting impact on margins that watches can have compared to jewelry.

Although smaller stores can congratulate themselves on maintaining a better margin and doing well in diamond jewelry, this does raise the question, why are smaller stores not achieving a bigger percentage of sales in watches? Although we don’t carry ongoing data on the average sale from watches, a quick glance at October results does show an average sale for larger stores of $4,000 versus $1,200 for medium-sized stores and just $360 for smaller stores. The elite brands carried by the bigger stores are making a difference in this area.

20 percent of sales is a significant amount. Not every jeweler can carry a top-brand watch, or would want to, but it does show that the watch market is not all about discount stores and cheap knockoffs. Where do watches fit into your store strategy? Are you assuming they are a market you can’t get a larger slice of? Should you be reviewing your strategy in this area?

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

Six Solutions to Short-Term Cash Flow Problems

Here are six solutions to short-term cash flow problems.

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MANAGING CASH FLOW can be an urgent issue for any business. Problems can arise if you aren’t vigilant to how your receipts and payments are tracking. Sometimes, you need a solution that can give you quick and easy cash to keep you going. Here are some of the best options you should consider.

1. Get short-term financing. If you feel the situation can’t be resolved without external help, then short-term financing, such as a line of credit, can see you through. It has the added advantage of being able to be repaid when the funds are no longer needed, keeping costs to a minimum.

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2. Long-term financing. This can be a longer process and will generally involve putting up assets as security for a more permanent arrangement. Although this may result in a larger sum of funding, be careful: your assets and debt should match in terms of time frame. Using long-term debt for short-term cash flow needs can be a recipe for disaster (as can short-term debt for long-term asset purchasing). Long-term debt should be used primarily to purchase assets that provide long-term returns to the business, not as a means of “tiding you over” until things get better. You need cash flow every day, but you only have so many assets you can draw against.

3. Speed up recovery of receivables. Although retail is normally a cash business, there may be some areas in which you run an account (e.g., insurance companies) or other parties with whom you have a good relationship. In these circumstances, it’s important to manage the repayment process. A discount can be an effective incentive for this.

4. Get a larger deposit. Your customers are often your best means of short-term funding. Increasing your deposit on custom jobs from 20 percent to 50 percent can add several thousand dollars permanently to your bank float.

5. Manage your repairs. Follow up consistently with repairs that aren’t collected. This is dead money sitting that is easily forgotten about because the items don’t belong to the store. You have an investment in those items you need to recoup.

6. Sell surplus assets. Inventory is often the first choice for doing this, but is there other equipment or assets you no longer need? If you’ve ever run a garage sale, you’ll know how much cash you can round up from extra stuff you have — the same may be true of business assets such as old desks, tools and display cabinets you no longer use. Don’t assume they are worthless just because you will recoup much less than what you paid for them.

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David Brown

Why Warren Buffett Places So Much Trust in Emotional Currency — And How Your Store Can Get It

It’s time to create a “moat” around your prices.

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HE’S LONG BEEN CONSIDERED America’s foremost investment guru, and given the returns achieved by his company, Berkshire Hathaway, it’s easy to see why. Understanding what Buffett considers to be a good business can shed light on how to improve your own business strength — to put, as he calls it, “a moat” around it to ward competition away.

Hearing his theory on business value is well worth doing, whether it’s his annual Berkshire Hathaway meeting or other snippets of advice the media shy guru may drop. It’s his take on business value from a commission investigating the financial crisis back in 2009 that recently caught my attention.

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When asked about his investment in the ratings agency Moody’s, Buffett had the following to say:
“If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business. I’ve been in both, and I know the difference.”

Buffett went on to discuss his belief that good management can’t save a bad business, but a good business can continue no matter what management does.

Moody’s represented a case in point. Because of their duopoly with Standard and Poor’s as the benchmark of rating agencies, they effectively had a business with a moat around it. Even if a competitor came in offering ratings at half the price, both Moody’s and Standard and Poor’s had created a business that would not suffer. Price increases or decreases would make no difference.

In a jewelry industry where pricing competition often seems to be the only thing that customers are concerned about, it raises the question, “Can a jeweler successfully build a pricing moat around what they offer?” Moody’s and Standard and Poor’s perform a task that others can do but no one else can do it with the prestige of having their name attached — and that makes all the difference.

On the face of it, it may seem difficult to achieve this level of power when selling a commodity that can be purchased elsewhere — yet jewelry is an emotional buy. By definition, you should also be able to achieve an emotional moat around the association of your name to the process. Tiffany has achieved this — however, is what they are offering any different to what you or other jewelers able to provide? Does the customer gain any form of tangible benefit, or is it a feeling based on emotion?

Just because it’s intangible doesn’t mean it’s not real. The ability to increase prices and have your customers accept it because you are the only feasible option is priceless — the number one thing Buffett considers when investing.

If it’s worthwhile for Mr. Buffett to consider it for his major investments, it’s worth you considering for yours.

 

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David Brown

Dark Economic Clouds Loom on Horizon, Says David Brown

Negative sentiment is appearing.

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CONSUMER SPENDING IS a matter of confidence, and declining retail sales can often be one of the first barometers of economic sentiment. The trend we have seen since early in the year has been further backed up by the economic news which, despite positive reporting from many listed companies, has brought a storm cloud of negative sentiment.

Fears of rising interest rates, even though they may have been slow to happen, will dampen consumer spending. The threat of trade wars with China and an increased cost of imports and reduced income from exports are playing on investors’ mind. We’ve seen a drop in the Dow Jones reflect this fall in confidence, and it seems likely that there will be some further belt-tightening going on in the foreseeable future.

Below is a comparison of the individual monthly data for September versus the same month last year.

Our same-store September data year-to-date showed a decline of 0.52 percent in the rolling 12-month sales figure compared to September 2018. Average store sales for the 12-month period to September was $1,579,921, down from $1,588,204 at the end of August. This has extended our run of declining sales to eight months when our rolling 12-month sales stood at $1,629,755.

So what’s caused this to happen? Ever since the financial crisis in 2008, governments all around the world have increased the amount of money that is in circulation. Their logic? That more money encourages more spending.

To a large extent their strategy has worked, as if you hand out cash to the “man in the street” he will naturally spend it. Now you might be wondering how this works. Governments don’t appoint cash dealers to stand on street corners doling out dollar bills. They will generally do it through the banking system in one of two ways. The first is to print money, either figuratively or literally. These days most money travels electronically, so it usually consists of blips on a screen. This money is made available to banks to lend as mortgages or credit card debt – which allows it to filter its way through to consumers. The other way they can do it is through debt – treasury bills and government bonds can be issued to finance the government deficits that are increasingly the norm for most countries. These are effectively a demand on the government to repay later. These debts are viewed as ironclad, as a government is always able to guarantee its payments (by printing more money, but this can cause its own problems as you will see!) So the government can control the money in circulation by selling more bonds (which takes money out of the system) or buying back their bonds (by putting more money into the system re-purchasing the bonds).

Now this all sounds pretty simple, but it can come at a price. Printing money can cause the value of a currency to decline (like any rule of supply and demand, the more of something there is the less anyone will pay for it). A declining dollar can make exports more competitive, but it does raise the cost of importing goods because you will need more dollars to buy the foreign product so this will lower demand for goods. Creating more government debt can be a way of mopping up the money, but it can lead to higher interest rates as lenders get more nervous the higher debt you have (even for governments) which is happening now.

There is a lot of debt, both personal and government, that is sloshing around the world. Personal debt is high because of all the money that the governments have injected in the economy through the banks.

Now that the government is tightening the money supply, there is a nervousness that many of those with high borrowings won’t be able to deal with the increase of interest rates that will now happen as money becomes tight again. The fiscal stimulus of money being injected into the economy may have kicked the can down the road, but to throw in another cliché, the chickens may be about to come home to roost.

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