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Strip mining

Power center locations enriched by jewelry retailers

By Nancy Cohen

Jewelry chains, among the most productive tenants in regional malls, are finding that there's also gold in power centers. With freestanding superstores as much as five times the size of their mall-based branches, retailers like Sterling Jewelers and Helzberg Diamonds are bringing a trove of gems and precious metals to power strips otherwise stocked with vast selections of books, toys, electronics and bedding.

Sterling Jewelers, the U.S.' second-largest specialty jewelry retailer, recently stepped up the expansion of its category-killer concept -- Jared, The Galleria of Jewelry.

Sterling Jewelers, the U.S.' second-largest specialty jewelry retailer, recently stepped up the expansion of its category-killer concept, dubbed Jared, The Galleria of Jewelry. In the fourth quarter of 1998, the company added seven Jareds to the eight it had developed over the previous five years. Plans are to double the chain again in 1999 with another 15 superstores, each of them 5,800 square feet and glittering with some 8,000 items -- five times the selection of the typical mall store, company officials said.

"There's the opportunity for up to 200 [Jareds] in 10 years, but the map is wide open," said Mark Light, Sterling's executive vice president of operations. The company, based in Akron, Ohio, operates 790 jewelry stores (about 530 of them Kay Jewelers) and is a subsidiary of Signet Group PLC, London; in 1998 U.S. operations contributed nearly two-thirds of Signet's sales of $1.5 billion. Sterling also plans to open 34 mall stores in the United States this year, at an average size of 1,300 square feet. Still, Terry Burman, Sterling chairman and CEO, has said the company expects its "most dramatic growth [to] come from our Jared superstore division."

Similarly, bigger often is better for Helzberg Diamonds, North Kansas City, Mo. Of its 194 units, 46 are what company officials call "freestanding superstores" measuring 4,000 to 4,500 square feet, and a dozen are "in-mall superstores" of 2,000 square feet; the balance are 1,400- to 1,600-square-foot mall-based stores. In 1999, the company will add 15 units, all of them in-mall superstores, said Jeffrey W. Comment, chairman and CEO. Helzberg, which was acquired in 1995 by Berkshire Hathaway, the Omaha, Neb.-based holding company run by financial whiz Warren Buffett, does not release financial data, but Comment said that 1998 sales "were pushing $400 million."

Both companies aim to capitalize on the demographic and economic trends that have been expanding the jewelry business throughout the 1990s at a 6% compounded rate annually. The outlook remains positive as demand continues to surge with the swelling ranks of 45- to 65-year-olds, the key age bracket for jewelry buying, said Todd Slater, retail analyst at Lazard Frères & Co., New York.

The supply side likewise suggests continued opportunity for jewelry chains, Slater said, pointing to the dwindling numbers of mom-and-pop jewelers and the February announcement by Service Merchandise, the Brentwood, Tenn., catalog showroom chain, that it will close up to 134 of its 347 stores. At press time, the chain indicated it would file for bankruptcy protection.

"It reportedly had $1 billion in jewelry revenue, which makes it one of the largest players in the country. So the fundamentals are strong, with good demand growth driven by strong demographics and macroeconomic trends," Slater said.

The term superstore initially may seem an exaggeration for a 5,000-square foot unit, particularly when compared with book and toy chains whose units can average 20,000 square feet or more. But for the jewelry business, good things traditionally have come in small packages.

Modestly scaled in-mall jewelry stores have been gold mines, regularly ranking among the most productive retail categories: In 1998 they enjoyed $760 in sales per square foot and 7.5% sales increases, according to ICSC's Monthly Mall Sales Index. Now, the developers of supersized jewelry stores are betting that extra square footage will multiply revenues, rather than dilute sales per square foot.

At Jared, sales per square foot are almost as high as at Sterling's mall stores, even though "Jared doesn't yet have the maturity" of the other chains, Light said. Jared's first-year sales per store were estimated at $3.6 million and expected to rise to $6 million after five years, according to Jewelers' Circular-Keystone, a trade publication.

But Jared is more than just an overgrown Kay Jewelers. The superstore's merchandise is skewed slightly to the higher end, with price tags marked as high as $20,000, and includes more custom products and a broader array of watches -- including, in some branches, Rolex. Another key difference from the company's mall stores is Jared's everyday low pricing.

Customer service also distinguishes Jared from its sibling chains. Among the amenities are a self-service lounge stocked with free cappuccino and pastries; a children's play area with toys, movies and video games; and an on-site design center that custom mounts, cleans and repairs most jewelry within an hour. These features take up some 15% of the store's square footage.

In addition, greeters walk each patron to the appropriate department, and sales associates, assigned to specific departments, are specially trained, particularly for deep product knowledge. Their skill, Light said, is critical to the superstore concept, which risks stupefying the average shopper with an overabundance of sparkling baubles.

"It can be overwhelming," he conceded. "But our sales professionals are trained to understand the customers and help them focus on a few items" that meet their requirements.

Despite its potential to overwhelm -- and the heavy capital investment it entails -- the tremendous selection is Jared's very reason for being, Light explained.

"We believe that because there's so much under one roof and the pricing is competitive, there's little reason to comparison shop. Customers know they don't have to shop elsewhere -- they know Jared has what they need."

Nevertheless, he said, the Jared concept coexists with mall-based stores -- especially because the superstores drive overall jewelry sales with heavy advertising. When Jared opens in markets where Sterling operates in-mall shops, he said, "The mall stores' average increases are higher, because Jared's advertising makes it a jewelry marketplace."

"These [category killers] probably attract customers that previously shopped at the local mom-and-pop jeweler or a high-end guild jeweler," said Slater. "The wider assortments, the better quality, and the more significant pieces of jewelry cater to older, wealthier consumers. There's the potential for some cannibalization, but ... the revenues have been significantly incremental, [without] a meaningful deterioration of the core business. I think it's a complementary business."

Officials at Helzberg Diamonds would agree. The company's three store sizes allow it to make use of the best available real estate, Comment said. And since converting its freestanding superstores to the Helzberg Diamonds name in 1997 (they debuted in 1992 as Jewelry3), the company has been able to leverage its brand and advertise more effectively.

"Now we can mix and match in a market," Comment said. "Some customers like more of a destination store, others live in malls. We cater to both."

While the customer profile doesn't vary much from one format to the next, he said, the "freestanders are absolutely destinations, and people there are ready to buy, so they have a much higher closing rate." As for customers in malls, many are just walking through, he said. Another boon of the freestanders is their "huge rent advantage," he said, but added that Helzberg considers "the bedrock of the company" to be its 1,500-square-foot mall stores.

That's about the same size as the Zales Jewelers and Gordon Jewelers shops that make up the bulk of Zale Corp., the U.S.' largest specialty jewelry retailer, which operates 1,140 units and reported $1.3 billion in sales for 1998. Also on the Irving, Texas, firm's roster are some larger stores -- Zales outlets (1,500 to 1,900 square feet) and the upscale Bailey Banks & Biddle stores (3,500 square feet) -- but Robert DiNicola, chairman and CEO, has reservations about freestanding jewelry superstores.

"When I look at the nature of the jewelry business -- the slow turn and the high working capital investment required to offer the breadth, depth, and selection of product lines -- the ability to make a large number of superstores successful would be quite challenging," he said in a 1997 interview with High Volume Jeweler magazine.

He noted, too, that Zale Corp. stores each offer about 2,000 stockkeeping units, of which 250 key items account for up to 40% of the business -- a statistic that might be used to argue against the need for a vastly expanded assortment. (Zale officials declined to be interviewed for this article.)

Even Sterling Jewelers' management would agree that it is possible to have too much of a good thing. The first Jared, which opened in 1993, measured 10,000 square feet, as did the two that quickly followed. All subsequent branches have been 42% smaller. Opening costs remain high, however, at $3.5 million, including $2 million in inventory, according to a report in the Dallas Business Journal.

Certainly other jewelry retailers have found small size -- and low operating costs -- to be a boon. Whitehall Jewelers, Chicago, which operates about 250 stores under the Whitehall, Lundstrom, and Marks Bros. names, has scored sales per square foot well above the industry average in its preferred spaces of 800 square feet. Sales in 1998 totaled $189 million.

But some Helzberg Diamonds locations require larger stores to accommodate high demand, Comment said. On average, the chain's stores rake in $2 million annually, but some far exceed that.

"Stores doing $3 million or $3.5 million can max out at the peak holidays and lose business," Comment said of the 1,500-square-foot shops. "If we see the store could do $4 million, we'll think about adding another 25 or 30 linear feet. You need that space to deal with the customer at the showcase."