This week, I traveled to Akron, Ohio, to see the Signet headquarters first-hand and talk with CEO Michael Barnes. As you can imagine, Signet is a formidable operation, and visiting it was eye-opening and fascinating in a lot of ways. I’ll have a full report in JCK’s June issue. For now, here are some excerpts from my talk with Mr. Barnes, with more to come in June:
What are you focused on for the next few years?
When I came into this role, fortunately, I was not inheriting a turnaround situation. It was what I would term a sustaining success situation… What we needed to do is to have an evolution of the business model—not a revolution, but a strong evolution. I could see areas where we had to focus more, where we had bigger opportunities, more opportunities.
For instance, the branded merchandise. They had started into branding before I got here. The Leo diamond was our first branded diamond. It’s been around for a little over 12 years now. Other than that, most of the strong brands are still in early innings: Jane Seymour Open Hearts, Neil Lane Bridal, Tolkowsky Ideal Cut diamonds. I’ve spent most of my career in branding, and I saw the value when I came here of this evolution into branding. It’s a way to differentiate ourselves from so many competitors out there.
You can go into any jeweler in America and you can buy diamond jewelry, non-branded diamond jewelry. But you can’t buy Jane Seymour Open Hearts or Neil Lane bridal, or a Tolkowsky Ideal Cut diamond… It also eliminates the problem many retailers have with showrooming. You can’t go elsewhere and buy branded merchandise if it’s exclusive to us. So that is something else that really helps our business long-term.
Another area where I see fantastic opportunity is in digital. We look at this as a digital eco-system—not just e-commerce, because we believe it’s all the parts working together with e-commerce, social media, blogs. Even technology within our stores has been very important to us, and we launched that in a major way last year. Each store now has two touch-screen devices that our associates and store managers can use to work with our customers.
Do just Kay and Jared have e-commerce sites, or do the regional brands have them, too?
The regional brands do not have sites right now. Our focus really is Kay and Jared right now. Our regional stores, we have a couple of hundred of those at this time, and a lot of those are great stores with long historical regional presences, and the people that we have in those stores are fantastic. They get the same training, they are all basically managed exactly the same way, with the same merchandise, they just don’t have the advantage of the national advertising that we have with Kay and Jared. But there are still some great stores out there.
Do you see a future for the regional stores? Last year, Signet shut about 10 percent of them.
What we are doing, and we do this with our entire portfolio, as leases come up for renewal, we look at the return on investment that we have within those stores, and the profitability that they drive. If it’s the right thing to do, if it’s appropriate, we renew the lease. If it’s not the right thing to do from a profitability standpoint, then we wouldn’t renew the lease, regardless of the brand. The regional stores have gone down in the number of doors over the last number of years as the result of that ongoing review that we do.
How is the purchase of Ultra progressing?
We finished the year with Ultra with 110 stores. And you add to that the 34 doors we have with Kay in the outlet malls, it was a great acquisition for Signet. It immediately moved us up into a leadership position, in a channel of distribution that we should be a leader in. It put us equal to the next player in the outlet malls with about the same number of doors.
The other thing that Ultra brings to the party is, they have a tremendous amount of experience in operating outlet stores. That’s a slightly different customer for us, and in some ways it’s a new customer. There are ways to optimize that channel that will add to the productivity—which is currently good—that we have in the [Kay] outlet stores. We are very pleased with the acquisition and the transition is going very well and is on target. Most of the stores will be transitioned by mid-year.
Would you be interested in any other acquisitions?
I’m pretty consistent with this. People talk about an open to buy, I think everybody should have an open to talk. I believe that we need to remain open and opportunistic. If another great opportunity presents itself and after careful and thoughtful analysis, it happens to be the right thing to do, just like [Ultra] was, then we should certain consider doing other acquisitions in the future.
There is always talk that Signet might merge with Zale. Could that really happen?
That would be something else, wouldn’t it? I couldn’t really address a question like that. The best thing to say is, we would be open, opportunistic, and always willing to talk if something looks like it is worth considering.
There were also reports that you might sell the British business.
I generally don’t comment on rumors that might come out. It is just kind of a no-win situation to go down that path. We believe that our U.K. business continues to be a core asset for us. Even with the fact that it hasn’t performed at the levels that it has in the past, if you look at the environment they are working in, and how some other retailers are doing there, it’s pretty good. We still have a strong operating income, we still run positive cash flows in the business, and we have the No. 1 market share in that market. That continues to be a very important business for us.
Would you be interested into other countries besides the U.S and the U.K.?
When I say we are open to opportunities out there, that goes within the countries that we are in right now—the U.S. and the U.K.—and outside of countries that we are in right now. If there is an opportunity for an expansion of our business into new geographies, we need to be thinking about that, and considering that.
There is talk that your rough diamond sourcing initiative may try for a De Beers sight.
If there is an opportunity for us to gain access to quantities of diamonds that are appropriate for Signet, then we certainly want to talk those groups and those companies and we want to build great, long-lasting relationships with them. Including De Beers.
Some have said you are making Signet more aggressive than it has been in the past.
Signet is a very successful company. The store brands have done fantastic, and we continue to drive a leading business in this industry. But there is so much more we can do. And we need to be more aggressive. We need to make sure that we are not too inward-looking. We need to look at the opportunities. We need to open our minds to experiences and innovations that maybe weren’t there four or five or six years ago.