Zale Tried Too Much?

By Rob Bates -- JCK Online, 2/1/2010 2:00:00 AM

Too much, too soon: That's what some former Zale insiders are saying about chief executive officer Neal Goldberg's plans last holiday.

Shortly before the Christmas season, on a conference call with investors, Goldberg, who has often expressed dissatisfaction with conventional jewelry marketing, confidently announced his holiday strategy: Zale's stores would stock more proprietary products, including fashion watches and its new Shared Hearts line. Its advertising would be less focused on TV and have a greater online component. And margins would be higher.

But some complain this moved Zale away from its core value message at a time when recession-crunched shoppers may have been receptive to it. And, indeed, consumers seemed unmoved by the new Zale: Sales in November fell 18 percent, with most of the drop occurring the weekend after Thanksgiving.

Following that, Zale fine-tuned its strategy, said spokesman David Sternblitz, with product going on sale, and advertising reflecting that. December comps improved somewhat, but still were down 9 percent. Overall, the company said November and December sales were down 12 percent.

The company's financial health is the subject of considerable speculation. It canceled orders because of the initial holiday numbers and also has delayed payments to vendors. Bloomberg news helped fuel the fire by reporting that Zale had engaged investment bank Rothschild to help it restructure. Sternblitz said the company “feels it has sufficient liquidity” and stressed the company has not “retained anyone in association with restructuring.”

Zale also is having problems with Citibank, which gave it notice that it does not plan to renew its agreement to finance Zale's private-label credit cards. The two parties' Merchant Service Agreement expires in March 2011. Zale said it's talking with other banks.