How to Analyze the Year
by Abe Sherman
Normally, when someone is asked how their season or year went, the reply is about ‘sales’. This is our benchmark – sales. How much money did we take in? There is so much more that we need to understand about our business, especially how it’s trending over time.
I spend many hours the week between Christmas and New Year analyzing what happened across the country to get a sense of the state of the economy, the industry and the individual jewelry company. I’m looking for context, patterns, signs to be optimistic about and signs of concern that cause me to pick up the phone. You would get a good sense of these things, as I have, after looking at nearly a billion dollars of annual sales, spread throughout the country (and a bit of Canada).
Good years are not always followed by better years and boom times don’t last forever, especially in parts of the country that have seen significant growth due to oil, natural gas or tech. Also, steady growth, those 10 or 15% increases that occur year after year, are ultimately much less stressful than the big ups and downs. Regardless of how your season and year wound up, let me walk you through the kinds of things I like to look for so you can join me in analyzing your business through the same lens.
I like to see things over time so I analyze the past three years, 2013 – 2015. Note: For those of you who don’t know how to run these trends using Period reports, there is a 2nd newsletter (Trend Analysis – Period Reports) that explains how to do this.
Let’s see what’s been happening over the three years. In addition to Sales, take a look at Units Sold. How is this trending each year over the past three years? Next I look at Average Ticket. These three things – Sales, Units and Avg Ticket tell me a lot about what’s happening in a very concise space. I’m very interested to know whether we are selling more or fewer items over time. In the absence of knowing precisely how many people are walking in the door, knowing how many items you sold is one good indicator of how effective your marketing is. Of course, if you also do customer counts, it would be important to lay those counts alongside your units sold over the same time periods. If you do customer counts and that number has increased, but number of units sold has remained flat or decreased, then you need to look at merchandise mix or your sales team.
Specifically, have there been any significant changes in these areas over the past three years that would have an impact? The first three numbers that I look at are found in one group, under Sales on the Summary/Detail report: Sales, Units and Avg Ticket.
If your units sold seem on trend, but sales are down, you’re going to find the culprit under the Average Ticket – and here is one of the places we find dramatic differences in year-over-year results.
We may find remarkable consistency in the number of units sold in a year (or a month) for a given store but the sales results can be dramatically different if the average sale is off by even $100.
This is just my starting point, however. If your average ticket was dramatically different from last year, I’d want to understand why that happened.
- Did you sell fewer high-end watches this year?
- Did you have one or more 6-figure sales a year ago that didn’t happen this season?
These differences will dramatically change your results. So if you see the units are similar but the averages are very different, it’s time to do some other reports.
Run your Summary/Detail report by Vendor and then by Category (use the same three year analysis from above) to see how each major supplier and category has performed. The obvious differences in your numbers should pop off the page at this point. Let’s say your high-end watches or that $150,000 diamond you sold last year didn’t happen this year…. How did this impact your results?
Looking back now at the Stores report, you’re also going to see these differences, not just in Sales and Avg Ticket, but also in Gross Profit Dollars and GP%. Selling many more high-end watches or that one big diamond will usually lower your gross profit %, so fewer of these sales, while having a definite impact on Sales, won’t have as severe of an impact on Gross Profit dollars. In fact, you’ll likely see your GP% increase if those larger sales went away.
How have your Gross Profit Dollars and your GP % performed over the past few years? You should be more concerned about gross profit than about sales.
Note: For those of you who have inventory under BULK, I typically exclude this from my initial analysis and analyze bulk sales by themselves so these don’t have an effect on your averages.
After Sales & Profit, I look at how we have been doing with our inventory management.
Two things that you want to analyze:
- How much inventory you ended the year with each year (remember to filter just Asset as well as All inventory to see your results with and without Memo!) Has your inventory been increasing, decreasing or is it stable?
- What’s been happening with your Aged Inventory, both in dollars and as a percentage of your total inventory? Managing your non-performing inventory is a matter of making it important. If you want some motivation to do a better job at managing your aged inventory, take a look at this number and then look at how much you owe. I find that the more aged inventory there is, the higher debt is. So, basically, you’re using debt (bank or trade) to fund your aged inventory!
So, what did I learn after spending a week doing this analysis?
Overall, this was a good year and December was a good month.
It’s true that some people had exceptional years while some were flat or down. Only a few were down a lot (more than 15%) but in those cases, 2015 followed a very strong 2014 and I recommend comparing the year (and December) to 2013 for some perspective.
- Sales were up
- Number of transactions were up
- In many cases GP was up a point or two (I love seeing incremental improvements in GP over time!).
On the down side, high end took it on the chin a bit, especially in high-end watch sales and the $100,000 plus sales that didn’t happen this year like they did last year. So, if this happened to you, it wasn’t you, but the high-end economy. Does this speak to an improving economy among the middle-class (which, as we all know, is the driver of our industry)? Does it speak to the high-income consumers not doing as well in the stock market this year? I’ll take an improving middle market any time. I’ll take the increases in number of items sold and a better gross margin over six figure sales with no margin every day.
We encourage you to give us a call so we can talk through the analysis with you and your team and plan the year. Until then, congratulations on a good year and best wishes for a great 2016!
See us at the following shows:
CBG Jan. 25 – 27 in Orlando
Centurion Jan. 31 – Feb. 2 in Scottsdale