Jewelry Store Sales in South Florida
The sale of jewelry stores is quite common in South Florida as they often make attractive profitable niche investments for both active and absentee-minded owners. Jewelry stores include small retail shops, chain stores with multiple locations, and e-commerce sites lacking a brick and mortar location. Many higher-end jewelry stores specialize in custom pieces, casting, and model making in order to meet their customers’ needs. Jewelry stores may offer repair services which serve as valuable profit centers. Most jewelry stores purchase inventory from wholesalers but also purchase used jewelry from walk-ins (as do pawn shops). Because of the potential turmoil it can cause amongst customers and employees, jewelry store sales should always be conducted in a confidential manner with the assistance of a local professional business broker.
Jewelry Store Valuations
The value of a jewelry store is composed of its working capital or inventory as well as the goodwill associated with the operational structure, supply sources, brand, reputation, longevity, and trust generated from its customer base. Jewelry stores on average are valued at 2-3 x its annual owner benefit (or true economic profit derived by a working owner) plus inventory (at cost). Owner benefit is the profit left over for a working owner after Costs of Goods Sold (COGS), rent, labor expense (except the owner’s salary), utilities, advertising, and any other operational expense items. Jewelry stores showing strong historical growth with intact management and a loyal customer base that remains intact after the sale are on the high end of the valuation range.
Inventory Treatment
The inventory of a jewelry store consists of its on hand available products available for sale including its diamonds, gem stones, costume jewelry, accessories, and gold pieces. If a product has already been sold to a customer by virtue of a deposit or pre-order then it is no longer inventory even though it is still physically in the store. Inventory may greatly fluctuate for a jewelry store, but should turn over every six months or so. If the inventory is too large relative to the owner benefit, then the valuation will be distorted. For example, a jewelry store with $200K of annual owner benefit but holding $1M of inventory should significantly reduce its inventory prior to the sale. The value of the inventory may be negotiated and sold separately from the other assets of the business. Jewelry store owners may also face tax consequences from the sale of their inventory since this may be considered ordinary income.
Valuation of Goodwill
- When selling a jewelry store, the goodwill represents the portion of the purchase price that exceeds the net asset value.
- The goodwill of a jewelry store may be generated from its reputation, customer loyalty, brand awareness, and marketing reach.
- Further, the goodwill of a jewelry store may be seen in other competitive advantages such as its supply sources, trained and dedicated staff of employees, and internal infrastructure necessary to properly serve and customize its products to meet the unique needs of its customers.
- Ultimately, the goodwill should be reflected in the reported sales and profits (or owner benefit) of the business in its financial statement (such as a tax return or profit and loss report).
- When valuing the goodwill of a jewelry store, its individual attributes must be closely examined.
- Chain stores with multiple locations will generally have higher gross margins (by virtue of better supplier terms) than smaller stores.
- Chain stores will also enjoy higher operating margins by virtue of leveraging administrative expenses and marketing costs over several locations.
- Because of these inherent advantages in its operating structure, chain stores with multiple locations typically receive higher than average goodwill valuations.
- The management structure and role the owner plays in the day to day operations of a jewelry store also affects the goodwill valuation.
- The more that the owner is absentee and removed from day to operations then the higher the valuation.
- This is because the buyer will only pay a premium valuation if the customer base and other competitive advantages of the business remains intact after the sale.
Non-Compete Clauses
A non-compete agreement plays an important role in the sale of many jewelry stores. Frequently, the buyer will ask the seller to sign a non-compete agreement in which the seller agrees not to compete with the buyer’s business after the sale for a certain period of time within a specified geographic area. The buyer may also insist that – in addition to the seller – the seller’s family members (if active in the business) sign non-competes. Many buyers of jewelry stores fear that the seller may use their industry contacts, supplier sources, or associations with past customers in order to disrupt or compete with the business. Jewelry store owners seeking to retire have little need to fear non-compete agreements. Otherwise jewelry store owners should carefully consider whether they wish to sign a non-compete agreement if they plan to remain in the industry after the sale.
Prior to selling their jewelry store, business owners should be sure to obtain an up to date and accurate financial statement and inventory report in order to properly price their business. Special attention should be given to the owner’s role in the business and the competitive advantages of the business that will transfer to the buyer after the sale. Whether the jewelry store is a high-end boutique, standard retail mall-based store, e-commerce site, or a large chain, the sales process should be conducted in a confidential manner without disruption to the business.
Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.