The New Landscape Following the Signet-Zale Merger

Some thoughts about where the jewelry business stands now that Signet and Zale are tying the knot:

It could be harder for competitors to get their names out. Every Christmas and Valentine’s Day, Signet runs a huge amount of commercials for Kay and Jared. Zale’s also airs plenty of ads but not as many as Signet. Now, Zale’s could have the same ad budget as Signet’s other brands. And with Kay, Jared, and Zale’s flooding the airwaves every holiday, that presents a challenge for other jewelers to make an impression.

That said, jewelry advertising cries out for a fresh approach, and the retailers offering that might be able to break through the clutter.

We could see more vertical integration. In the last few years, Signet has made some tentative steps toward vertical integration by sourcing rough diamonds directly. With the company poised to become one of the largest buyers of polished diamonds in the world, direct sourcing will help them nail down supply at competitive prices. And it could spur competitors to do the same.

Among other chains, Samuels is already vertically integrated, as it’s owned by Indian manufacturer Gitanjali. But perhaps the retailers to watch are Helzberg and Ben Bridge, both part of Berkshire-Hathaway, which also owns jewelry manufacturer Richline. Berkshire has traditionally kept its businesses separate, and that structure has seemingly benefited all involved. But up against such an overwhelming competitor, it could be time for the Berkshire’s disparate jewelry operations to start working a little closer. (There’s a precedent for the different cogs of Berkshire joining forces: For the last few years, Helzberg has done a commercial with Geico.)

Two likely areas of growth for Signet: online and outlets. Signet is the No. 1 jeweler in America and in the United Kingdom. It will soon be the leading jeweler in Canada. But in what area does Signet compete where it’s not No. 1? Online.

Following the merger, Signet will do close to $300 million in e-business a year—making it a huge online player, but it will still trail Blue Nile, which does $450 million. But there could be opportunity, according to Internet Retailer:

Though Zale and Signet do not lead in online sales, they dominate Top 500 rivals in attracting monthly unique visitors. According to, that number stands at 3 million for Signet and 2.8 million for Zale—way ahead of the third-place company, Tiffany, at nearly 730,000.… Jewelry Television (No. 185 in the Top 500) is next up, with nearly 700,000 monthly unique visitors. Blue Nile had about 646,000.

For the last few years, Signet’s e-sales have seen huge growth, with a 23 percent jump over the holiday. By contrast, Blue Nile’s sales jumped 7 percent in the fourth quarter (holiday sales weren’t broken out). Earlier this year, Signet CEO Michael Barnes said: “We want to be best in class, not just in e-com, but in the digital ecosystem.” Following this merger, that looks a lot more possible.

Then there are outlets. Both Zale’s and Kay have outlet chains. (Post-merger, Zale’s Outlet will still be run by the Zale division and based in Dallas.) During my interview with Barnes last week, chief financial officer Ronald Ristau told me the company considers jewelry “under-penetrated” in the outlet space, and it sees tremendous opportunity there.

But under whose nameplate will these new outlets go—Zale’s or Kay’s? Could they end up competing for the same space? These are delicate questions the company must work out. All of which shows…

Signet needs to proceed very carefully. To read about the decidedly mixed history of jewelry acquisitions, I recommend “The Dark Side of Consolidation,” a 2006 JCK article by the late Glen Beres. Here’s the gist:

Participants and proponents of consolidation point to benefits such as economies of scale, enhanced efficiencies, accelerated growth, and expanded business opportunities as the rationale behind the moves.

But challenges—including corporate culture clashes, competing executive egos, training gaps, incompatible technology/operational systems, brand/identity dilution, loss of autonomy and control for the acquired company, financial and legal issues, bad leases, problematic retailer-vendor partnerships—can arise from consolidation and stymie prospective advantages. Many of these are “soft” issues that due diligence may not reveal; yet they’re critical factors that companies considering an alliance should weigh carefully.

Now, Signet has had more experience with acquisitions than most companies in our industry, except maybe Richline. But this is a big one, and Zale was not seeking a savior, but considers itself successful.

As Steven Kaiser says in that piece:

“A lot of things that sound good in the boardroom are very different in practice, such as dealing with the ‘people part’ of a merger or alliance. The key to evaluating the success of a merger is to determine whether you have truly increased your business or whether you have spent so much time on integration issues that it has taken the focus away from your core business.”

The article also contains a quote from one Terry Burman, then-CEO of Signet, now chairman of Zale:

“[H]ow you handle the cultural issue is critical,” Burman says. “You can always retrain the people, but you have to approach them with sensitivity and an open mind. You need to try to accommodate them in terms of benefits and compensation. It’s in your best interests to retain as many of the acquired company’s people as possible.”

Clearly, Signet has a lot to consider going forward. There’s an old saying: “Challenge equals opportunity.” But that also works in reverse. This acquisition presents huge opportunities for Signet. And some challenges, too.

JCK News Director