Summary
Turmoil in the executive suites of large jewelry chains will benefit smaller jewelry competitors. Here's more.
Analysis
Failure is not an option, even in a recession. That’s one lesson some jewelry executives are learning. For instances, Randy McCullough, Chairman of privately held Samuels Jewelers was recently replaced by the board of the Gitanjali Gems an Indian jewelry manufacturer and retailer. Likewise, Marvin Beasley, Chief Executive of Helzberg Jewelers, left abruptly and was replaced by Beryl Raff, a division merchandise manager from J. C. Penney.
Just what the problems were at Samuels is unclear. Gitanjali, a nouveau retail success story was a DeBeers site holder and Indian jewelry manufacturer turned branded management company. As such Gitanjali acquired both Samuels and Rodgers Jewelers in 2006 and 2007 respectively as a part of a branded, vertically integrated retail scheme.
There wasn’t anything particularly original about that strategy. It’s been tried before in the US market and generally failed because of a number of reasons. For example, manufacturing driven retail businesses almost always seem to have too much of the wrong product, often at the wrong time too. Nonetheless, Gitanjali had been especially successful in marketing disparate brands, was cash rich, wanted a piece of America’s growing $65 billion jewelry market, and thought they had a formula that would succeed where others had failed. But their timing was bad, very bad. As an aside, never discount the role luck plays in business success. But to the point, we may never know if the gambit would have work. Why, because Gitanjali has been fighting declining sales both in the US and its core market in India since the recession began in December 2007. So don’t be surprised if Gitanjali contracts in its overseas markets a move McCullough’s departure may well signal.
Then there’s Helzberg Jewelers. Marvin Beasley’s departure was probably predictable if anyone was looking. That became apparent when Signet Jewelers Ltd published some industry figures indicating Helzberg was last in growth between 2002 and 2007 when compared to Kay, Jared, Zale, Fred Meyer, and Gordon, all mid market jewelry chains with over 100 stores. That isn’t the type of performance Warren Buffet expects from his company’s which are usually rated as the top one or two performers in their class. But the question is: Can CEO Raff meet his expectations? A department store jewelry merchant by training, Ms Raff joined Bob DiNicola at Zale from Macy’s in the mid 1990’s. Once widely acclaimed for turning Zale around, DiNicola’s marketing and merchandising policies have recently been blamed in part for company’s subsequent decline. Still, Herzberg’s’ new CEO has substantial experience running big box jewelry departments on her own. But, how relevant that experience will be when heading the operations of 270 small mall diamond stores where fine diamonds compose nearly 70% of its sales remains to be proven. Only time will tell, but one thing is certain, the Helzberg organization is in for some serious culture shock.
More changes are on the way in jewelry companies’ exclusive executive suites. For example, whatever the final disposition of Finlay Enterprises, it almost a certainty that Arthur Reiner won’t be the CEO. Who will run the hypothetical national guild jewelry chain? No one knows, assuming such an entity actually emerges.
Also, don’t be surprised if there are other industry changes. For instance, second in declining total sales growth was Fred Meyer, according to Signet’s numbers. Operating about 400 stores, the brand is owned by Kroger and represents a small fraction of its $70 billion plus retail business. Interestingly, Signet’s comparisons also indicated that its store for store sales growth has increased; suggesting Kroger may be using the business as a “cash cow”. Longer term, the bigger question is whether Fred Meyer could be a future acquisition target.
According to Signet Jewelers Ltd, Terry Burman, the group’s current Chief Executive will retire on January 29, 2011. That’s in about 650 days and as of yet, the company hasn’t announced a successor. While unusual in the jewelry industry, its common practice in many industries to have formal, highly structured succession plan to ensure minimum disruption in the business and the efficient transfer of executive power. That said, just how orderly the transition will be at Signet, depends on who gets the job and how soon the company names Burman’s successor. Both are important because Signet faces an immense number of challenges, as do all jewelers, which must be sorted out soonewr than later. The earlier a replacement is named the better prepared the company will be to develop and implement its post millennium strategy.
Lastly, there’s Zale Corporation, second only to Signet in size in the US market; the company will lose a lot of money this year, which begs the question of what changes the board of directors will make in 2009. Historically impatient and quick to make changes, Zale’s board has hired 5 CEO’s and 4 CFO‘s since 2000 to manage the company. What changes, if any, the board will make in 2009 remain to be seen. In part, any change will depend on what the company’s largest share holder and hedge fund manager wants to do. Controlling about 28% of the company’s stock, Richard Breeden and his partners have lost more than $150 million on their Zale investment as the stock tumbled to less than $1/share in March 2009. That’s reason enough for him to want changes, despite the fact Zale stock price rebounded slightly in April. Still, there are other reasons he may want changes. For instance, the hedge fund industry is changing, both in terms of taxation policy and government regulation. That suggests Breeden Capital Partners investment horizon may get a lot shorter. It’s doubtful this activist investor will be satisfied with continued losses despite the recession. Instead they will want positive returns now before higher taxes can erode them further. Simply put, if the current executive management can’t give controlling shareholders a satisfactory return soon, they will find someone else to get the job done.
In all, this represents more leadership change in large jewelry firms than the industry has seen at any single time in the last half century. Whether the results of these changes will mean a stronger industry is very uncertain. But one thing is certain; all this turmoil in the executive suites of the industry’s largest jewelry companies will benefit single store businesses and small chain owners, at least in the near term.
