Through his company, Buyers Intelligence Group (BIG), CEO Abe Sherman keeps tabs on the retail economy and channels his insights into informative, occasionally bracing monthly email newsletters about the state of the business, and what retailers should do about it.
In late August, Sherman, writing in the BIG newsletter, warned of “a noticeable uptick in declining JBT credit ratings”—referring to the Jewelers Board of Trade, the industry’s credit reporting agency—“that I believe is foreshadowing cash flow issues that will become more apparent by the end of this year.”
What those declines suggest about the health of the industry on the brink of the 2023 holiday season was one of five questions JCK put to Sherman via email. Think of his written replies, below, as a prudent financial guide to the holiday season.
How is the 2023 holiday season shaping up, especially when compared with holiday 2022 and holiday 2021?
Writing this at the beginning of September, we can anticipate the last few months of this year based only on current trends. Consumers in the U.S. are not behaving as expected, considering rising rates and 18 months of looming recession fears. Rather, business is still very strong—although there are declines compared with 2021–2022, which is to be expected. Both retailers and suppliers must keep in mind the extraordinary increases due to the COVID stimulus money, pent-up consumer demand, and supply-side challenges that our industry benefited from.
However, this year foot traffic is down, and jewelers are having to work harder to make sales. Many more retailers have taken clienteling, social media exposure, and sales training to heart. I believe independent jewelers have a leg up on chains and department stores since it has been challenging for those companies to staff up post-COVID. It’s a good time to be an independent retail jeweler.
You recently noted an increase in JBT rating declines among retail jewelers. What does this tell you about the overall health of the industry?
The JBT credit rating declines are a direct result of overbuying based on an anticipation that sales increases would continue based on 2021–2022 trends. Inventories have risen faster than was prudent, and cash balances have seriously declined in companies who have not planned for flattening or softer sales. This can be reversed by living off of existing inventory and concentrating on replenishment instead of adding new product.
Can you outline a few tips they should keep in mind as they think about inventory and seasonal sales staff for the holiday season?
Here’s something that might surprise your readers: Sales should not have any effect on inventory levels.
First, it is always eye-opening when retailers deconstruct their business to understand how (relatively) little inventory is sold from the showcases compared with the company’s total sales. Roughly 40% of total sales have nothing to do with the inventory in the showcases. That 40% includes custom, special orders, repairs, and call stones.
Second, jewelers must consider how many best sellers are reordered multiple times a year, further decreasing the need for how much inventory they carry. When reordering becomes a key element to their inventory management, they will need fewer items that turn more often.
Third, memo isn’t free. Memo should be thought of as a financing tool, nothing else. Memo inventory is competing with asset inventory but generates an accounts payable every time an item is sold. Therefore, plan inventory considering how much asset inventory is needed. Memo can be obtained to round out the assortments, especially on higher-end goods.
Regarding seasonal staff, always be recruiting. Good people are good people and should be added to your team throughout the year. They are there right now, working nights and weekends throughout your community. Don’t wait—go find them!
What’s the biggest financial mistake retailers tend to make during the holiday season?
Expecting December to make up for a year of overbuying and lack of planning. The holiday season has become far less important as a percentage of the year compared to what we all remember it being. If you consider December sales as 20% of the year, or even a bit less—if only for budgeting purposes, not sales-goal purposes—you’ll have a conservative view of sales, gross profit, and inventory levels.
Most retailers overestimate sales and gross profit for December, underestimate expenses, and don’t take into consideration reorders and non-showcase sales. This is why the showcases are full after the first of the year and payables are high.
What’s one thing store owners can do now to set themselves up for a successful holiday?
Instead of trying to anticipate (basically guessing) what your sales and profits are going to be in the fourth quarter, spend more time planning to decrease aged inventory and get yourself into a strong cash position. This is done by having a year-end goal for your inventory.
The process: Reorder fast sellers. Back-stock multiple sellers. Re-merchandise aged inventory into price points you need before you introduce new styles. Clean all inventory, including buffing, ultrasonic, and steaming everything that needs it. Replace worn tags. Empty all of your showcases and re-display the store. Allocate showcase space based on how each supplier or generic category performs.
For example, if diamond fashion is 25% of your sales, roughly 25% of your showcases should be dedicated to diamond fashion. Replace worn displays. Update your lighting. Clean everything. Feed your team.
Okay, that wasn’t one thing, but we’re not in the one-thing-fixes-everything business.
Top: Diamond Dot necklace in 14k gold with five diamonds, $595; Mateo
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