The economics of jewellery shops.
Discussion
I've been jewellery shopping in the past few days.
There is one shop I know and have used before which has, I would estimate, a seven-figure sum of stock. I very much doubt, however, that they own it in cash.
How do they finance the business? Is it bank finance or are they selling stock owned by the manufacturers / suppliers?
Ninjin said:
I have a friend who is a wholesale supplier of Jewellery to the stores.
He says the stores buy the stock from him to sell and is not sale or return. They do however get like nil/30/60/90 days to pay up depending on how good a client they are.
Im not sure if true but my local BMW salesman says they have 90 days terms, thus it’s in their interest to move said stock within that period as they couldn’t afford to outright own/pay for everything on the forecourt.He says the stores buy the stock from him to sell and is not sale or return. They do however get like nil/30/60/90 days to pay up depending on how good a client they are.
Thus they’re instructed to keep a close eye on this payment date of new stock and have permission to sell cheaper as the date nears and in some cases just move the car on cheap.
So as per the op, the retailer could have say 500k of stock paid for and tied up in cash (pretty safe place for the money assuming it’s gold/diamonds/watches etc), and the other half is constantly turning over...
This is why investors like retail. The working capital is negative i.e. you have more cash than stock (if it's well managed). You're generally selling everything before you pay for it, and at a higher value. Hence, throwing off cash related to volume. This is one of the reasons that volume is a proxy for success in retail (or at least has been, the sentiment is changing now).
This obviously works through the supply chain, but is offset by higher margins as you get towards manufacturing. Typically of course.
This obviously works through the supply chain, but is offset by higher margins as you get towards manufacturing. Typically of course.
As an owner......
The bulk of my stock is owned, and buying outright often gives you a better price because it's instant payment and instant kickback for your rep. Of course we'd be mad to buy everything so the remainder is either purchased on 30 days credit (we avoid 60 and 90 day schemes) or is held on sale or return. The SOR stuff we generally have to pay full price but the rest we get discounted depending on what we've bought and sold previously. It is however a very expensive business to be in and stock figures can be a bit alarming at times..... more so as a manufacturer like me because we also have to hold materials.
Another thing about stock figures is the more you have, the more your insurance costs..... and the equipment needed to secure it all. Obvious statement but that has a big impact on what you choose to stock and how carefully you need to plan ahead.
The bulk of my stock is owned, and buying outright often gives you a better price because it's instant payment and instant kickback for your rep. Of course we'd be mad to buy everything so the remainder is either purchased on 30 days credit (we avoid 60 and 90 day schemes) or is held on sale or return. The SOR stuff we generally have to pay full price but the rest we get discounted depending on what we've bought and sold previously. It is however a very expensive business to be in and stock figures can be a bit alarming at times..... more so as a manufacturer like me because we also have to hold materials.
Another thing about stock figures is the more you have, the more your insurance costs..... and the equipment needed to secure it all. Obvious statement but that has a big impact on what you choose to stock and how carefully you need to plan ahead.
richthebike said:
Retailers generally have negative working capital. Clearly the important thing is the cash cycle ie selling stuff and getting paid for it before you have to pay for it...
Yep, which is positive working capital, not negative. ETA
Assuming goods are sold at a profit, if goods are sold at a loss then the working capital would be negative.
You really need to find out what their stock consists of.
Our own stuff is nearly entirely made up of stock that I could sell at cost or profit if we had to shut down. The gold prices aren't going to drop hugely anytime soon, more likely they'll go up. So if I've bought wisely I'll not lose if it all goes horribly wrong. The same with watch purchases we make. Rolex, Omega, Breitling etc generally don't bite if you have to sell quickly. With that in mind a business like ours is fairly safe from being in a negative situation so long as you are careful. Imagine that.... a careful retailer. That's why our business is doing well on the highstreet.
Other jewellers that sell brands from the cheaper end of the market won't have much resale value in their stock if they go bust because its made cheap to sell high. That's why many of those retailers have so much on credit or SOR.
Our own stuff is nearly entirely made up of stock that I could sell at cost or profit if we had to shut down. The gold prices aren't going to drop hugely anytime soon, more likely they'll go up. So if I've bought wisely I'll not lose if it all goes horribly wrong. The same with watch purchases we make. Rolex, Omega, Breitling etc generally don't bite if you have to sell quickly. With that in mind a business like ours is fairly safe from being in a negative situation so long as you are careful. Imagine that.... a careful retailer. That's why our business is doing well on the highstreet.
Other jewellers that sell brands from the cheaper end of the market won't have much resale value in their stock if they go bust because its made cheap to sell high. That's why many of those retailers have so much on credit or SOR.
Edited by ecain63 on Monday 20th January 13:06
I was in Birmingham Jewellery Quarter again yesterday. It's a peculiar place.
There are deals to be had, but a lot of dross too. It always makes me wonder how many of the places keep going; I can only assume they sell a lot other than retail.
I also marvel, every time, at how many of the female staff could walk straight into a Guy Ritchie movie.
So said:
I was in Birmingham Jewellery Quarter again yesterday. It's a peculiar place.
There are deals to be had, but a lot of dross too. It always makes me wonder how many of the places keep going; I can only assume they sell a lot other than retail.
I also marvel, every time, at how many of the female staff could walk straight into a Guy Ritchie movie.
I'm around the quarter a lot (jewellery related) and quite a few are on a knife edge and a few have gone over the past couple of years. The businesses that are doing the best offer onsite repairs, bespoke work etc. There are deals to be had, but a lot of dross too. It always makes me wonder how many of the places keep going; I can only assume they sell a lot other than retail.
I also marvel, every time, at how many of the female staff could walk straight into a Guy Ritchie movie.
ctrph said:
So said:
I was in Birmingham Jewellery Quarter again yesterday. It's a peculiar place.
There are deals to be had, but a lot of dross too. It always makes me wonder how many of the places keep going; I can only assume they sell a lot other than retail.
I also marvel, every time, at how many of the female staff could walk straight into a Guy Ritchie movie.
I'm around the quarter a lot (jewellery related) and quite a few are on a knife edge and a few have gone over the past couple of years. The businesses that are doing the best offer onsite repairs, bespoke work etc. There are deals to be had, but a lot of dross too. It always makes me wonder how many of the places keep going; I can only assume they sell a lot other than retail.
I also marvel, every time, at how many of the female staff could walk straight into a Guy Ritchie movie.
It didn't feel the same this time (it's about 8 years since I last hung around there) and I got a sense more than before that more owners own multiple shops. A couple of shopkeepers said, "oh go and try our other shops X,Y and Z" all of which looked like independent places.
The quantity and quality of stock also seemed lower somehow.
It was the first time that I have had a shopkeeper actually come out into the street to try to sell something to me.
Sure, it's January. But, as you suggest, I didn't get the sense that the place was thriving.
CaptainSlow said:
richthebike said:
Retailers generally have negative working capital. Clearly the important thing is the cash cycle ie selling stuff and getting paid for it before you have to pay for it...
Yep, which is positive working capital, not negative. ETA
Assuming goods are sold at a profit, if goods are sold at a loss then the working capital would be negative.
On the other hand rent etc is in arrears so current liabilities overall can easily be more than stock + cash.
Dr Jekyll said:
CaptainSlow said:
richthebike said:
Retailers generally have negative working capital. Clearly the important thing is the cash cycle ie selling stuff and getting paid for it before you have to pay for it...
Yep, which is positive working capital, not negative. ETA
Assuming goods are sold at a profit, if goods are sold at a loss then the working capital would be negative.
On the other hand rent etc is in arrears so current liabilities overall can easily be more than stock + cash.
Under UK/International GAAP stock is valued at the lesser of cost (FIFO or average) and net realisable value (estimated sales value less any sales costs). US GAAP it is the lesser of cost (FIFO, LIFO or average) and market value.
https://www.youtube.com/watch?v=gLJLKWzZThk
From Producer Michael - a couple of weeks ago
Stock of over 1B$ in store
Worth following the channel for the shop .. it's quite crazy
I looked quite seriously at buying a jewellery retailer recently. Small, family owned for 2 generations, 90% jewellery stock, 10% watch stock. Very good service income (batteries and repairs)
Not a large shop, about 250 sq ft of selling space. Which contained almost £2m stock at cost as lots of small diamonds are required to fill that space.
Margin very good, but stockturn of less than 1 means that a huge amount of cash (capital or debt) is tied up in stock and cashflow is always tight, especially at rent or rate payment dates.
Lots of the old, family owned jewellers are closing, retail is a hard business to be in and with poor economics a purchase makes no sense. They have often built up stock over years or decades, probably often don't know what the latest value of the stock is.
Not a large shop, about 250 sq ft of selling space. Which contained almost £2m stock at cost as lots of small diamonds are required to fill that space.
Margin very good, but stockturn of less than 1 means that a huge amount of cash (capital or debt) is tied up in stock and cashflow is always tight, especially at rent or rate payment dates.
Lots of the old, family owned jewellers are closing, retail is a hard business to be in and with poor economics a purchase makes no sense. They have often built up stock over years or decades, probably often don't know what the latest value of the stock is.
ecain63 said:
Another thing about stock figures is the more you have, the more your insurance costs..... and the equipment needed to secure it all. Obvious statement but that has a big impact on what you choose to stock and how carefully you need to plan ahead.
So said:
Interesting.
It didn't feel the same this time (it's about 8 years since I last hung around there) and I got a sense more than before that more owners own multiple shops. A couple of shopkeepers said, "oh go and try our other shops X,Y and Z" all of which looked like independent places.
The quantity and quality of stock also seemed lower somehow.
It was the first time that I have had a shopkeeper actually come out into the street to try to sell something to me.
Sure, it's January. But, as you suggest, I didn't get the sense that the place was thriving.
It definitely isn't the same, I have been actively around the trade since 2012 and many of the independent jewellers and workshops have gone, some due to retirement, some due to lack of business. A big influx of residential developments really haven't helped as it has pushed rents up, with it now being a 'trendy' area to live.It didn't feel the same this time (it's about 8 years since I last hung around there) and I got a sense more than before that more owners own multiple shops. A couple of shopkeepers said, "oh go and try our other shops X,Y and Z" all of which looked like independent places.
The quantity and quality of stock also seemed lower somehow.
It was the first time that I have had a shopkeeper actually come out into the street to try to sell something to me.
Sure, it's January. But, as you suggest, I didn't get the sense that the place was thriving.
There are a couple that have multiple shops, I think the biggest owns 5 around there but they all trade under different names. Some others have come in and the quality of the stuff they sell is crap.
One good thing is that more smaller independents are appearing working out of small workshops, rather than the shops. It has revitalised the trade a little bit a brought some of the community back that had gone.
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