How Are We Doing?

It’s January again, and time once more to begin the review process of seeing how your store performed over the past year. The year-end numbers should be complete or nearly so, and though January is still a pretty good month for jewelry sales (think Christmas bonuses), there is more time available now to review, analyze, and reflect on the question “How are we doing?”

The JCK Profit Mastery program was launched in 2004 to help retail jewelers in the process of answering this basic question. During the past few weeks here at JCK, we have been working on the draft report from the first Profit Mastery questionnaire. The answers we’ve collected to date offer an interesting opportunity for introspection for every retail jeweler. The data will be reported in detail in a future issue of JCK, and the entire report will be available for purchase to retailers, manufacturers, and others interested in the health of the retail jewelry business.

One interesting aspect of the draft report was the fact that a number of participating retailers did not break out sales and inventory data by department. A key part of managing a retail jewelry business is the critical relationship of inventory and sales. In order to be an effective management tool, this relationship must be done on some departmental basis. For example, diamond jewelry is too large a category for effective management of sales, inventory, and profitability. Breaking the category into segments such as bridal and non-bridal lets you evaluate where sales are growing or stagnating and—equally important—where margins are headed as well. This simple management tool can pay big dividends as you decide where to make inventory investments during the next few months.

Of perhaps even greater importance is the relationship between inventory levels by department and the sales and profit performance of each department. The memorable quip of Philadelphia merchant John Wanamaker sums it up quite nicely: “Half of my advertising is ineffective. The problem is I don’t know which half.” It’s a safe bet that nearly every jeweler will agree that he has too much inventory, and putting that inventory into a departmental mode can help determine which part of it needs attention.

I don’t mean to suggest that your business analysis should take place only in the beginning of the year. To the contrary, analysis by department is something that should be measured monthly, and the relationship of inventory to sales and profitability is a crucial part of that measurement. However, the beginning of the year offers an opportunity to look at the numbers from the wider perspective of several years as opposed to this month vs. the same month last year. This is the time of year when you can compare results over a span of two or three years and spot trends. Balancing your inventory portfolio is every bit as important as balancing your personal investment portfolio.

Taking time to analyze your store’s performance by department—and breaking it down further by vendor—is a key way of identifying problems and opportunities for the coming season. And for so many reasons, there’s no time like the present.