Wondering what is affecting your diamond GMROI? Too much variety could be the answer

Are you one those many retailers in the Middle East who planned to ride the diamond wave that got the world excited during and after a pandemic? You may have bought a hefty inventory of priceless diamond jewellery, keeping one eye on the trends and the other on the dreamy margins that the promising gemstone would bring you in the future. However, when you sit with your books at the end of the quarter, the numbers don’t look as magnanimous as you thought they would be. You check in with your sales people, and realise that the inventory is not moving as fast as you hope, and people want something new. What do you do? You start doling out attractive discounts on diamonds. Or, you give in to the sudden shift in gold and start pushing your yellow metal jewellery. Margins shrink further. The diamond inventory lies dead and forgotten.

What do you think went wrong?

If you are struggling to find out what floats the boat, there is light at the end of the tunnel. The problem you may be having too much variety that results in a piled-up inventory, a faulty sales technique and the lack of a premium on your products. Let’s delve deeper into the problem.

The pandemic and diamond surge

While the jewellery industry in Dubai suffered a huge decline at the beginning of the pandemic, much like the rest of the world, it jumped back on its feet fast. Dubai opened up as the world shut down. People did not travel during the summers and spent in Dubai — which means more of jewellery. The industry coped up by October 2020, and 2021 bolstered the position. The only change came in the form of jewellery. People’s tastes had changed and there was a marked shift from heavy and traditional jewellery to lightweight, stylised and modern. Volumewise, the business kept decent.

The thirst for diamonds went up in customers and most retailers jumped on the bandwagon. However, later, the trend shifted to gold jewellery.A look at the diamond inventory showed that there was a lot of variety and too much newness being offered to customers. Most retailers bloated their inventory.

“The moment inventory is bloated, you are limited to change, which has come in hard and fast with the pandemic. Your finance is stuck in inventory and due to limited funds, retailers cannot make changes quickly. If their capital is piled up in dead inventory, they are not agile anymore. The trend became too common and started hitting all,” said Ashish Garg, head of business, of KGK Group, Dubai and board of director of Dubai Gold and Jewellery Group. “Along with the high inventory, there was another problem. The diamond jewellery had no concept or identity. Everything was put in a basic display. There was no story to them.”

Are the salespeople trained?

The second problem that adds to the panic is the lack of trained salespeople Most salesmen in store owned by family jewellers are selling diamond products with just tones of “this is a new arrival” or “Here is where you get an attractive discount”.

“The moment you tell the customer that something is a new arrival, it automatically gives them an idea that the rest is old. This makes the inventory invalid. You end up piling up inventory that does not sell, and locks your investment and capital as a dead one, automatically affecting your GMROI. This has hot a not of retailers, especially the family-run ones.

The need of the hour is to train your staff and make them understand that diamonds should be sold with a unique story behind it instead of just discounts and newness. There should be a category and demarcation to the jewellery.

How GMROI crashes

The challenge that the diamond jewellery industry is flushed with today is that it is flushed with dead and non-moving stuff. Funds are piled up and capital is invested in products that are not needed anymore.

“Souk retailers have an inventory turnout of 0.2 to 0.5 compared to the US average of 1.3 to 1.4, which is a measly number. As a retailer, your diamond inventory is not making money so you are shifting to gold, as there is a high sales turnover, although margins are not that great. Retailers find it more comfortable as long as stuff is moving. Earlier, the market share for diamonds was 40%, the rest being gold. Now it has come down to 30%. It’s a concerning trend,” said Garg.

If your inventory is not giving returns, and you are having to sell it at a discount to clear it, it affects your margins. You are missing out on new trends and styles and not being able to convert your inventory accordingly. It’s a dead end.

What is the way out?

Chain stores are able to change their inventory very quickly. They are doing better because they are agile. However, the road is not that difficult for a family-run business either. There are a few small steps that can do wonders.

“You must classify and segment your inventory. It’s the key. There should be a broad categorisation system. Jewellery that looks similar should be classified into collections. The next step, which is the most important, is attach a story to the product. It becomes easy for customers to understand the story, and thus, the USP of products. It becomes easy for the salesperson because they can talk about how a piece has a premium, and not about just discounts,” says Garg.

As a retailer facing these issues, it’s important to start understand your star products so they can be replenished. Get an idea of which part of your inventory is dead, and liquidate it so that the capital can be freed for new and in-trend pieces.

The third step, is to train your staff. If they don’t know how to sell jewellery based on its value and USP, margins will remain a long-lost dream.

The core messages

Retailers battling the inventory problem should ideally focus on generating a premium on the jewellery. Diamonds prices are going up,and there are supply disruptions.These factors make mined diamonds a valuable piece of art. “Sell it as such. Many jewellers give out price breakups of diamonds and caratage instead of just the tag price. That’s not the way to sell fine jewellery pieces. With the shortages, it’s a great trend to usher in. Start valuing your jewellery, and don’t stock a lot. Train people and make more money. The moment you start selling the jewellery on its USP, the premium alone with generate big margins for diamonds,” finishes Garg.

Image Courtesy: Economic Times

Courtesy: Retail Jeweller World News