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David Brown

To Improve Jewelry-Store Profits, Look for Low-Hanging Fruit

Stores are continuing to battle a headwind with margins.

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Our rolling 12-month figures took a slight dip during June, with average store sales for the year-to-date coming in at $1,597,325, down from $1,602,124 in May – a decline of $4,799 or 0.3 percent.

Total units sold for the year declined by 30 items to 4,019, with the average sale per unit holding its own at $397.

Comparing June with the same time last year, store sales for the month averaged $111,422, a drop of $4,789 from last June’s figure of $116,221.

The table above shows June monthly data for the last three years. Sales figures for this June are in line with two years ago, but the trend in declining units sold is quite noticeable when viewing these monthly snapshots. Unit sales were 338 items sold in June 2016, dropping 14.2 percent to 290 in 2017. The further decline in units sold to 260 this year represents a drop of 10.3 percent on 2017. In total, unit sales have dropped just over 23 percent since 2016.

The average retail price per unit sold has increased 19.7 percent from $299 in 2016 to $358 in 2018. (Note that repair units sold are included in the average sale value but not included in the total sales numbers.)

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Stores are continuing to battle a headwind when it comes to margin, with a drop from 45 percent for each of the last two years to 44 percent for this year. Based on sales achieved, this has stolen around $600 profit from the average bottom line of each store.

Knowing this, then, we can determine that the drop of profit from $52,470 to $49,515, a fall of $2,955 or 5.6 percent, consists of the following:

  • A drop in margin: $624.
  • A drop in units sold: $2,331.

Unit sales have therefore contributed 78 percent of the cause to the decline in profitability between June 2017 and June 2018 (2,331/2,955). The difference in average retail sale achieved of $2 is small enough to ignore.

So if your own store numbers look like this, what should you do? The numbers would suggest you concentrate 78 percent of your solution efforts on increasing the unit sales, and given the large impact, it seems unlikely you would bridge the gap without some sort of attempt to improve your unit sales.

However, when coming up with a solution to any business problem, there are two elements that need to be considered: the results that can be achieved and the time and effort required to get the results.

In simple terms, it’s the low-hanging-fruit theory. Do what can give you the most impact for the least amount of effort in the shortest amount of time. In this case I would recommend looking at your unit sales after you have explored your margins.

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Let’s put it this way: Which would be easiest to do first, raise your prices or make extra sales? Before you answer this by saying you’re in a competitive market and you couldn’t possibly put your price up, let’s consider the effort required, not your customers’ (or more importantly your) perception of the impact.

You could, for example, re-price all your silver jewelry up by an average of 10 percent in the space of a few hours. Would it still sell? The truth is we won’t really know without testing it. Assuming it would, then sales would increase by 10 percent in a simplistic example, but profitability would increase even further as there are no other costs related to this price increase. In simple terms, it’s pure profit. You could afford to have some customers stop buying and still come out ahead. Is there any other activity you could undertake today that would give you a greater increase in profitability with a few hours of one-time effort?

Again, this is simplistic, and I’m not suggesting your rush out and increase the price on everything, but it is important to weigh up the return on effort as well as dollars when looking for ways to improve your business. Sometimes the best solution can be the simplest.

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

How Eating Right Is Like Managing Your Inventory

The right items and advance planning can make your business fit.

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KEEPING YOUR INVENTORY in order is a little like painting the Eiffel Tower … you no sooner get to one end than you feel you have to repeat the process all over again!

Inventory is a dynamic part of your business. It is constantly in flux, and as such, difficult to manage. However, having a good system will go a long way toward helping you keep your inventory under control.

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There are two aspects to your inventory: what you buy and what you keep. It’s the buying part that contributes most to what is left after the customers don’t want it, so let’s start with that first.

Food dieting consists of what you eat and how much of it you consume. Buying inventory is the same. There is what you buy, and then there is how much you are spending. If your diet consists of eating healthy greens, vegetables and fresh fruits, then part of your food diet will take care of itself. The same is true of ordering fast sellers — make these the mainstay of your inventory diet, and you will take care of a good 70-80 percent of the inventory you will need to consume. That leaves the remainder — the combination of poor choices and overconsumption that can cause the most problems (I’m still talking inventory here!).

In the same way that meal planning can reduce overeating or making poor food choices, planning your purchasing will work the same way. We recommend an open-to-buy budget as the most effective way to do this. An open-to-buy will balance what you are selling with what you are buying. Think of it like a calorie checker that enables you to eat once you have burned enough fat. The open-to-buy will track the money released from outgoing inventory that is then freed up to spend on new product and let you know how much this is so you don’t over-buy. This will help you to keep your inventory situation from becoming any more bloated.

So what about the surplus inventory that is aged and isn’t going anywhere now? This is the same as the few extra pounds that might be sitting around your hips — it’s one thing to stop the increase, but it’s another thing entirely to get rid of that unwanted fat.

Much like systemizing your buying with an open-to-buy program, you can systemize the aged inventory with a series of means to move it on. This can consist of a variety of options that work well for you on a regular basis to keep that aged inventory from clogging up your store arteries. I’ll talk more about these options in the next article.

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David Brown

6 Solutions to Short-Term Cash Flow Problems

Problems can arise if you aren’t vigilant about how your receipts and payments are tracking.

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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

4 Ideas to Liquidate Your Extra Post-Holiday Inventory

Extra inventory left over from December could hurt your 2019 sales.

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THE BUSY DECEMBER SEASON is now behind you — it’s time to relax a little and recover from the most hectic time of the year … or is it?
The start of a new financial year can still carry something of a hangover from the December festivities you’ve just enjoyed, and foremost in this is the issue of your surplus inventory.

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Unfortunately, this product can be a blockage to your ability to refresh with new purchases as it ties up cash flow that can be reinvested. Here are a few steps to follow in order to keep these items moving:

1. Determine how much of it there is. You can do this in two ways. First, print a stock list of items that you have more than one of. Second, print a stock list of all items over 6-9 months old. These two reports will show you the total dollar value of what is blocking your reorders.

2. Complete a physical stock take. Are these reports correct? Chances are that during the busy December period, there have been some errors in inputting, so you need to reconcile the value of the report with what you have on hand. In particular, check spare drawers for double-ups of your fast sellers.

3. Determine how you will liquidate this product. Is it time for a storewide sale? Can you offer a selection of these items in a “specials” showcase? What about your mailing list — could you make an offer to your best customers of an exclusive January deal on some of these items? Could you incentivize staff to move it on? There are a myriad of ways to promote shifting these items to your customers.

4. Don’t forget vendors and other store owners. Check with vendors in case they may want to replenish their own inventory. Often, they may be closed for manufacturing or receiving their overseas shipments during the early January window and may be happy to take back some items to fulfill other orders. Also, many of your fellow group members may be looking to re-stock some of these items, especially if they were part of a group promotion. Why not be their vendor for your own surplus product?

Fortunately, jewelry isn’t perishable, and you still have many opportunities to sell these items, but don’t allow them to sit around unattended. It can take a conscious effort to move these slower items on, so the sooner you start, the sooner you can get this money back into the bank.

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