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THE GLITTER RETURNS

Jewelry giants growing again as appetite for luxuries improves

By Glen A. Beres

The nation’s largest jewelry chains pulled in their horns when the U.S. economy slowed, as retailers of luxuries are wont to do, but now they are preparing to break out and grow again.

Sandwiched between a two-year economic slowdown and the aftereffects of Sept. 11, many jewelry chains have been on a quest to raise profits and maximize operational efficiency while cutting back on costs. The result has been most apparent in the form of reduced capital spending budgets and fewer new store openings. But some mall jewelry chains are pursuing a more aggressive growth strategy in the second half of 2002 and 2003.

This expansion, however, is marked by a much more cautious, analytical approach than was seen in the go-go 1990s. The chains have also become more versatile, pushing sales in the stores, catalogs and on their Web sites simultaneously, developing cost-saving synergies along the way.

“Major [jewelry] retailers are cutting back on advertising, tightening credit standards and becoming more aggressive in their collection efforts,” said industry analyst Kenneth Gassman Jr., president of the Richmond, Va.-based Jewelry Industry Research Institute, which follows the trade. “They also have lower average ticket items, tighter expense controls, a renewed focus of profit and cash flow, and a tighter real estate criteria for new store locations.”

Take Zale Corp., the nation’s largest jewelry chain. The Irving, Texas-based retailer reported a slight drop in its store count this year (to 2,344 stores from 2,350 stores in 2001). Last year the company announced a 38 percent reduction in projected capital expenditures through 2003. Zale appears to be moving ahead, however, on the expansion front, with 60 new openings spread between its U.S. and Canadian divisions through the fiscal year ended July 31. In fiscal 2003 the company plans to open an additional 60 locations — 30 stores and 30 mall kiosks. The company also said it believes its Piercing Pagoda division of 900-plus mall jewelry kiosks has the potential to grow into a 1,500-unit chain through further domestic (and even international) real estate opportunities.

The big question for Zale will be whether it will stay the course of its current expansion plans following a major management shake-up. Over the summer, its longtime chairman and CEO, Robert J. DiNicola, retired (though he will remain chairman in a nonexecutive capacity). The company handed the reigns to chief merchandising officer Mary L. Forté, who becomes president and CEO. Meanwhile, Alan Shor resigned as president and COO, to be replaced by Sue E. Gove, who adds COO to her CFO title.

At press time Forté indicated that she would not “rock the boat” with too many new initiatives, but instead will continue the strategies implemented by her predecessor.

Meanwhile, Sterling Jewelers, the nation’s second-largest jewelry chain, with nearly 1,050 units, has also demonstrated that it is ready to pick up the pace on the expansion front. The Akron, Ohio-based business (owned by British parent Signet Group) increased its store base by a conservative 26 units last year, a significantly smaller number than in previous years. Sterling has continued to perform well despite the poor economy, however, and adopted a slightly more aggressive growth strategy this year, with 40 mall store openings planned and 12 new Jared Galleria of Jewelry superstores on the drawing board.

Sterling, which accounts for nearly three-quarters of Signet’s total sales, sees Jared as its growth vehicle going forward. The retailer expects to expand the banner by about 15 units per year over the next decade (from a current level of 60 stores to more than 200) and create a $1 billion chain.

Meanwhile, not content to expand just from within, Sterling is eyeing future acquisitions as well. In a June conference call to analysts, Terry Burman, group CEO of Signet, said that Sterling is open to acquisition opportunities and has been offered a number of deals to acquire single stores as well as small groups of stores. “Those stores have not yet met our acquisition criteria,” Burman said.

Whitehall Jewellers, with some 375 units the fifth-largest chain in the United States, opened only 16 stores in fiscal 2001, and expects to open about the same number by the end of this fiscal year. That’s a far cry from the 40 to 60 stores the Chicago-based retailer was opening annually just a few years ago. But after two years of focusing on its bottom line, the company expects to break out somewhat in 2003 by expanding its store base about 10 percent (35 to 40 stores). Ultimately, Whitehall executives believe the chain has the potential to grow to more than 1,000 stores.

Sterling sees Jared as its growth vehicle and plans to expand the 60-unit chain over the coming decade to more than 200 stores.

Another large jeweler that has bucked the trend and performed relatively well despite difficult economic conditions is Fred Meyer Jewelers. This 440-store, Portland, Ore.-based jewelry chain is the fourth-largest in the country and operates an unusual mix of mall jewelry stores and jewelry departments within its Fred Meyer supercenters. After opening an impressive 36 units in 2001, the company has slid this year to about half of that, yet it continues to push into new markets in its quest to become a true national retailer.

Expect to see some fairly steady expansion from Helzberg Diamonds as well. The North Kansas City, Mo.-based chain, the country’s sixth-largest, with some 225 units, has opened about 15 stores per year over the past few years. This year was no exception, and the Berkshire Hathaway-owned jeweler is expected to open another 15 stores in 2003.

Even Friedman’s Jewelers, which has traded in its historically aggressive unit expansion for profit growth the past few years, is still adding to its store base at a steady pace. Although the 650-store, Savannah, Ga.-based chain has slowed from the 80 to 90 units it consistently opened yearly in the latter half of the 1990s, the company still anticipates a net gain of 36 new stores by the end of fiscal 2002. Ultimately, Friedman’s, the third-largest U.S. jewelry chain, plans to parlay its unique power strip center expansion strategy into some 3,000 units. Waiting in the wings is Oakland, Calif.-based affiliate Crescent Jewelers, a 154-store sister chain that Friedman’s has been contemplating acquiring for years.

On the department store side, which has struggled tremendously the past few years, consolidation has been far more prevalent than expansion. Yet Finlay Fine Jewelry, a New York City-based company that runs jewelry operations for more than 1,050 department stores and other jewelry retailers, had some 22 new retail doors in its plans this year. Finlay noted that two of its largest host store clients — May Department Stores and Federated Department Stores — were scheduled to open 11 new stores each through the end of the fiscal year.

Altogether, half of the nation’s 40 largest retail jewelry chains (by store count) increased their store base this year, even if a dozen of them raised their store roster by only one to three units, according to National Jeweler, one of the industry’s leading trade magazines. And analysts say they expect to see the major chains continue slowly and steadily to increase their store totals next year as the economy recovers.

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