By Stanley Zale, Principal Consultant, Hill & Co.
The diamond, gemstone and jewelry industry has been hitting some headwinds recently.
As the economy slows, we are seeing evidence of some stress points as publicly traded companies report their results.
For instance, De Beers sales of rough diamonds at their 9th Sight of the year fell 62% from the previous Sight. At just $80M, this Sights’ sales were the lowest since individual Sight sales first began being reported in 2016.
Exports of diamonds from India in October dropped 33% from the same period last year.
The knee-jerk reaction to such business headwinds is to batten down the hatches, hunker down and brace yourself while you passively wait for the economy to turn around. But being the optimist as I am, I’m always looking for ways to turn those lemons into lemonade!
To take that even further, here’s a strategy I adopted during the great recession: don’t waste a good crisis.
Use this time to clean house, just like many of us did (often literally) during the initial period of the Covid lockdown. One approach, since earnings are down anyway, is to take the short-term hit to expedite getting rid of all your old and non-performing inventory. Doing this in a strategic and well-executed way will improve your liquidity so you are prepared to capitalize on a rising economy as soon as business starts to turn around.
Also consider your business development strategy during these times. Marketing expenses are an easy target to cut back on because it’s difficult to get, or measure, immediate results. Yet it’s how you strategize and plan that part of your business, especially during times when others have gone “quiet” and you can fill the void in the jewelry marketing sphere, that will help you stand out from the crowd; not only when things turn around, but now as well.
And when business does turn around, approach that surge in growth with prudence. Remember that what goes up will come down and all parties will eventually come to an end. You don’t want to wake up with a hangover during that next cyclical downturn. Because there will always be these cycles. Finding ways to hedge your market position might appear to limit your growth during boom times, but will also limit your downside risk during bear markets.
To that end, inventory management is key. The old days of making profit on inventory value appreciation are gone. Too much of our business is cyclical in nature today. That brings into consideration both costing and sell price strategies that are driven and measured by data analytics. Inventory turn is key, and when analyzed and leveraged along with an eye on margins, will contribute to maximizing profitability. There are also oft-forgotten costs to carrying dead inventory, including inflated valuation that affects insurance premiums, over-assortment that confuses or disengages your customer, and more.
Be prudent and strategic in how you run your business, especially during difficult business cycles. It’s a great time to consult with those who have decades of experience. Benefit from their insights and street smarts earned at the school of hard knocks. I’ve been very fortunate to have had some great teachers and mentors in my career and have learned at least as much during difficult times as I have during boom years.
Sounds like it’s a good time for a nice glass of lemonade!!
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