In For the Whitehall?
With the not-particularly-good news today about Whitehall, I think the question everyone has is: How and why did the company just a few months ago purchase 78 stores from Friedman’s? (And how would you like to be an employee at those stores? You get a reprieve and then this.)
Let’s not forget Whitehall was also the high bidder to take over the entire Friedman’s chain – their bid just wasn’t accepted, and the chain decided to liquidate.
What makes this particularly unfortunate is, from what I understand, Whitehall’s stores have been upgraded and are actually rather nice, even if that news may not have gotten out to the consumer. A while back, commenter “Mall Jewelry Boy” argued shoppers were probably a little confused:
Whitehall was trying to be one of the more upscale mall jewelers, not a guild store but comfortably between Zales/Kay and Ben Bridge/Baileys. That position is now far behind the company, and even the one remaining program from the heydays (their "White Star" branded diamond cut) has been phased down to a small collection of a handful of solitaire rings. Inexpensive color jewelry abounds. [Former CEO Ed] Dayoob may be doing his best, but customers are probably confused with the store’s brand message, plus it’s definitely hurt whatever unique cachet the company had.
Meanwhile, this analysis argues similarly that Whitehall hasn’t differentiated itself, and has other issues …
… most of Whitehall’s stores are physically much smaller than the typical mall jeweler. That limits assortment breadth, as well as, product and brand variety, a disadvantage that is marginally off set by lower fixed rents. The company’s acquisition of larger Friedman stores will help improve average store productivity, but has also increased debt and working capital requirements.
Realistically, whether Whitehall has a future remains to be seen. The middle market is already over stored and Whitehall’s offer isn’t that compelling. Small assortments, average pricing, average quality, and average locations is about the best description of the business. Add to that, the company is undercapitalized and you have a recipe for failure, especially in this economic environment.
I’m starting to hear about the industry being “over-stored” a lot. It may be worth asking, in this tough climate, is it becoming harder for a retail chain that is not already a nationally known name (like Zale, Kay or Tiffany) to attract consumers?
Analyst Ken Gassman has often noted that in most other industries (electronics, hardware, etc.), two big chains basically dominate the field. I hope that’s not where we are headed …
From a major chain commented:
Directed to Hedda Schupak's comment, there are two ways that I look
at it. First, the successful jewelers are those who understand more
about jewelry business and do not venture too deeply into managing
it like the typical Lowes/Home Depot/Dillard’s chain store
world. We have seen several times in the past years that an
executive entering the industry as opposed to growing up in the
industry is far more likely to do more damage than good. The second
angle one could take is that in the US jewelry retail world the
chains that do exist have developed on conservative and almost
pensive ideals. This behavior is in exact contradiction to what it
takes to consolidate the industry.
B.C. commented:
Re: the previous comment ... the main reason the Barnes & Noble
(and Borders) stores were able to swallow up all the independents
(unlike in the jewelry industry) is twofold: first, book inventory
is a lot less expensive than jewelry inventory. The second point,
closely related to the first, is that these chain bookstores were
able to (arguably) take the small independent bookseller formula
and improve it. Yes, these were mass retail outlets, but they also
had the comfy chairs, the coffee bar, the events and everything
else you could find at your quaint indie retailer, plus a much
bigger and cheaper inventory. Outside of a handful of well regarded
independents, nobody had a chance. In the jewelry industry, chains
like Friedman's and Whitehall can perhaps replicate the environment
of an independent jeweler (or at least that of a less inventive
example of this class), but unlike with the bookstore example, they
can't--thanks to inventory costs, quality staffing issues and other
factors--really improve on it. It isn't just a matter of consumers
wanting to buy a higher end product like jewelry from "someone they
know" (the usual explanation for the survival of the indies in our
industry) -- it's a matter of jewelry chain stores being unable to
truly one-up the independents in the way that other industries
could.
Hedda Schupak commented:
Here's a question I'd like to put out for debate among the
commentators here: Why hasn't this industry consolidated yet? Why
have independent hardware stores, book stores, appliance stores,
even shoe stores, gone the way of the dodo bird but independent
jewelers haven't? Even at a net loss of 800-1000 a year, it's still
a good 20 years till we look like the book and hardware categories.
Thoughts, all? Answer here or privately: hschupak@reedbusiness.com
Independent jeweler commented:
If long time vendors posting is correct than it was morally and
ethically wrong for the management and directors of Whitehall to
buy 78 Friedman’s stores. Liquidating the company is harsh
punishment and maybe vengeful. Those responsible for the decision
to buy 78 stores knowing the financial condition of the company
(see 2007 earnings loss of $74.1 million) and its agreements should
be shown the door. If the company is forced into liquidation then
it will the employees and their families who will suffer the most,
can they sue the directors and executives for a decision that
caused them to loose their employment? The departure of director
Daniel Platt after two months is suspicious. The quote from
Whitehall “is not due to any disagreement with the company or
any matter relating to the company's operations, policies or
practices.” so why leave?
Long time Vendor commented:
Whitehall coerced vendors into deals during the holiday season of
2005 using the threat of Chapt 11. ½ the amounts due were
paid in 2006 the balance due summer of 2007. In 2007 Whitehall
again reneged on the agreements and coerced vendors into postponing
the debt until 2009. Whitehall is also holding consignment
merchandise which they are not returning to suppliers who have made
requests for returns over the last year. With 6 years of sales
declines and loosing money it is obvious that the business model is
not working given the current condition of the economy for the
foreseeable future it is time to call it a day and liquidate this
company. RIP Whitehall it was nice knowing you.
Homer commented:
On the "overstored" issue, like it or not, jewelry is one of the
last consumer goods to see widespread consolidation. From an
economic standpoint, it's long overdue, and probably one of the
reasons internet sales have hammered the trade so badly. I don't
think we're headed for a Lowes/Home Depot chain future--people want
more personal attention for jewelry than for a hammer--but as long
as people shop on price the way many do, the pressure is going to
be in that direction because of the economies of scale. There have
been too many advances in marketing, shipping, and inventory
management to stop it. Barnes & Noble put all those little
bookstores out of business for a reason.
New York Vendor commented:
Vendors obviously have to ask themselves about the credibility and
ethics of the executives at Whitehall. Rationalise it any way you
want to but if Ed Dayoob and his cronies were trying to convince
you to ship they were lying. It is high time we called these people
liars and thieves to their faces, they have no issues with stealing
from the suppliers that supported them. The industry must punish
lying and deceitful executives and send a message that their
behaviour will not be tolerated.
Pierre Tardy commented:
This must be part of a bankruptcy strategy in order to close non
profitable stores, get out of bad leases or renegociate them with
landlords. This will reduce the overhead subtancially. If this not
the reason, then buying the good locations from Friedmans would
make sense.
