Summary

Signet's knocking 50% off its low end jewelry for Valentines Day.  Here's why that may be a mistake.

Analysis

H. Samuel is the mid market jewelry competitor in the UK.  Operating more than 400 stores, it is a part of Signet Jewelers which also operates higher end stores Ernest Jones and Leslie Davies in that market.  H. Samuel was a privately owned jewelry multiple that was in serious financial trouble when it was purchased by Ratner Jewellers in the late 1980’s.  Ratner turned the business around when he introduced low priced gold jewelry, diamonds, and watches into the stores.  That combined with dominant assortments of low priced gift product, made H. Samuel and Ratner stores the leading mass market jeweler in the UK and Ratner Jewelers a growth stock on the London Stock Exchange. 


That all changed in early 1992 when founder Gerald Ratner was quoted as saying Ratner jewelry quality was as low as that of a prawn sandwich.  By 1995 almost all of the Ratner stores had been converted into the H. Samuel brand and Ratner's low priced jewelry offer purged from the stores.  Since then H. Samuel has been in a constant state of turn around which has included several attempts to develop a strategic store concept, culminating most recently, it the introduction of US store mall concepts into the US marketplace.  Designed for the sale of high priced, low unit volume, diamond products, the store design has been less than adequate in selling H Samuel's £40 average price point merchandise.  However, in all fairness, the Kay styled stores have contributed to increased sales of diamonds and higher price point jewelry, especially in UK’s limited mall stores.  Still, the vast majority of H Samuel stores are located on the high street as in line stores.

 

One H. Samuel’s problems are management’s insistence on ignoring the low end, mass market in the UK.  Due in part because the old Rater profit model ignored the marginal costs of selling low priced, high volume products’ but also because the old business didn’t have good control of its inventory.  For the most part new inventory and merchandising systems have corrected most of the basic problems the old company had with inventory control.  However, the cost structure remains an obstacle to turning H. Samuel’s around.

 

Unfortunately, selling low end jewelry at 50% during Valentines Day makes a “little” sense in order to clear inventory, it will likely be profit negative and reduce total inventory very little.  There are two reasons why, first gift giving events like Valentine’s Day are less important in UK.  In fact, ten years ago, Valentines Day was hardly recognized by British consumers.  The second, the increase in unit volumes to break even are probably unattainable in the UK as recession grips the UK consumer. 

 

A more likely scenario is that H. Samuel’s 50% off sell may depress spring sales even further as consumers wait or prices to decline or for the next big sales.  Like all jewelers, Signet needs to rethink its strategic business model as this recession unwinds.  Why as mediocre as it was in the UK before the recession, the H. Samuel’s paradigm is likely to work even worse now.  

 

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.