Alan O'Neill: 'Practical ways to manage the seasonal peaks and troughs'
Not every month is equal for sales, depending on your industry. But firms can open more windows of opportunity throughout the year
'Sales are for vanity and profit is for sanity.' In other words, don't chase sales just to hit a number. They should be profitable sales that leave you with enough to pay your overheads and to have some left over for reinvestment, or for the rainy day. I do appreciate the difficulty, however, when sales are not going to plan and the temptation is to discount in order to get cash in. You only have to look at some of the big companies to see the trouble they've got themselves into.
Even if your sales are on target and your costs on budget, have you enough cash throughout the year? Let's add a tail to the adage above - 'cash is reality'. Profit that is tied up in stock, debtors or other assets may paint a positive picture on your profit-and-loss account, but a cash-flow statement might show a different picture.
There are many causes of tight cash-flow in profitable businesses. The one I'd like to focus on this week is the pressure caused by seasonal peaks and troughs in the annual selling cycle.
Seasonal Peaks and Troughs
The C&C Group hopes and prays for a hot summer to maximise sales of Bulmer's cider, giving it a peak in sales at that time. Pharmacists and doctors peak in the winter time when colds and flu are rampant. And the motor industry now has two peaks in the year, in line with the release of new number plates.
In the case study below, Gears Jewellers and everyone in the industry know only too well that approximately 20pc of their annual sales occur in December.
Can you just imagine the pressure that puts on cash flow for the rest of the year?
It's all very well if your variable overheads go up and down in line with that selling cycle. But what about fixed overheads such as rent, rates, payroll (possibly) and your own salary?
The pressure on businesses that don't have sufficient cash reserves to get through the troughs in the year can be very stressful and exhausting.
Tips for balancing sales across the seasons
What can you do to grow profitable sales and to reduce the impact of troughs in your annual selling cycle? There are obvious options, like talking to your bank and agreeing a facility to spread the load during those times.
Banks are well used to that and when you have a good relationship with them, they will work with you.
At a time when the cost of money is relatively low, it's worth talking to them. There are also clever things you can do with managing costs, such as with your energy budget and maybe even your rent.
But let's take a look at some other additional ideas to grow sales at off-peak times.
• This might be stating the obvious, but throughout the year there are occasions that are already in place or can be created. February has Valentine's Day and Six Nations rugby. March has Mother's Day, St Patrick's Day and possibly Easter. June has Father's Day, and so on.
There is something that can be highlighted every month in the year.
• If not, create some event and own it. For example, the town of Monaghan has created a country music festival, which is a huge attraction. Could you invent an event in your industry for the quiet months, that give you a reason to reach out to customers?
• Are there some promotional opportunities that you and your team could develop for the quiet months? Cash and Carry Kitchens has a calendar of activity that gives it a different story to tell every four to six weeks.
It might be a free appliance with a kitchen, or free fitting. Now, I know I said earlier that I don't recommend discounting, but now and then it is okay. And you may even be able to get support from your supplier to share the cost for that campaign.
• At the start of the year, create a calendar of activity for the year ahead. I supported C&C Wholesale (now called Britvic Wholesale) a number of years ago, when headed up by Des Drumm, and I was always impressed with how that even in the world of B2B, C&C had developed an annual promotion pack. Every month there was some activity outside the norm to drive sales. It still had peaks and troughs throughout the year, but the troughs were not as deep as they might have been without the promotional activity.
The Last Word
Not everyone reading this has the same opportunity or control over peaks and troughs. Rather than try to have all of the answers, my point is to encourage you to be proactive and take time to plan the year ahead.
If you can't find any answers then revert to the other options for managing your cash flow. Talk to your providers and explore mutually beneficial options.
Diamond firm rings the changes but retains its customer focus
Business: Gear Jewellers
Set up: 2008
Founder: Jeff Gear
No of Employees: Five
Giving a diamond ring for an engagement goes back to the 1400s. De Beers is now a giant in the industry and it has huge influence over the global price of diamonds. It developed very effective marketing catchphrases, one being “diamonds are forever”. It also led a campaign suggesting that men should spend up to three months’ salary on an engagement ring. And when Marilyn Monroe sang that “diamonds are a girl’s best friend”, I’m sure it gave a great boost to the industry.
Jeff Gear is a veteran of the jewellery business in Dublin. Having left school at 16, he started in his father’s jewellery business in 1987. In 2008 he set up his own store.
With his own funds and credit from some key suppliers, he opened his first kiosk store on Parnell Street in Dublin. With customer access through a buzzer door, this was a 35 square metre store that Jeff ran on his own, six days a week. Money was so tight in the beginning that in order to make the windows and shelves look full, he’d pad them out with nice bags and creative displays.
In contrast with a fruit-and-vegetable store that turns its stock weekly, jewellery stores turn their stock once a year on average. So that means carrying a lot of stock — and the level of investment required is high.
With an initial collection of branded watches and general gold and silver jewellery, the business gradually built up the stock levels through reinvestment of profits. The start of the economic crash came in 2008, yet the business grew double-digits every year until 2018.
The business moved to a new premises further up the same street in June 2018. Jeff always had a vision of having a luxurious store with displays that were “up close and personal”.
He wanted the ‘Gear’ brand to dominate and be known for service, not for the established brands. Consequently, there is no branded jewellery or branded watches in its collection. Jeff and the team carefully curate what is available on the market and have a unique collection of engagement and wedding rings.
The Business Model
Buying jewellery is an emotional purchase that often correlates to a special event, such as an anniversary, birthday, wedding or birth. Customers want an item that marks the occasion and the item will forever be linked to that event in the mind of the purchaser or recipient.
Selling jewellery therefore is a high-touch business, requiring sales-people that are engaging and knowledgeable.
Jeff and his team are good with customers. They are so tuned in to the emotional driver that they take time to listen and understand the customer’s needs. I experienced it for myself first-hand when I mystery-shopped the store recently.
Gear Jewellers has embraced digital and on its website it shows the jewellery on real hands. “Some of the international players use computer-aided design and 360-degree imagery to present their rings. We prefer to use real hands, so that the customer can get a sense of the actual size of a stone,” said Jeff. “My colleague Muireann Walshe is a key driver of all of this. She has great creative flair and is so committed.” Having built up the stock of engagement rings over the years, it now boasts a collection of 350 different styles. And yet many customers want to design their own. Being agile and customer-focused, that’s not a problem. The average price of an engagement ring is €2,000, but the team always suggest spending whatever people are comfortable with.
Being close to the Rotunda Hospital means that it also specialises in gifts for mothers and babies. With such a niche it seems to me that this company knows exactly what it’s doing and where it’s going.
Natural diamonds are essentially lumps of compressed carbon that have crystallised over thousands of years. Because they’re natural, you get different grades of colour and clarity (ie whether they are flawless or have either carbon spots or feathers inside). The better the colour and clarity, the more expensive they are.
Films like Blood Diamond highlighted the dark side of the industry, which is positively addressed in the Kimberly process — which is a commitment to remove conflict diamonds from the global supply chain. Today, participants actively prevent 99.8pc of the worldwide trade.
Nevertheless, it was inevitable that scientists would find a way to manufacture diamonds. And now, laboratory-grown diamonds are available.
Jeff has yet to decide if he will embrace this innovation and is taking a wait-and-see approach.
In the meantime, he wants to spend more time on the floor to further develop his one store and greet as many customers as he can in person.
Sunday Indo Business