Sterling Steps Up

There’s a golden rule in track and field: When you’re ahead, don’t look back. That seems to be the motto, too, of Sterling Inc., the largest U.S. specialty retail jeweler, based in Akron, Ohio, which focuses on marketing and growth strategies rather than on its competitors.

In the past couple of years, Sterling—the 1,297-store U.S. division of London-based Signet Group—has supplanted Zale Corp. as the largest U.S. specialty retail jeweler in market share and sales. Its national chain, Kay Jewelers, has surpassed Zales Jewelers, and Kay’s e-commerce Web site was the first to let customers send online purchases directly to their homes or a local Kay Jewelers for pickup. Signet is investing $1 billion in Sterling in an ambitious expansion plan that will double its U.S. outlets in a few years.

Overseeing all this is Mark Light, 44, president and chief executive officer of Sterling Jewelers Inc., who is continuing a family tradition. His father, Nathan R. Light, built Sterling from 32 stores in 1977 to 880 at the time Signet (then called Ratners) bought it in 1987 and was its president until he resigned in 1995.

Mark Light’s own professional career has been spent entirely at Sterling, where he helped shape the policies that made it No. 1 today. He began as a part-time sales associate in 1978, while still a high school student, and worked his way up to several key management positions including executive vice president of store operations.

In 2003 Signet named him president and chief operating officer of Sterling, and in January 2006 he was promoted to chief executive officer and also to Signet’s board of directors.

It has been 20 years since Signet purchased Sterling, surely one of the smartest moves it ever made. Sterling—which, in addition to Kay also operates Jared Galleria stores and several regional chains—has been a consistent profit center for its British parent, providing 75 percent of its revenue and most of its stores, even as Signet’s United Kingdom division has struggled. There’s no doubt about Sterling’s importance to Signet: Former Sterling president Terry Burman is Signet’s chief executive, and the parent company recently decided to report financial results in U.S. dollars instead of British pounds. And, of course, there’s Signet’s decision to invest $1 billion in Sterling.

Senior editor William George Shuster recently spoke with Light about how Sterling became No. 1 and how it plans to spend that $1 billion.

JCK: You were already president and chief operating officer of Sterling. How did promotion to CEO affect your management of Sterling? What’s your biggest challenge as CEO and president?

Mark Light: My promotion to CEO means one executive leads the senior management team focused solely on running the U.S. business. This allows Terry [Burman, chief executive of the Signet Group] the opportunity to focus much more on the group as a whole. He was wearing two hats as chief executive of both Signet and of Sterling, though he’s still Sterling’s executive chairman.

As for me, I want to be sure we continue growing in a financially healthy, consistent fashion as we did with Terry as CEO—we’re growing 8 percent to 10 percent annually now in new store space—and stay focused on our competitive strengths in store operations, human resources, real estate, merchandising, and marketing.

The larger the company gets through our growth strategy, the more we want to be sure all of Sterling’s current and new team members, both management and staff, are focused on those advantages. In addition, it’s important they understand and practice our philosophy of continuous improvement, and that at all levels we must stay focused on consistency in execution, reinforcing competitive strengths, recruiting and training the best people in the industry, and improving customer initiatives.


JCK

: In 2004 Kay Jewelers surpassed Zales Jewelers as the largest U.S. specialty jewelry retailer in revenues. In 2005, Signet surpassed Zale Corp., Zales’ parent firm. How did Sterling do it?

ML: There’s no “magic bullet” for our success, just a lot of hard work and a great team of people. We have a culture of excellence and continuous improvement in all areas of the business. We aim for a superior customer experience by exceptional, well-trained people in our stores. We have great merchandise with great value; attractive, well-located stores; and highly effective marketing. We have a very intense training program to support our focus on staff development and so improve our customers’ experience. And we keep reevaluating ourselves on how consistently we do these things and ways to improve.

Our objective was never to be No. 1 in the country, but by focusing on these competitive strengths, we became No. 1. We’ll keep that focus in the future.


JCK

: Signet will invest $1 billion in Sterling over the next five years. Can you give some details?

ML: We are one year into a five-year plan to invest $1 billion in fixed and working capital to grow new store space. This will increase our stores by over 40 percent. Over the longer term, Sterling has the potential to double store space within the Kay, Jared, and regional brands. If you look at the amount being invested, though, and divide by the five-year period, it’s only slightly more, on an annual basis, than what we’ve done in the recent past.

JCK:
Where are the greatest opportunities for Sterling in the next couple of years?

ML: Kay, our national brand, had more than 825 stores as of December 2006. It has the potential to grow more than 40 percent in terms of store space over five years and more than 1,450 stores in the longer term. That includes some new formats, such as Kay Superstores in malls. Off-mall, we have real opportunities, too, for Kay. We plan more stores in open shopping centers, with up to 500 in the long term. We’re testing Kay stores in factory and mixed-use outlet centers and putting some more in metropolitan downtown areas.

Our regional brands have the potential to develop into a national chain of stores in malls. We’re testing those opportunities now with television advertising for some regional brands we converted to JB Robinson, specifically Marks & Morgan in Orlando, Fla., and Shaw’s Jewelers in Pittsburgh. But if it [a third national chain] happens, it will be in five or 10 years. We had 342 regional stores in December. There’s potential for about 700 under a single brand name.

Jared the Galleria of Jewelry, the superstore, is our primary vehicle for growth. We had nearly 130 in December, which is equivalent in space to about 550 of our mall stores. We believe in the longer term we’ll open over 150 additional Jareds.


JCK

: Why do you say Jared is Sterling’s “primary vehicle for growth” when Kay has more stores and total sales?

ML:One Jared is equal in space to four Kay stores, and its sales are growing at a faster rate than our other brands. Also, most of our increase in space in recent years is attributable to Jared.


JCK

:
Tell me about the Kay mall super-store being tested in 2006/07. Why do this when you have Jared?

ML:The specialty jewelry market—those stores in which fine jewelry represents over half its sales—is well over $28 billion, and the bulk is outside the malls. Jared is our main out-of-mall vehicle to reach customers there (though there are opportunities, too, for Kay).

But we want to make sure our brands in malls also offer a differentiation [from other chains] for the mall customer. We’re putting Kay superstores, which are up to 2,500 square feet, in center court in the country’s better malls and applying a lot of what we’ve learned from Jared—such as more selling space, an expanded assortment of loose diamonds, a Virtual Diamond Vault, an enhanced watch range, and karat gold and Leo Diamond boutiques—but at Kay price points. Kay superstores also have on-site jewelry repair workshops and are situated in highly productive locations.


JCK

: Why add Kay Outlet stores?

ML:Testing Kay in outlet centers gives us another opportunity to expand Kay’s presence and reach customers who are aware of the brand but who we don’t service with our other Kay locations. We have five now [as of December 2006]. Core merchandise pricing is consistent with the mall stores and supplemented by clearance stock. The policies are consistent with our Kay mall stores, too. These outlets let us leverage the Kay brand and national television advertising while improving absorption of central overhead.


JCK

: Why are you doing so much outside of regional malls, traditionally the sites for jewelry chain stores?

ML: The preponderance of Kay’s and Jared’s growth opportunities now are off-mall. Also, there aren’t as many malls being built anymore, so growth strategy will have to be outside them. It’s important to remember, too, that most specialty retail jewelers, most of them independents, are off-mall, and we compete in that environment, too.


JCK

: How is Kay.com doing? Are dot-coms planned for Jared or the regionals?

ML:We just started with e-commerce capability on our Kay Web site in early September, so it’s too early to give results. But it’s another extension of our Kay brand and the first time a national specialty retail jeweler has offered customers online purchasing with the choice of either secure shipping right to their home or business or free shipping of their jewelry purchase to a nearby Kay Jewelers for pickup. As for plans for the other brands, we’re not discussing that yet.


JCK

: Middle-class consumers can buy jewelry on the Internet, warehouse clubs, department stores, and mass merchants as well as jewelers, and Wal-Mart is the biggest U.S. retailer of jewelry overall. How does this affect the future of national specialty jewelers like Sterling and Zale?

ML:At Sterling, we view anyone selling jewelry as our competitor. So, we look at opportunities in our store and in the Internet environment. We try to leverage the competitive advantage of our size. We try to make sure our people are trained and focused on the customer’s experience, to differentiate us from mass merchants as well as other competitors.


JCK

: Can you give an example of that?

ML: Every one of our stores has at least one independently certified, trained “diamontologist” on staff—every store manager must be one—and often, there’s more than one. They graduate from a comprehensive correspondence course provided by the Diamond Council of America and often continue their professional development with further courses on gemstones. This provides our customers with an expert who can explain the value and quality of merchandise, and that’s significant. Consumer surveys say a key factor in jewelry purchases is the customer’s confidence in the sales associate. So, providing knowledgeable and responsive customer service is a priority and, for us, a key point of differentiation critical to success of the business.

All store team members also have set daily performance standards to which they commit.

We also believe retention and recruitment of highly qualified and well-trained staff for the home office is essential to supporting the stores. A comprehensive in-house curriculum at headquarters supplements specific job training and emphasizes the importance of the partnership between store and home-office teams.


JCK

: What are one or two important changes in U.S. consumers that you see affecting your merchandise and marketing over the next couple of years?

ML:One is that the enclosed-mall consumer is doing more shopping off-mall. Another is more customer demand for higher-value merchandise, so in our Jared stores, for example, we’ve expanded our luxury Swiss timepiece selections. We’ve also expanded customers’ access to diamonds with our Virtual Diamond Vault, now in all Jareds (and some Kay stores). It gives customers direct online access to a supplier’s inventory of loose diamonds by way of our in-store computer. If we don’t have the specific stone size or shape a customer wants in the store, we go right to the computer with them to our Virtual Vault to identify and order it. This online assortment is an exclusive to Sterling.

Other examples of our reacting to customer demand for high-value merchandise is expansion of the Leo Diamond range in Kay stores and our Peerless Diamond program in Jared stores. The Peerless Diamond comes with two certificates—one from AGS and one from GemEx.


JCK

: What are some major differences between Kay and other chains?

ML: Our people. Our Sterling team members across the country and in our home office are the major differentiation from our competitors. They consistently execute our corporate strategies and focus on delivering uncompromising customer service. They continuously improve our marketing and advertising, and merchandise assortments, to be the best in the industry. They’ll continue to lead our growth in the future.