By Brian Land

Amidst an increasingly mass-produced, big-box age of retail, there exists significant advantage for the independent jeweller. Indeed, the personal client relationship is, quite possibly, the most significant leg-up Canada’s small-scale, brick-and-mortar jewellery retailers have over their chain and/or exclusively online counterparts. What’s more, there are many opportunities available to help independent retailers be successful in growing their business.

My background is in general and senior management within in the retail jewellery and luxury gift industries. I also served as executive director of the Canadian Jewellers Association (CJA). As an operator, each year I was tasked with building a strategic plan to achieve the top- and bottom-line targets for the company. This would typically include a review of the business through financial, gross margin, and sales improvement lenses with the view to improve the overall efficiency and effectiveness of the operation. The principle I followed was taken from ancient Roman philosopher, Seneca: Luck is where opportunity meets preparation!  

Financial opportunities

The secret to ensuring ongoing profit growth is to increase sales while holding expenses relatively flat. This opportunity starts with a zero-based budgeting (ZBB) approach to justify all operating expenditures.

Simply slashing inputs, however, would likely have a negative effect on outputs or sales. The traditional approach to budgeting expenses is inefficient, often taking the form of last year’s actual costs plus an inflationary factor (say, three per cent). A zero-based approach requires an examination of each expense category from zero. This eliminates waste through the justification of each expenditure, and, in turn, leads to a more disciplined execution of a financial plan. By way of example, could a service or a supply you currently employ (such as internet, telephone, or packaging costs) be sourced at a lower price without sacrificing quality? 

Variable cost strategies

After completing a ZBB review, the next exercise is to attempt to tie incremental costs to incremental sales results. From year to year, fixed expenses (e.g. occupancy costs, utilities) remain relatively static. The key to expense control is, instead, focusing on controlling your increases in variable costs, such as payroll or marketing expenditures.

Undoubtedly, payroll is among the most significant operating cost for any business. What can you do to reduce payroll as a percentage of your total costs without decreasing sales? One solution is to tie future payroll increases to future sales growth by utilizing a “pay for performance” (PFP) strategy. The concept is a tried-and-true method to motivate, and is simple to execute. For example, PFP can take the form of a monthly or quarterly team bonus, divided based on hours worked or individual sales contributed. If there is no sales accretion, there are no additional rewards for the team. A smart operator will immediately see how PFP can lead to higher levels of employee engagement, lower turnover, and, most importantly, incentivize an entire team by way of establishing a common goal.

Similarly, marketing expenditures can be tied to sales growth via a “match-off and incremental activity” strategy. This is often employed by large retailers. Simply stated, if you repeat marketing actions from last year (ceteris paribus), you should generate similar results. When executed properly, an incremental activity, such as a supplier event (e.g. watches, pearls), generates incremental sales and gross margins, which will more than cover the initiative’s cost. The only requirements are knowing who your clients are and having an up-to-date contact listing. Working with a watch or jewellery supplier, you can stage an inexpensive event supported by in-store signing, postcard invitations, follow-up phone calls, and a closed-store party to kick off the week-long product event and generate more sales.

Gross margin opportunities

The next strategic area to address is gross margin (GM) dollars. To improve this, you first need to identify the highest margin categories in your store and share this information with your team.

Next, direct your sales consultants to look for opportunities to suggest these higher GM products during the sales process. For example, consider what delivers a higher GM: a $1,000 pair of solitaire earrings or a $1,000 watch? Whichever item it is, whenever a customer is looking for a gift suggestion, sales consultants should begin their presentation to the customer with the higher margin products.

Among the primary considerations when attempting to maximize GM is inventory turnover and product plan. Ask your accountant how important inventory turnover is to your bottom line or, conversely, how damaging it is to sales to sit on dead stock. Personally, when I visit a jewellery store, I enter the location with the eyes and expectations of a consumer. Unfortunately, all too frequently I see old and shop-worn merchandise mixed in with a store’s core product and latest arrivals—unsaleable merchandise that could be given new life with a refurbishment, fresh tickets, and re-pricing to current replacement value. Product that cannot be returned to saleable condition should be liquidated immediately.

The ability to identify and maintain “depth in best sellers” is one of the key tactics in generating higher turnover rates and gross margin dollars. To consistently have the best-sellers available requires establishing a minimum/maximum stock level by stock keeping unit (SKU), supported by a weekly re-order process. As obvious as this may seem, the lack of regular re-orders or a focus on best sellers is one of the most notorious weaknesses of the independent jeweller. Maintaining a proper product plan is another way an independent can earn a competitive advantage over a chain, department store, and, given the trend toward “webrooming,” the online supplier.

“Can I get a discount?”

Possibly the fastest way to erode gross margin is by discounting. Every dollar put in the consumer’s pocket represents a dollar less in your own.

To help mitigate the effects of a discount, there are several best practices to keep in mind. First and foremost, any requests should be referred to the boss. Often, these inquiries can be overcome by way of a polite and firm, “No,” accompanied by explanation as to why the product represents good value.

Of course, sometimes a customer is keen to negotiate, and the nature of a successful negotiation is to attain a win/win outcome for both parties. Here are three techniques to preserve the customer relationship, along with GM dollars:

• Offer a gift in lieu of a cash discount. Suppose, for example, a shopper is looking for a $500 savings on a $2,000 sale. Offering the customer a jewel box with a price tag of $500 (at a cost to you of $250) would provide an additional $250 in GM upon completion of the sale.
• Consider paying the tax for the customer. Again, in most provinces, this would result in a considerably smaller hit to GM.
• Offer a credit solution, providing a deferred payment or equal monthly payment program. This option tends to result in higher sales conversion rates, higher average sales, and very few cases where an additional discount was requested.

Sales improvement opportunities

Increasing sales is, of course, the fastest route to improving profits. However, while this is the easiest to plan, it is also the most difficult to execute.

To grow the top line, you must embrace continuous improvement. Hire the best people, set realistic goals, measure your team’s sales performance, and train against any inadequacies. Make sure your best people are on the sales floor alongside the owner or sales floor manager during the most productive times of the week (i.e. when the fish are biting).

Consider, as well, establishing and measuring key performance indicators (KPIs) for your team. These could include total sales, diamond ring sales, sales conversion rates, credit sales, average sale, and units per sale.

Say, for example, your goal is to generate a five per cent increase in sales over the previous year. Suppose you had sales information for each day, and you knew how much each team member contributed to the store totals for the year. When thinking about generating a sales increase, your first assumption should be that store traffic, likely, will remain relatively consistent with the prior year. That being the case, there are two avenues open for you to generate a five per cent sales increase and achieve your goal:

• close five per cent more sales than the previous year; or
• increase the value of an average transaction by five per cent (or some combination of these two methods).

Both KPIs would require the owner to monitor the skill level of each team member and develop an individual training and coaching program to help each consultant achieve their full potential while delivering the required sales results. Continuous improvement of the team is the path to success. Look for ways to orchestrate small daily improvements with each member of your team, and I firmly believe you will “make your own luck!”

Brian Carney Land is a retail jewellery consultant. Formerly the executive director of the Canadian Jewellers Association (CJA), Land has more than 40 years’ experience in the industry and has held executive roles with Peoples Jewellers, Birks Jewellers, and Waterford Wedgwood Royal Doulton. Past clients include retail chains, independents, and supply side businesses. Land is a past-president of Jewellers Vigilance Canada (JVC) and the Canadian Jewellers 24 Karat Club, as well as a long-time member of the Georgian College Jewellery and Metal Arts Program. He can be reached at bland19@bell.net.