Posted on March 12, 2008
This week, I visited the JA New York show, and I think this trade needs several doses of Prozac.
Boy, was the mood gloomy. I can’t emphasize enough how much psychological damage the Fortunoff bankruptcy has done to the trade, particularly here in New York. It is not just that it’s hurt its vendors monetarily, as all bankruptcies do. The specter of a big, and one always assumed stable, name like Fortunoff, sliding into Chapter 11, with little or no warning to the trade, has caused significant skittishness.
I do see some glimmers of hope in Fortunoff joining up with Lord and Taylor – but that’s also increased concerns about Lord and Taylor’s former jewelry department operator Finlay. It certainly seems like Finlay is making the right choice in no longer concentrating on the leased department business, and getting into high-end jewelry chains, like Carlyle and Bailey Banks and Biddle. But those purchases have added a lot of debt. This pessimistic analysis of Finlay raises an interesting point:
Finlay will have to liquidate the inventory from the 94 Macy’s departments it is losing, as well as, the 44 Lord and Taylor stores to pay down its revolver and make interest payments.
Unfortunately for Finlay, other large retail chains are also selling off unwanted inventory too. For instance, Zale Corporation recently announced it was closing about 105 stores this spring and cutting inventory by at least $200 million at retail. Friedman Jewelers also said it planned to start a going out of business sale in March as a part of a court ordered Chapter 7 liquidation.
In total, more than three quarters of a billion dollars of retail inventory will be sold off by jewelry chains and department stores during 2008.
One of JCK’s mantras is that jewelry is sold too much on price. To be fair, promotions have their place. Yet it can’t be helpful the product’s image to have all that jewelry being sold on clearance this year.
Goldberg sounded like a true retail merchant, a refreshing change from the parade of financial types who have attempted to “rescue” Zale over the past several years.
Goldberg reiterated what every good merchant knows: customers come first. Not Wall Street and its financial demands. Not its employees. Not anyone else. Customers are the company’s number one priority. He reiterated this theme throughout the conference call: Zale will be customer-centric in the future.
Goldberg was indeed impressive. He also seemed invested in the business, as opposed to his predecessor, Betsy Burton, whose seemed smart but soulless when it came to jewelry. There were doubts about Zale hiring another CEO without industry experience. And yet, as someone reminded me last week, Robert DiNicola, who was generally considered a successful CEO, came from outside the industry. The question now is: After several years of heavy turnover at Zale, can Goldberg get the right experienced people under him who know how to merchandise and market jewelry?
Gassman notes that Goldberg will no longer be providing quarterly guidance, to get Wall Street analysts “off his back.” (Which is notable considering Ken is a former Wall Street analyst.) The new CEO also has to contend with an “activist” hedge fund which now has two seats on his board. Hopefully all the investment types will leave Goldberg alone so he can build the business to what we all believe it can and should be.