JA: Steady Year at Retail, Margins Up to 49.1% - Nov.2007

Jewelers of America’s 2007 Cost of Doing Business Survey, which analyzes JA member stores’ financial data from 2006, showed that all retail categories showed sales growth in 2006.

The median growth for all jewelers was 4.1% (up slightly from 3.9% in 2005). Independent high-end retailers fared best with a 7.4% sales increase over 2005. Designer and custom retailers also saw great growth at 6.5%. Chain stores experienced 4.3% sales growth, while mid-range retailers had the least growth with only 2.4% increase over 2005 sales.

The good news continued as 2006 store profitability saw a significant 32% increase over 2005 results; in 2006, JA retailers had a median 5.3% net profit as a percent of net sales compared to last year’s 4%. Although gross margins fell last year, the overall gross margin was up to 49.1% from 48.4% in 2005.

Diamonds (loose and set) are still in the majority with 50% of sales. Colored stone jewelry (10%) and karat gold (8%) provide the other two largest shares of retailers’ sales.

Since growth is becoming more varied, it is clear that effectively managing and marketing is vital to the success of retail stores, and differentiates high-profit from low-profit firms. While high-profit stores in 2006 did not have greater sales per store ($985,000 on average compared to $1,179,000 for low-profit stores), they did have characteristics of efficient management: higher sales per square foot and turnover frequency, but lower payroll and operating expenses. For instance, high-profit stores had a 20% greater inventory turnover than low-profit firms and, therefore, much higher sales growth (6.8% versus 3.7%).

High-profit retailers also contain their operating expenses by spending a lower percentage of net sales on payroll (17.8% compared to the average of 22.4% of low-profit firms). In fact, high-profit retailers spent 7.2% less on total operating expenses than low-profit operations. v