Considering Signet Jewelers’ stock has been battered all year, yesterday was a good day. After a year of declining comps, it announced that same-store sales rose 1.4 percent in its second quarter. While that wouldn’t ordinarily be cause to pop corks on the champagne, it sure beats the past quarter’s 11 percent decrease. Wall Street was heartened. But perhaps more importantly, Signet bought R2Net, the owner of up-and-coming e-tailer James Allen. Wall Street liked that too. Signet’s stock soared 17 percent yesterday, though it’s still down significantly for the year.
Signet’s purchase of James Allen falls into a recent pattern of legacy companies nabbing e-tail upstarts. Think of Walmart scooping up Jet.com. And Walmart buying Bonobos. Avis buying Zipcar. Unilever buying Dollar Shave Club. And so on.
This is Signet’s third major acquisition in the last five years, following its purchases of Zale Corp. and Ultra Stores. As when Signet bought outlet specialists Ultra, this purchase seems smart because it gives Signet expertise in an area where there’s room for improvement—and e-commerce is, needless to say, a quite important area.
Talking about the acquisition on a conference call yesterday, CEO Gina Drosos continually referenced James Allen’s technology, particularly the way it images diamonds. (In 2015, R2Net bought Segoma, an Israeli imaging startup.) But just as potent may be James Allen’s success reaching millennials, the demographic that’s posed problems for Signet and the industry as a whole. (Speaking of which, I hope James Allen continues to do its own advertising.)
For all the plusses here, the purchase does pose some pitfalls. For one, James Allen’s diamond prices are significantly lower than Jared’s (its roots include a company named DirtCheapDiamonds). Signet may face a balancing act with two different divisions charging different prices for the same products—especially if, as Drosos said yesterday, there are plans to station James Allen boutiques in Signet stores.
The acquisition also means that Signet now has five major brands under its belt: Kay, Jared, Zales, Piercing Pagoda, and James Allen. Plus there’s Gordon’s, the regional nameplates, and four brands outside the U.S. That’s a lot to juggle—and in the last year, Signet hasn’t done such a great job of it.
Finally, let’s talk Blue Nile. Despite its anemic growth of late, Blue Nile’s sales are still more than twice that of James Allen’s. It can’t be happy that its main competitor is now far better funded. But this takeover will likely mean that James Allen will have to charge sales tax in all U.S. jurisdictions (Signet wouldn’t comment on this issue until the acquisition closes). So Blue Nile now has an advantage on that front, at least until the law changes.
Overall, though, most of my industry sources thought this purchase was a smart move—for both companies. Over the last year, much of the old Signet has been dismantled. We are now seeing the outlines of the new one.