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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 Succeed at Succession Planning

Be sure to consider these four areas to prevent unnecessary conflict.

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MONEY CAN BE A sensitive topic to talk about. Generally, people don’t like to discuss it even in the privacy of their own home. Yet, not talking about your financial situation can make a significant difference in how much of your wealth is passed on to other family members. Whether it’s a business being passed on or the wealth that it has created, careful planning is required.
Government legislation is constantly evolving in this area. It’s important to set up for the passing of wealth and to ensure this is compliant with the current laws.

Here are some things to consider:

1. Inform family members of what may be coming their way. Give them the opportunity to prepare for the financial impact an inheritance may have. More than one family has been undermined by a sudden arrival of wealth they didn’t expect and couldn’t handle. Such preparation can help them to plan their ownership and tax structures to handle it effectively.

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2. Be sure to involve key stakeholders. Be selective about who is involved in the decision-making process, the administration and the final beneficiaries. The process can be daunting and potentially alienate family members and cause unnecessary conflict.

3. Ensure a single unified vision. Particularly where parents are concerned, it’s important to ensure a consistent message is communicated about the ongoing management of the family business. If there is to be a successor, there needs to be an agreed upon approach as to who it will be and how it will be handled.

4. Don’t wait too long to pass on ownership and responsibility. If the business is to go to the next generation, a grooming process is recommended to ensure the transition is smooth and the successor has done their “time.” You should always be prepared for an unexpected event that may speed this process up faster than you intended — it’s better to be over-prepared in this area than under-prepared.

Whether a business is being passed on or the wealth that the business has created, it’s important that the vision is clearly communicated regarding how the legacy will be passed onto future generations. Sharing this vision can be an effective means of making sure the succession plan goes as smoothly as possible.

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David Brown

Why You Need to Talk to Your CPA ASAP

A conversation and some planning today can minimize your tax burden tomorrow.

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A CONVERSATION WITH YOUR CPA now can help minimize your tax burden later.

With the end of the financial year fast approaching, now is a good time to start thinking about your end-of-year financial results. No one wants to pay tax, and certainly no one wants to pay any more than they must. Tax evasion is a criminal act that will see you finish up in court. Tax minimization, however, is a perfectly legitimate way of keeping your tax to the most you’re required to pay.

Too often businesses wait until the financial year has ended, determine their financial result, then wonder how they can reduce their tax bill. This can be a little like closing the gate after the horse has bolted. Many tax minimization strategies can be implemented before the end of the financial year, and now is a good time to talk to your CPA about some possible approaches.

Much of this strategy can revolve around the expenses you might be planning to claim. Larger investments in assets can often have their cost apportioned over several years, and there can be an advantage, if you are planning to make this investment, in undertaking it before the end of the financial year.

Another aspect to discuss with your CPA is how income is allocated. It’s important to take advantage of different tax rates for owners and partners in a business. Again, this decision sometimes needs to be made before the financial year has ended to avoid making retrospective decisions that may be frowned upon by the IRS.

Before you talk to your CPA, try to have a handle on how your financial year is going, as this will make a difference to what they may recommend. Your accountant will want to know how the year is tracking and what performance you are budgeting on for the last month of the year. Obviously, some constructive estimating, especially around the busy December period, will be needed. Your CPA will then be able to best advise you of what actions will help your financial year-end before the 31st of December.

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David Brown

These Stores Have Seen Lower Silver Sales in the Face of Better Overall Results — How Do Your Results Compare?

Check out The Edge Retail Academy’s latest results.

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ROLLING 12-MONTH SALES for June averaged $1.897 million, up 1% from the June 2018 result of $1.879.

Storewide sales for the 12-month period averaged 6,118 units per store, down 5.5% to 6,474. Average sale per item increased from $290 per item to $310, a rise of 6.9%.

With sales increasing $18,000, gross profit grew from $859,000 to $871,000, a rise of 1.37% on the back of markups, which improved from 84% to 85%. This again illustrates how even a slight increase in margin can have a significant effect on bottom-line profit.

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We’ve spoken a lot through these results about the decline in units sold across store data, and this is most obvious when looking at the performance of silver sales. Our 12-month data through June shows average store sales of $99,000 for silver items, down from 2018’s figure of $113,000 (a 14% decline) and 2017’s figure of $136,000 (2019 result represents a drop of 27% from 2017). Unit sales match this decline with sales of silver items at 926 items, down from 1,210 in 2018 (a fall of 23.4%). The drop in units has been offset by a healthy increase in average sale of silver items, with the average increasing from $94 to $107 between 2018 and 2019 – a rise of 13.8%.

Based on this information, the typical store has seen silver’s contribution to overall sales decline from 7.7% to 5.2% in the last two years. How has silver been for your store? If silver sales have declined, has there been a trade-off in other areas? Clearly most stores have seen a rise in sales while silver has dropped, indicating that they are more than making up for it. Is this the case with your store? If silver has dropped but you haven’t made up for it elsewhere, its time to look at your store’s performance.

Inventory

Does your store still say silver? Have you continued to focus on an area that has become less profitable? Print an inventory by department list and determine what percentage of your store product is silver. Does it represent a greater percentage of your overall inventory than you are selling?

Silver will generally have a faster stockturn that most other items, so you should expect your percentage of inventory to be significantly lower than your percentage of sales in this area. If it’s not, you may be saying “silver” to your customers when you should be saying something else.

Marketing

What message are you sending your customers? Are you focused on the right type of product in your marketing? Are you still emphasizing cheaper silver product when the market wants something else?

Staff

Have your staff moved on from the bead market in what they are attempting to sell? Are they skilled up to sell higher-priced items? If the average sale in most stores has increased by 20% in the last two years, then your staff need to realize the performance goalpost has shifted for them, too. They need to be increasing their average sale to keep pace with the general trend – but they won’t know to do this if you don’t tell them. Print a salesperson performance report for your staff and compare it to a similar report from two years ago. Who has lifted their average sale? Who is still at the same level? Be prepared turn potential into profit to discuss this with them. They may not know what has been happening, and they cant change if you don’t tell them.

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