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Shopping Centers Today -> May 2003
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DIAMOND CENTER PLANS TO OPEN 500-PLUS STORES
BY GLEN A. BERES
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| Coming soon to a strip center near you? The chain plans to go national. |
Strip center owners and managers might be seeing a lot of The Diamond Center in the future. This East Sacramento, Calif.-based jewelry retailer is planning a huge expansion that would transform it from a small regional chain into a major national player.
Diamond Center currently has 10 stores in the Sacramento and Bay areas, primarily in strip centers, but its owners believe the chain can grow to 50 times that in as little as five years.
The 28-year-old company has always focused on selling jewelry on credit to people with less than perfect credit histories. In August 2001 it was taken over by a group of former executives from The Money Store, a company that knew a lot about people with less than perfect credit histories. This new management had helped build Money Store from a $500 million company into a $9 billion financial juggernaut in about five years. It now plans to do much the same thing with Diamond Center. By applying essentially the same business model, the executives believe they can expand the jewelry chain to 500 or more stores and at least $500 million in revenues within the same time frame.
“There were so many similarities between the two businesses,” said Bill Templeton, president and CEO of Diamond Center and former CEO of the now-defunct Money Store. “In terms of the customer base, marketing, underwriting, risks versus rewards and the collection aspect, it was all consistent with my background. Diamond Center was offering customers who would be rejected by traditional jewelers the chance to repair their credit and at the same time buy a beautiful piece of jewelry for their loved ones.”
After 27 years at Money Store, Templeton sold the business to First Union Bank in 1998 and briefly retired. But he soon learned about the then-seven-store jewelry chain from an investment banker and saw an intriguing opportunity. He, three former Money Store colleagues and Portland, Ore.-based private equity group Endeavor Capital decided to buy the chain with an eye toward expanding it nationwide.
The new management team had an almost immediate impact on the business. After only a few months at the helm, and with few real changes, they logged a record-breaking 2001 holiday season for Diamond Center, doubling same-store sales against the previous year’s season. The managers declined to provide precise figures.
Last year was a reengineering year for the company, according to Templeton. The chain closed one store and opened four others. The new owners integrated new technology platforms in merchandising and credit, updated business operating systems and replaced 75 percent of the store personnel. They also made some key additions to the management team by bringing in a number of well-respected, seasoned jewelry people. Templeton says the company is now poised for growth.
“Everything we’ve built is scalable,” he said. “Our current infrastructure can easily support 100 stores with only incremental expense.”
Diamond Center plans to open 15 to 20 stores this year, mainly in key Midwestern markets such as Chicago, Detroit and Milwaukee. But to achieve the 100-to-125-store annual growth that Templeton foresees over the next five years, the company will need to raise substantial capital — and it believes it can secure $10 million to $20 million over the next two years. (In September 2002, Diamond Center secured $2.5 million in working capital funding from Columbus, Ohio-based Textron Financial Corp.) Taking the company public within that five-year time frame is another possibility, said Templeton.
“We’ve built the infrastructure; our challenge will be getting to critical mass,” he said. “Our vision is to expand nationally and to be recognized as ‘America’s credit jeweler.’ ”
Diamond Center stores, which are typically located in strip centers, measure about 1,400 square feet. Most average about $1 million in sales per year. Approximately 95 percent of the retailer’s business consists of credit sales, far more than the typical jeweler — and its bad-debt ratio is a whopping 20 percent.
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The chain’s typical customers are 20 to 42 years old, with average annual household incomes of $50,000. They live in two-income households and are largely renters. Many have been through a bankruptcy; most have poor credit, no credit or bad but improving credit.
Templeton says the company favors the strip center format rather than the traditional regional mall format because of lower costs, less competition and the fact that the average strip center customer is a destination shopper, not a mall browser going from store to store comparing prices.
Austin, Texas-based Samuels Jewelers, a 125-store chain that shares some Northern California markets with Diamond Center, is one competitor that is keeping a wary eye on the ambitious chain.
“Templeton certainly knows how to do a roll-out from his Money Store days,” said Randall McCullough, president and CEO of Samuels. “We expect them to become an impact player in the market.”
One of Diamond Center’s main jewelry competitors is Crescent Jewelers, an Oakland, Calif.-based chain of 157 stores in seven Western states. Crescent, which has a third of its stores in strip centers, also targets middle- and lower-income customers through a fairly high percentage of credit sales. (Company officials said that they are aware of Diamond Center, but are not “familiar enough” with its operation and business model to comment for this article.)
Templeton, for his part, acknowledges Crescent’s strength in the region, but asserts that Diamond Center’s niche is distinct enough to allow the explosive level of growth he is projecting.
“Much more of our business consists of credit sales than Crescent’s,” he said. “We also go further down on the food chain of credit than Crescent does. And we are much more focused on basic, classic items than they are. Our emphasis isn’t on fashion pieces.”
While only time will tell whether Diamond Center can fulfill its expansion plans, property managers from which the chain leases storefront space generally consider the chain a well-managed, profitable company and a strong tenant.
“Since the change in ownership, their business has definitely improved,” said Mike Donaghy, general manager of the Sherwood Mall, Stockton, Calif. “They’ve been a tenant here for 12 to 13 years, and in 2002 they had double-digit gains. Credit jewelers like the Diamond Center bring a good demographic to our tenant mix in the mall. The management is very hands-on, and they’re a very good tenant for us.”
Concord, Calif.-based Contra Costa Properties, which manages the Concord Park & Shop strip center, also considers Diamond Center to be a valuable tenant. “Although you’re never looking for people with poor credit, they do serve an important niche in the market by catering to medium-to-low-income customers,” said Paul Sinz, the center’s property manager. “They’ve always been a prompt pay and a reasonable tenant.”
Diamond Center’s future growth will be centered in the Midwest, because of demographics favorable to the chain’s store model: a large number of blue-collar workers who tend to have fewer delinquencies because of their long-standing roots in the community and employment stability. It’s also less expensive to do business in the Midwest, Templeton notes.
Other targeted growth areas include Northern California and the East Coast. But one region that isn’t in the company’s sights is Southern California. According to Templeton, it is too expensive to set up shop and do business there, and the competition is much more intense, with a number of strong regional chains including Daniel’s and Don Roberto dominating the region.
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