Sales Strategy
The Roaring 20’s | February 02, 2022 (0 comments)
Napa, CA—History doesn’t necessarily repeat itself, but it does often rhyme. Having just come off of the best year for retail jewelry sales, perhaps ever, the questions are, how long will this last and how to plan for the rest of this year.
Bubbles, Bubbles, Everywhere. The 1920’s were ebullient times. The 1919 flu pandemic came to an end along with WW1. There were a great many new inventions coming to market, not the least of which was the affordable automobile and the new manufacturing processes that Henry Ford made popular. The lesson regarding the decade of the 1920’s was that nothing lasts, especially bubbles. Stocks were bought on margin, and why not? Their prices only went up and up and up, so speculation ran amuck, and shares could be bought with 10% down and the rest being borrowed. We all know how that ended.
But nothing lasts forever of course, so what can we expect going forward from here?
Whether it’s record high multiples for equities, bidding wars for every house that goes up for sale or extraordinary prices for high-end watches on the secondary market, we are dealing with bubbles just as we did a century ago. We see the same speculative behavior for Crypto, NFT’s and even used automobiles. (Kia and Hyundai dealers are selling their new cars for $7,500 over MSRP!)
The combination of massive amounts of stimulus money pumped into global economies, supply chain disruptions and changes in how and where US consumers can spend their money has led to shortages, which in turn has led to inflation, requiring the Federal Reserve to announce interest rate increases to tamp down the inflation caused by the impact of Covid on monetary policy and consumer behavior.
As rates increase and the supply chain normalizes, prices should start to stabilize and consumers should heed the warning that it’s time to stop spending with abandon – and that’s where we are today – with the question many are asking us… what happens next?
Each and every time there have been years of spending (and speculation), bidding up prices on ‘things’, there has been a correction. That’s a fact. What is unknown is to what degree consumers pull back and when and for how long these pull backs happen.
Stay flexible. Having had the best year in the history of the jewelry industry, all of you should be in excellent financial shape right now. I suggest you plan to stay that way:
- Do not plan for an increase this year
- Keep plenty of cash in the company
- Manage your inventories
Do not plan for an increase this year. Just the opposite, plan for a decrease. How much of a decrease? That depends on what happened in your company in 2021. Given the average of all of the companies we track (over $4.7 Billion in total retail sales) was 46% higher than 2020, it wouldn’t be a stretch to expect a 20-25% decrease this year. This is not a gloom and doom prediction, but simply a realistic reversion to the mean over the past 4-5 years. If sales stay even with last year, you’ll be well ahead of your plan. The problem never happens when you underestimate sales and therefore expenses. The problem always occurs when your plan is too optimistic and you fall short, having already spent the money on inventory and marketing, etc., and creating sales plans that your team will never come close to, which is demoralizing to everyone.
Keep plenty of cash in the company. Having a strong balance sheet is exactly what you need right now. How much? That depends on lots of variables but at least 6 months of Operating Expenses. If that sounds like a lot to you, I won’t disagree, but it’s a number that will let you weather any storm. If you are reviewing your Income Statement and Balance Sheet every month, you’ll be able to track how your cash balances are doing compared with your payables, inventory levels and overall expenses. If you are not doing monthly financial reviews with your outside CPA firm, please get into this habit now. If you are not understanding your financials, you may need to find another accountant who acts as an advisor as well as a ‘tax accountant’.
If you find your cash balances rising beyond that and you want to either feed your inventories or take some distributions to invest in other things (or go buy a new car for $7,500 over list), do it slowly. It took us a very long time as an industry to get into a strong position, it won’t take but one or two crappy years to blow through the dough.
Manage your inventories. The 46% average increase in sales did not occur evenly throughout your company. Different categories, price point and brands behaved very differently and need to be micro-managed, feeding those areas with the highest turns. We are seeing holes all over the place that need to be merchandised better. Feed these areas with a teaspoon, not a shovel and reorder at least monthly (weekly is better).
Plan when times are good. Whether this year’s sales continue the upward trend, reverts to a mean or declines beyond what you expect, you would serve yourselves well by knowing what you’re going to do in advance, so you are not caught off guard and panic. Until then, dance like it’s 1929.
As always, we look forward to hearing your thoughts and feel free to reach out if you’d like to talk through any of this.
BIG designs solutions for the wide variety of issues facing the jewelry industry. From the complex and multi-faceted process of merchandising to the challenges of inventory management, BIG has solutions that help jewelers better understand and control their businesses. Call (707) 257-1456 or visit www.bigjewelers.com