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Shopping Centers Today -> March 2002
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BRICKS AND BROOCHES
After online shakeout, jewelry e-tailers turn to malls in bid to survive
By Glen A. Beres
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Like other e-commerce players, online jewelry retailers have been searching for ways to prop up their sagging Internet businesses, and many are looking to malls for their salvation.
A host of once-promising jewelry sites have shut down over the past year or so due to lack of funding, including Adornis.com, Denmans.com, iJewelry.com, Jewelry.com and Miadora.com. Many of the major sites that were still standing at press time — Ashford.com, Blue Nile, Diamond.com, Mondera.com and a few others — have been forced to downsize in their struggle to become profitable. But long-term survival lies in multichannel retailing, e-tailers have recognized, and many are working to complement their Web operations with physical stores and catalog/direct-mail divisions.
Brick-and-mortar stores, too, have recognized the virtues of multichannel retailing; Zale Corp. and Tiffany & Co. are among those perfecting their Internet models. But though a few years ago pundits were advising conventional stores to go online or die, now it is the pure-play Web merchants that face a choice between extinction and opening off-line venues. Single-channel retailers that are considering launching or expanding clicks-and-bricks operations include:
• Sunrise, Fla.-based Diamond.com, which said last June that it was looking for a flagship location in New York or another major city to serve as a prototype for a planned domestic — and possibly international — store expansion; it has since put that plan on hold, however.
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• Seattle-based Blue Nile, which has tentative plans to add physical stores by 2003 in its highest-selling markets, including New York City, San Francisco and Seattle.
• West Chester, Pa.-based home-shopping retailer QVC, which opened a store prototype called QVC @ The Mall, in The Mall of America, outside Minneapolis, two years ago. The store is so successful that QVC last May signed a 10-year lease with the center and moved into a larger space. At the time of the launch, QVC officials said they had an eye on expanding the store concept to other major shopping/tourist destinations, such as New York City; Las Vegas; and Orlando, Fla. The TV/Internet retailer also entered into a partnership last March with rival Target Corp. to sell its proprietary Diamonique line of simulated diamond jewelry in all of Target’s stores.
Some of the advantages e-tailers can enjoy by opening storefronts, according to jewelry executives and industry analysts, include:
• Strengthening brand-name recognition among consumers;
• Giving customers a physical location to touch the merchandise and bring goods in for repair or return;
• Lowering promotional costs through cross-merchandising and cross-marketing opportunities;
• Expanding the customer base by drawing impulse shoppers off the street;
• Attracting those who dislike Web shopping.
“Having stores will give us more credibility,” said Nicolas Topiol, chief strategy officer for Diamond.com. “It gives us personal contact with our customers.”
Analysts say they expect to see this multichannel approach gain momentum across the entire retail spectrum as Internet companies seek to emulate the success of traditional retailers that have made a strong commitment to the Internet.
“We are seeing more and more of the e-commerce business migrating to traditional brick-and-mortar stores,” said Kurt Barnard, a retail analyst and president of Barnard’s Retail Consulting Group, Montclair, N.J. “Consumers know and trust those companies, and [traditional store retailers] make it easy for them to return something at the nearest store rather than asking them to pack something up and call UPS. We think this trend will continue.”
Most of the largest U.S. mall jewelers contacted by SCT say they understand e-tailers’ sudden interest in physical locations, but they don’t see the sector as much of a threat — at least not for now.
“We’re not surprised by the move toward clicks-and-mortar, based on the lackluster sales performance of the jewelry category on the Internet,” said Victor Suglia, senior vice president and CFO of both Savannah, Ga.-based Friedman’s Jewelers and its affiliate, Oakland, Calif.-based Crescent Jewelers. “But outside of our normal competitive marketplace analysis, it’s not something that we are watching closely.”
Friedman’s operates 643 stores in 20 states in the Southeast and Midwest, while Crescent has about 150 units in the West.
But when a nonstore retailer has an established name and enters the physical store realm, it can have a significant impact on existing mall competitors, according to some jewelry executives.
“When we saw that QVC opened a store in Mall of America, we were more concerned than if some two-year-old dot-com said it would be going to brick-and-mortar,” said H. Marvin Beasley, executive vice president of merchandising and marketing for the 230-unit Helzberg Diamonds, North Kansas City, Mo., which has a store at The Mall of America.
One reason some traditional-mall jewelry chains say they aren’t unduly concerned is that they don’t believe the dot-coms have the experience, infrastructure, financial muscle and name cachet to pull it off.
“I don’t see most of the existing Internet companies [as being] well-rounded enough to handle a bricks-and-mortar division,” said Edward Dayoob, president and CEO of Portland, Ore.-based Fred Meyer Jewelers, which operates about 430 stores and jewelry departments within Fred Meyer superstores. “But those that can will serve the customer better and have a better chance of surviving than if they were just an e-tailer. It’s a big advantage to have a strong store name — that’s why Zale, Fred Meyer, Wal-Mart, Target and other store chains can open an Internet site and be successful in a relatively short time.”
Mall jewelers did, however, extend one note of caution to dot-coms and other retailers considering a clicks-and-bricks model: It’s not as easy as it looks. E-tailers should expect to face high rents, theft, personnel turnover, insurance costs, government regulation, inventory problems and other headaches that store operators suffer.
“It is potentially favorable for them, because customers are much more comfortable buying from a company with stores,” Dayoob said. “But I also think they’re in for a rude awakening. There will be an expense factor that they’re not accustomed to.”
Suglia agreed, citing the difficulties of supporting an infrastructure and store growth.
“It’s particularly challenging to hire and maintain a professional store staff,” he added.
That’s why some mall jewelers believe that dot-coms have the best chance of surviving in the physical store realm if they focus on taking over and converting an existing chain rather than trying to build their own stores.
“There certainly are acquisition opportunities out there, said Chad Haggar, senior vice president of operations for Austin, Texas-based Samuels Jewelers, which operates 164 stores in 23 states. “In this kind of economy, there are so many retailers that can be bought cheap. I think this is a better bet for the dot-coms than trying to start a store operation from scratch.”
Some mall-chain executives feel that any new jewelry retailer with a strong name and operation entering their market will both bring in new customers and keep them from becoming complacent.
“The jewelry category is well represented in any mall or strip center, and we believe that additional competition is always a good thing, because it forces you to stay at the top of your game,” said Suglia.
The entry of any good retailer is going to attract more customers, and that is good for everyone in the mall, noted Alan Zimmer, president and CEO of Wilmington, N.C.-based Reeds Jewelers, a 119-unit chain operating in the Southeast and Midwest.
“In our Columbia, Md., market, L.L. Bean opened a store that has increased traffic in the mall — which has been good for us and everyone else,” he said.
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