With gold having shot through the $1500 mark at the time of writing, jewelers are increasingly finding the cost of replacing sold product to be a changing game. This month I will discuss the “new gold standard” and how best to deal with this when replacing product.
There is little doubt we are seeing a changing game in the gold market. The price has rocketed in recent times.
Gold is now trading at almost 2 1⁄2 times where it was 5 years ago. Few other industries would have to deal with that sort of price increase in their raw materials. Economic uncertainty has fed the cycle and, although things are beginning to return to more normal trading, this doesn’t appear to be easing demand for gold as a commodity.
The effect has been an understandable decline in the amount of gold being sold per store and a reduction in the percentage of sales now being contributed by gold to stores’ total revenue.
Our industry benchmarking statistics are now showing gold to be only 8% of the typical store’s twelve month’s sales – down from 12% two years ago. When you also take into account many stores have not recovered to their annual sales of two years ago, this decline is even more marked.
Jewelers are now faced with a situation where they are selling an item that may be 2-3 years old, then looking to replace it at a cost equal to what had been the items retail price. This makes trading difficult to say the least!
So how are you best to handle this when dealing with inventory?
Firstly we recommend that old inventory be repriced to current gold market prices. This may seem a little strange – if it hasn’t sold at its previous retail it certainly seems unlikely to sell if the price has doubled. However this gives you the opportunity to at least realize market prices if it does sell. It also provides you with more margin to deal with the problem. If you are going to sell it for less than market price you can at least promote it as such (please check with your local laws on repricing aged inventory to current levels and ensure you meet all regulations when complying with this).
Secondly decide what your new alternatives are for clearing aged product. Under normal circumstances we would recommend other alternatives ahead of melting product down, but given there is the chance to realize more in cashing up gold than you may have otherwise gained, it may be more worthy of consideration.
Thirdly re-evaluate your holding of gold inventory. What percentage of your store sales does it represent? If you are achieving 8% of your sales in gold but carrying 15% of your total inventory as gold product, it may be appropriate to re-assess how much gold inventory you need to carry.
Above all else make sure you keep responding to the changing situation. Don’t get caught “out of date” with what’s happening in the gold market. What would you do differently if gold hits $2000? Make sure you have plans in place for each developing circumstance so you are ready for all eventualities.