When the broader economy is healthy, most businesses can enjoy the rising tide of consumer confidence, without needing to achieve exceptional performance.
On the contrary, when macroeconomic conditions cool, many businesses will feel the need to “batten down the hatches” regardless of their industry. The jewelry & watch industry, like most of the luxury goods sector, is susceptible to weakness in the broader economy: For consumers, luxury products are products you can live without when disposable income contracts. As a retailer, no matter how your company stacks up against the competition, defending top line sales is extraordinarily challenging under these conditions.
In response to depressed sales financial executives will always drive initiatives to reduce expenditure and optimize cash flows. In jewelry, an industry characterized by high ticket items and a necessity to hold inventory, the largest areas of cost are COGS (Cost Of Goods Sold) and cash outflows associated with inventory receipts. The onus is typically on commercial staff operating a number of merchandising functions to deliver the target savings in both COGS and inventory related receipts.
With commercial staff managing cost breakdowns and assortment margins in Excel, they are powerless to address a major opportunity loss: savings that could have been achieved are not being realized because of lack of appropriate tooling. Consider this example:
A purchase order leaving your business today for 100 units of a diamond cluster ring
The reorder cost in your system is $426.88 at $1900/gold
The cost breakdown was last approved by your sourcing team 9 months ago
Over the past 9 months, diamond prices have fallen 10%
The real cost of the cluster ring today is $393.47 at $1900/gold
Item cost at start of life-cycle
Item cost with updated PPC
Quantity in PO
Total PO value
In order to realize these savings the retailer needs to:
Capture & track component level pre-agreed costs with vendors
Automatically update SKU Bill of Materials when component costs change
Whilst this may sound simple, if your tool kit consists of Excel sheets and email, the position quickly becomes untenable as manually updating hundreds of unique Bills of Materials without automation is weeks or even months of work.
Retailers with the ability to adjust dynamically to shifts in commodity pricing have a clear and present competitive advantage over competitors stuck in Excel. This advantage becomes critically important during periods of economic downturn or diamond price volatility, as retailers armed with dynamic tooling can choose between increasing margin on same sales, or reducing ticket prices in an attempt to gain market share from competitors - without needing to sacrifice margin or quality.
Without a detailed understanding of the nuances of our complex industry, a financial executive may be unaware of these savings opportunities available to their business - particularly because the benefits are largely from unprecedented cost avoidance rather than traditional direct cost savings. For this reason, financial executives can effectively be blind-sided to the opportunity cost of not implementing a powerful fine jewelry cost management tool and remaining in Excel. As jewelry merchandising professionals understand this nuance intuitively, a partnership between sourcing, merchandising and financial executives to realize the savings is a critical success factor.
When factors outside your control are hurting your top line sales, it’s the right time to focus all your efforts on your bottom line and leverage your financial executives to advocate for change in your IT roadmap toward near-term cost savings.
Loupe is a leading sourcing system that allows us to benchmark standardized component costs, establish should cost pricing models, and create transparency in cost negotiations across our network, lowering costs, and matching product demand and supply needs with the right vendors across all our banners