Jewelry Stores Shift Emphasis : Diamonds <i> Aren’t </i> Its Best Friend, So Zale Revamps
Zale Corp., the world’s largest jeweler, came to the realization two years ago that there wasn’t as much gold in them thar diamonds as there once was. The 62-year-old company has since embarked on a massive remerchandising and remodeling effort for its largest division, Zale Jewelers, known for years as “the diamond store.”
Now, instead of concentrating on the “4 C’s” of diamonds--carat weight, color, clarity and cut--the stores have expanded into pearls, 14-karat gold chains and earrings and diamond jewelry with precious and semiprecious gems.
And the new slogan at the division’s 750 stores nationwide is “Leading with style,” indicating an emphasis on jewelry as a fashion accessory rather than as an investment.
“Zale grew up with an enormous emphasis on the diamond and bridal business,” Kenneth J. Cort, the division’s chairman, said recently during a visit to the Zales store in Santa Monica Place. “I became convinced that we had to broaden the base or we wouldn’t be able to grow the business with a return that would make us proud and shareholders happy.”
Stiff Competition
Under the revamping program, many stores have been remodeled to look more contemporary and to encourage browsing. Watches, a low-margin business, have been relegated to the back of the store, and gift items--such as ceramic animals and golf tees--have been eliminated.
Analysts note that the restructuring comes none too soon for a company that had lost touch with customers’ changing tastes while being squeezed by increased competition from department, specialty and other chain stores. At the 162-store Santa Monica Place, for example, Zales is up against eight other jewelers as well as J. W. Robinson and the Broadway department stores.
The changes also are being made as the company is beset by other troubles, notably the unfriendly advances of Peoples Jewellers, a Toronto company that has so far made three unsolicited bids. All have been rejected by Zale’s management as inadequate.
Zale’s efforts are similar to those of other merchants catering to Middle America. Sears, Roebuck & Co., J. C. Penney and Montgomery Ward have instituted changes to make their merchandise and store layouts more appealing. Ward last year reorganized its stores by merchandise category, giving each group a distinctive “specialty” look.
“It’s an excellent idea--somewhat late, but better late than never,” Sally Schaadt, an analyst with Fourteen Research Corp. in New York, said of Zale’s plan. “The company realized that diamonds have become more of a once-in-a-lifetime purchase and that they were missing a lot of sales of more fashionable jewelry that a woman will buy for herself and come back and buy again.”
The restructuring has proven costly, however. For the fiscal year ended in March, Zale Corp. reported a net loss of $61 million on $1.1 billion in sales. The loss resulted from after-tax charges of $84.6 million to write down old inventory and cover the sale of some marginal units. The loss followed two years of sluggish growth in sales and profits after a 1983 loss of $6 million.
The planned sale of the company’s airport newsstands, catalogue showrooms and international retail businesses will leave the Zale Jewelers division, which also includes Mission Jewelers, geared to lower-income customers; Bailey Banks & Biddle Jewelers, at the high end, and Diamond Park Fine Jewelers, which operates leased departments in other stores.
Results Encouraging
First-quarter results reported last week were encouraging. For the three months ended June 30, Zale had net income of $1 million, compared to a loss of $2.4 million in the year-earlier period. Sales rose 15.3% to $253.8 million. However, the retailing climate remains difficult, particularly because about one-third of the Zales stores are in Oil Patch areas.
“When you take those kinds of writedowns, you hope to see some better results quickly,” said Ellen S. Hexter of Fitch Investors Service in New York. “Unfortunately, they’re running up against a not-so-great economy.” Problems in energy-producing areas have “got to be working against them,” she added. “Jewelry isn’t the first thing you run out and buy when you’ve lost your job.”
Cort acknowledges that the company is struggling in some areas, particularly Houston and New Orleans.
Looks to Southland
But he has higher hopes for Southern California, one of two geographical areas that the division has targeted this year for special merchandising and promotions and aggressive remodeling. With the exception of Dallas, Cort said, Southern California, with 51 Zales stores, is the largest contributor to the division’s total sales, accounting for more than 5% of $457 million in revenue.
Meanwhile, the interest of Peoples Jewellers, the Canadian firm that holds 15% of Zale Corp., has probably caused the company to intensify its efforts to improve results, analysts say. They add that members of the Zale and Lipshy families, all relatives of founder Morris B. Zale, control about 33% of the company’s stock and have indicated a firm resolve to avoid a takeover. (Under Texas law, a merger requires approval by two-thirds of a company’s shareholders.)
Cort, whose own jewelry usually consists only of a sleek black watch and his 1963 class ring from the University of Pennsylvania, is enthusiastic about the changes that he has engineered since joining Zale in 1984.
“I am optimistic that our re-merchandising position is going to get us several good years,” he said.
ZALE CORP. AT A GLANCE
Operates the world’s largest chain of jewelry stores, with more than 1,600 outlets in the United States and overseas. The company is vertically integrated, operating its own diamond cutting, gem purchasing and jewelry manufacturing facilities. Zale intends to sell its airport newsstands, catalogue showrooms and international retail businesses.
Year ended March 31 (in millions) 1986 1985 1984 Sales $1,107 $1,054 $1,003 Net income (loss) (61.1) 38.8 35.4
Assets: $1 billion Employees: 13,367 Shares outstanding: 8.43 million 12-mo. price range (NYSE): $26.25-$39 Tuesday’s close: $37.37 1/2
