Is Zale in For More Turmoil?

This could be big news … Breeden Capital Management – an “activist” investment fund headed by a former SEC chairman — has just purchased 7.7% of Zale, after having “discussions” with the company about its direction. Here is what has to say about the folks at Breeden:

Zale, which has a $1.1 billion stock market capitalization, fits into the midcapitalization category of companies Breeden prefers to target with his activist endeavors. Breeden, who did not return calls, succeeded at gaining an overwhelming 82% of investor support in August to put himself and two other nominees onto the board of another midcapitalization company, troubled tax preparer H&R Block Inc. Before that, in July, Applebee’s International Inc. agreed to be sold to IHOP Inc. and two investors for $2.1 billion after a three-month campaign by Breeden to have the company sold.


Hmm. On the one hand, everyone agrees that Zale, one of the great names in our industry, should be doing better than it is. One the other, one of the raps against Zale in the industry is a lack of focus: People think there is too much turnover in the executive suites (which is continuing), and too many changes in strategy. Does the company really need an “activist” shareholder meddling in its affairs, and possibly changing its direction again?

As it is, Zale is now headed by Betsy Burton, a “retail turnaround” specialist. I just listened to a presentation Burton gave at a Goldman Sachs conference (bottom of page); she is certainly bright and on top of details, but she has also sold CDs one year, and jewelry the next. No offense to Burton, but I have heard people in the industry wonder if she has the passion one needs to be a great jewelry retailer. (While no one would doubt the commitment of, say, Terry Burman, or the people at Tiffany’s.)

Anyway, at that conference, Burton said this:


What we underestimated [last year] is the importance of the customer experience … All the research we have done screams there are levels of dissatisfaction with the customer experience. … The most important thing to our customer is a knowledgeable and friendly sales associate.


So the largest chain in the U.S. is just discovering the importance of customer service in selling jewelry. Is it just me, or is there something a little sad about that?

Anyway, here is an interesting analysis of the Breeden purchase, which says that Zale is likely to sell both Piercing Pagoda and Bailey Banks and Biddle. (Both are rumored in the industry.)

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