On Aug. 9, Signet CEO Gina Drosos (pictured) spoke with JCK about her company’s decision to acquire Blue Nile. Here, she discusses what attracted to her Signet’s longtime e-rival, her plans for it, and where it fits in her company’s ever-expanding portfolio.
What is the strategic rationale for this purchase?
Almost a year and a half ago, we had an inventor day that announced phase two of our transformation, the “Inspiring Brilliance” strategy. We had four “where to plays” that, we thought, if we invested disproportionate effort, we could deliver great value to our shareholders and great value to our customers.
Those were: winning in big businesses, especially bridal; leading digital commerce; accelerating our growth in services [i.e., ear piercing, jewelry repair]; and expanding the mid-market in which we play.
Blue Nile really checks three of those boxes, and we think the fourth one [services] is one we can bring to Blue Nile. We have done extensive research. They are very strong in the bridal business. They have the number one awareness [among online jewelry retailers]. They have very strong brand equity. They are considered by customers to offer good value. They are an authority in bridal jewelry. So they are great fit from that standpoint.
They have 21 showrooms across the country, which is a really interesting concept. It’s a low-inventory presentation kind of a concept. So I’m excited to learn more about that.
We have been differentiating our banner portfolio. It used to be that Kay and Zales and Jared were too much on top of each other and competing with each other. We have distinguished those banners and we have tiered up Jared into the accessible luxury space. We have James Allen in that space, and for the last eight months, [we have owned] Diamonds Direct in that space.
Blue Nile will fit at the top at our price point tier, so they bring us even more fully into accessible luxury. We think it’s that breadth that’s really helpful to us, when we think about lifetime value, attracting consumers into our company, and really being able to leverage our marketing funnel to make sure that we serve them in the best possible way.
Blue Nile and James Allen have traditionally considered each other competitors. It took a while to differentiate Kay and Zales. How are you going to differentiate Blue Nile from James Allen, as well as your other “accessible luxury” banners, Jared and Diamonds Direct?
We really go straight to the consumer to answer that question. What we see in Blue Nile is they have a younger, more affluent customer than our other Signet banners. We think that’s distinct. They are positioned in a different way. Blue Nile has done a great job in creating transparency in jewelry purchases for customers. That’s something Signet believes in as well. They have that as part of their brand equity.
Jewelry is a big category. It does $70 billion [annually]. Signet is at almost $8 billion. We have only about a 9% share of the total jewelry category. [After purchasing Blue Nile,] we will still only be at 10%. There is really 90% opportunity for us to distinguish our banners to attract different customers. I think what you’ve heard me say very consistently is we think that our scale gives us innovation power so we can actually grow the jewelry category and create a bigger pie for all of us.
Can you help me understand the timeline? Blue Nile filed to go public on June 12. Signet’s statement said that 30 days have passed since its initial regulatory filing, which means it must have been filed in early July, or around three weeks after Blue Nile’s filing. Were there two simultaneous processes going on?
We have had the opportunity to do a good amount of diligence, but I will say we used our agility and knowledge of the industry to make that an expedited process, given that [Blue Nile] was considering multiple alternatives.
Going forward, will Blue Nile retain its current management and stay in Seattle?
There’s more that we can’t talk about than we can. Because the deal hasn’t closed yet, I can’t talk about specifics on how we intend to run the company. The truth is, I don’t know yet. We need to get to know each other a bit better and see how “the best of the best” approach that we like to take really comes to life.
Blue Nile has not carried lab-grown diamonds, except for Lightbox. Do you think that it will now?
I don’t know yet. That’s something I’ll need to discuss with [CEO] Sean [Kell] and the Blue Nile team and make that decision together. What we try to do is, across the banner portfolio, offer choice for customers. But I don’t know if this will be a good fit or not.
What I do expect we can help Blue Nile with is one of the things I talked about, which is services. We have seen that is a great growth engine for our business, and we have a great cadre of jewelers across the country. So bringing more services to Blue Nile will be an opportunity.
Blue Nile has expanded its number of showrooms. Do you expect to continue that?
It’s definitely something I’m excited to learn about. And if it’s successful, I definitely want to continue with it. What it fits with is our connected commerce strategy. In our Signet business, about two-thirds of our customers start their journey with us online, even though 80% of them end up buying in store. What Blue Nile is testing is connected commerce: customers starting online but potentially wanting an in-person experience. The locations that they have chosen, and the way that they are managing the inventory, is very smart. I’m really looking forward to understanding more about that.
Anything else we should know about both your purchase, and the drop you announced in your fiscal year guidance?
Both the acquisition and the financial guidance are evidence of the balance sheet and operational turnaround that we’ve had at Signet. Our new guidance represents 25% revenue growth, versus pre-COVID, which is still very, very strong performance. We took a modest [guidance] reduction, purely based on what we’re seeing as challenges for customers right now. But even in that context, we are able to deliver double-digit operating margins because of the structural improvements we’ve made in our business. That’s the same thing that gives us [the ability] to invest in all our banners, as well as make acquisitions, even in a market that’s more challenged.
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