Now that Zales and Kay share the same owner, how to differentiate the two brands is a “big question,” Signet executives admitted on a recent conference call.
“We’re working very diligently to preserve the identities of both Kay and Zales,” CEO Michael Barnes said in a conference call following the release of Signet’s financial results, according to a company transcript. “We do want to have very strong brand identities for both brands.”
He noted the company had recruited an unnamed third-party consultant to conduct brand and marketing studies and determine how the two brands should differ. But he added the “the [customer] crossover is less than I would have expected certainly if I had taken a guess years ago—about 55 percent.”
President and chief operating officer Mark Light admitted that both brands do “the same thing … they sell jewelry to the middle market sector.”
“We’re also going to look at some other companies that have the separate brands with separate divisions,” he added. “So we’re going to be very thoughtful and methodical on what we do with this. It is a big question not only to our customers but to our people.”
But the company is also blurring the boundaries somewhat, by testing a new program that will have 50 Kay stores selling items from Zales’ Vera Wang line, and 50 Zale’s stores carrying the Neil Lane and LeVian brands.
In addition, Zales’ Canada stores will now sell Signet brands like Jane Seymour Open Hearts, LeVian, and Neil Lane.
Executives were generally upbeat about the Zale acquisition, predicting it will now lead to $150 million to $175 million in synergies, more than the previously announced $100 million.
“I know we’re going to run into some headwinds along the way and there is going to be issues to deal with,” Barnes said. “But you know what, we have got the most collaborative experienced management team that I could ever hope for working on this.”
“The people have just got this great energy and this great excitement about moving forward and taking this thing into the future,” he added. “I think that when we put our collective knowledge together that it just going to be explosive.”
Light said that Zales’ employees used to look at Kay stores and see “investments in technology, investments in additional brands, investments in advertising, investments in merchandising assortment. Now they’re excited about the opportunities going forward, they have Signet’s investments in those parts of the business that they haven’t had for years.”
Signet’s latest financial results were the first to include results from Zale, whose acquisition was finalized in June. The Zale division posted a 0.9 percent comp decline for the quarter, while other Signet brands like Kay and Jared posted strong gains (8.1 percent and 4.9 percent, respectively.)
“I would say there’s been some distraction in the Zale business,” Barnes said. “They still were accretive to us in the quarter—slightly accretive.”
Light added that while the Zale division’s sales may have fallen, its margins improved.
Barnes said that the company had already begun integrating the two companies’ sourcing.
“There is no secret in the fact that our terms have been substantially higher than Zale terms in the past,” he said. “We intend to close that gap it’s going to take some time.”
The company also announced its diamond sourcing initiative—which involves buying and cutting its own stones from suppliers like Rio Tinto—now accounts for 10 percent of its diamond procurement.