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David Brown

This Might Be the Best Change You Can Make in Your Business … And Too Many Jewelers Fear It

It’s quick, easy and highly effective.

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April data across our platform of same-store information shows a slight drop in sales achieved compared to April 2017. This month’s result of $103,546 comes in nearly 3 percent lower than last April’s $106,715. The average sale for April was $380, up from $364, an increase of approximately 4 percent, with a decline in units sold from 263 to 227.

The decline in margin continues to be a cause for concern across many stores, with the data pool indicating a drop from 45 percent to 44 percent in monthly margin in just 12 months. Obviously one month represents a snapshot, but our other data has shown this to be a trend. Any average obviously has extremes, and there will be store owners who are encountering an even bigger decline than this. Every $1,000 of sales will translate into $10 less dollars of profits achieved purely from the lower margin, and thus the drop of 3 percent in sales becomes a decline of almost 4 percent in gross profit.

This is the multiplier effect of margin. Just a 1 percent drop in margin achieved can increase the decline experienced in profit by 33 percent over the decline experienced in sales (3 percent to 4 percent). Let’s make some assumptions about the more extreme figures that might exist for an individual store.

Let’s assume Duncan’s store has seen sales drop from $100,000 to $90,000 for the month, a larger decline of 10 percent. Let’s also assume that Duncan has better-than-average margin but experiences a drop in margin from 50 percent to 48 percent. Last year Duncan’s gross profit would have come in at $50,000 ($100,000 of sales at 50 percent margin). This year they come in at $43,200 ($90,000 @ 48 percent margin).

The 10 percent drop in sales translates into a 13.6 percent drop in profitability – the margin decline has accelerated the sales decline by a further 36 percent (10 percent to 13.6 percent).

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The same can be true in reverse. Helen’s store has seen her sales increase 10 percent, from $100,000 to $110,000. She has also managed to improve her markup from 50 percent to 52 percent. What effect does this have on her gross profit?

Last year’s profit of $50,000 has now increased to $57,200. Her 10 percent increase in sales has been accelerated to a 14.4 percent increase in her gross profit. Just two percentage points extra in margin gives her an extra 44 percent profit on those additional dollars.

It’s easy to view small percentage changes in margin as insignificant; a percent here or there would appear to have little effect on the outcome of a businesses profit. However, as the numbers show, the effect on the bottom line can be considerable. In Jane’s example, the extra margin has made a difference of $2,200 over what she would have made without it. Her $10,000 of extra sales has delivered $7,200 in extra profit by the combination of increased turnover and increased margin. She didn’t need the extra sales to get the margin benefit, but the two together create a healthy improvement on the previous year.

Increasing margin costs almost nothing to do, doesn’t require extra staff or product, and doesn’t require additional space. It doesn’t affect rosters or double the time spent having to clean. It offers an infinite return on money and time that virtually no other business improvement can provide. It can be the quickest and easiest strategy to implement, with the only true risk being that the customer may say no.

Unfortunately, many small business owners say no for the customers without giving them the chance to decide for themselves.

Don’t be this type of business owner. At least give your customers the chance to reward you more handsomely for what you already do.

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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

Here’s How to Make Your Biggest Sale Ever … Again

To reproduce your highest-priced sale, you have to show the right product.

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CHANCES ARE YOU easily recall the single highest-priced item that you’ve ever sold in your store — the adrenalin rush of seeing it appear on your terminal or as a line item in your reporting or maybe a deposit on the bank statement. The excitement of moments like this makes retail worthwhile.

Assess how it happened. What were the circumstances of that particular sale? Did you consciously create the opportunity, or did it fall in your lap?

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A better question is, have you consciously tried to reproduce it?

Perhaps you thought you got lucky and it was a one-off sale. Yet, the reality is that if you did it once, you can do it again.

Let’s assume the item was a diamond ring, as that’s the most likely scenario. Do you have anything in your inventory at that price range? Perhaps it was a custom piece made for someone; nevertheless, chances are you do not have a similar piece displayed in your store.

The challenge is that your current inventory influences your customer’s perception. If your diamond rings range between $10,000- $20,000 retail, your customer will see you as a store that offers fine jewelry up to $20,000. A customer who is willing to spend $50,000 may not see you as the place to shop, causing you to lose these potential luxury sales.

We are not suggesting that you rush out to buy a lot of $50,000 rings. Instead, work out an arrangement with one of your top performing vendors that will allow you to showcase these higher-priced items. Remember, if you hope to sell a $50,000 ring, you may need to show a $70,000 one to get the market interested. Customers will seldom spend more than you show them.

The best way to reproduce your highest-priced sale is to make sure your inventory includes those price points and to prominently display them in your store.

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David Brown

April Sales Were Up – But Is Your Focus Where It Needs to Be?

Sales increased 2.3%.

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SALES FIGURES FOR the 12 months ended April 2019 showed a healthy increase across Edge Retail Academy’s database of stores.

Annual sales of $1.87 million were up 2.3% compared with the same period last year, when sales came in at $1.83 million. The rate of growth has slowed from the 2018 increase of 6.4% but nevertheless represents a solid increase.

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The increase continues to occur on the back of lower sales quantities and higher average retail sale. Sale units moved during the 12-month period amounted to an average of 6,205 items per store, down 4.8% and 9.5% respectively on 2018 and 2017. Average sale achieved per item increased to $301 from $280 and $250 respectively for 2018 and 2017.

Gross profit of $858,000 was up from last year’s $837,000 and the 2017 result of $789,000.

Margin has held at 85% for each of the last three years.

This month we will focus on silver, which has been the main contributor to the decline in sales volume.

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Sales dollars of silver dropped to $100,000 on average per store from the 2018 level of $115,000 and the 2017 level of $143,000. This represents a drop in silver sales of 30% across the two years. Unit sales makes even more interesting reading; quantities of silver sold declined from 1,844 units in 2017 to 994 units for 2019. This is a drop of almost 50% in a two-year period. Part of the decline has been offset by an increase in the average retail value of silver being sold – with the average sale increasing from $77 in 2017 to $100 today. However, this has not been enough to offset the volume decline. Markups have stayed the same at 113%.

So how do your numbers compare? If silver has been a significant part of your business, what has been the impact of a decline in the last two years? Given the significant drop across all stores, it’s most likely that the majority of stores have seen this happen. If you haven’t already reinvented yourself in this area, it might be time to do so.

Start by analyzing your sales departments. What percentage contribution is coming from each of your key areas – diamonds, gold, silver and watches? Now if you have a report from two years ago, how do these percentage contributions compare to what happened back then?

If your sales have changed, then you need to look at how you have responded to this within your store.

1. Review your merchandising. How is your store set out relative to sales? Are you still trying to promote product that is no longer selling? Does your store setup reflect your sales and what you want to sell?
2. Review your staff training. What are your staff members focused on? Are they still preoccupied with product lines that are no longer selling? You sell what you are focused on.
3. Concentrate on marketing. What message are you sending to your clients and potential customers? Are you still emphasizing a focus on what used to sell well for you? Are you promoting what your customers want to buy now?
4. Review your inventory. Return on investment is an important metric for any business. Do you have more inventory concentrated in silver than you should? Can this money be better utilized elsewhere?

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It’s important that your business is constantly responding to the marketplace – what your customers need is what you are best to concentrate your sales efforts on. You need to be aware of sales trends within your business. This may not be the end of the drop in silver sales, and if you have concentrated your efforts too strongly in this area, then there may yet be an even lower return on your efforts to come in the foreseeable future.

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David Brown

5 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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