By Abe Sherman CEO, BIG
If it was 32 degrees and sleeting with 100% humidity yesterday, but it’s going to be 112 degrees and bone-dry tomorrow, that doesn’t mean that today will be sunny and 72 degrees with 50% humidity. Such is the nature of averages (and one of my favorite lines).
I’ve read several different reports about bridal sales in the past few weeks, each reporting vastly differing average sales for last year. In one article from INSTORE, they quoted data from a survey performed by The Knot claiming that the average engagement ring sale was $6,163 in 2016, which was up from $5,871 in 2015. However, in the same INSTORE article, according to a study done by the Wedding Report, the average engagement ring was $3,407 in 2016 compared with $3,386 the prior year.
Why are there differences, and what can we all learn from this? First, I would question the data coming from surveys of thousands of newly engaged. Having been in retail for 30 years, I can tell you that people are going to brag about the value of their engagement ring regardless of what they paid, or the ‘deal’ they may have gotten. Was it a “$10,000” ring that they bought for $5,000? If it was, there is a good chance that they are going to report in a survey that they bought a $10,000 ring. That’s the problem with surveys.
The second issue is this: What is an engagement ring, or, for that matter, what is bridal? We analyze categories and then roll them up to the bridal department. As an industry we sell Loose Diamonds; Semi-mounts; Diamond Wedding Bands; Diamond Engagement Ring Sets; Engagement Rings complete with center stones, with or without the wedding band. How does one count the average cost of their “engagement ring”? Each of these categories are analyzed by our specific price points, not averages. While we use ‘average’ retail and average costs on our reports, this is merely to provide an indication of whether the on-hand inventory is similar to or very different from the retailer’s average cost of goods sold. That’s it.
To illustrate the problem with reporting on averages, I ran price-point reports from Plexus groups, which are fairly representative of all types of retailers (except for national chains), including branded, non-branded, high-volume and modest volume stores in dozens of different markets. In this analysis, I included all categories that we include as bridal. Not surprisingly, there is quite a range of results: From a low of $2,480 to a high of $6,241 for the same category analysis from different groups of jewelers whom we compile data for. I’ve included some of the results so you can get a sense of how to analyze your departments and categories by price and can see why averages are not particularly useful.
In this first example, you can see the average selling price of all categories considered Bridal is $2,480. However, when you look at the individual price-points for these 6,396 items, I’m not sure how meaningful that information is. I would be far more interested to know, for example that 1/3 of the units sold are between $1,000-$2,000 retail. In fact, in all of the price-points above $1,000, among the weakest is that which happens to match the average, $2,000-$2,500 from this particular group of jewelers.
More dollars are spent in our highest price-point, those items that sell for $15,000 and above. In this case, the average sale is almost $26,000. But of these 88 items that sold, was one of them $100,000, or perhaps even $200,000? That, of course will impact our average price in that price-point, and requires a deeper dive into this price-point.
The next example shows an average sale that is twice that of the first group. I think you’ll find it interesting to see that the average of $5,000 actually performs poorly and, even though the average is twice the first group, the best performing price-points based on unit sales, are the same $1,000-$2,000 as in the first example. Note that in this case, the average sale in the highest price-point was over $34,000, which is one reason the overall average is so much higher! Also, the number of units sold in this highest price-point is significantly higher than in the first example. But yet, and this is the important thing to remember, all price points are performing! Roughly 25% of these customers purchased something in the bridal department that sold from $1,000-$2,000. As a merchandiser, you should be paying attention to this level of detail and not simply the overall averages of your company.
When you analyze your categories by individual price-points from your company, in your own marketplaces, you have an understanding of how to more effectively merchandise your bridal department. Relying on data regarding the averages of a department from national surveys is pretty useless. Merchandising by averages will kill you.