As you can see from the comments on this post, the trade has been skittish about Zale for some time. But its announcement last week that same store sales fell 18.6% in November has kicked those fears into higher gear.

A couple of thoughts:

-         When I speak to people, most are surprised about the size of the drop. On Zale’s November 24 conference call, CEO Neal Goldberg repeatedly said he was “cautiously optimistic” and that “each month reflected improvement over the prior month.” Another executive said “momentum was strong.” People who talked to Zale executives said they were all very confident. So sales must have really tanked after Thanksgiving.

-         Goldberg noted on that call: “Last year we took our margins down quite a bit and we didn’t see a corresponding rise in sales.” This year, they moved margins up, and sales still fell. It’s not clear what they do now. But with consumers still looking for lower price points, they may have to reconsider their margin strategy.

-         The company says its marketing budget is “comparable” to 2008’s, but it is now stressing “digital marketing.” That is something I’ve noticed – since many of my searches involve “diamonds” and “jewelry,” I consistently see Zale ads on my computer. I also saw a Zale ad recently before a movie. Where I don’t see them as much this year is on television. “[We will] no longer saturate TV,” Goldberg said.

I’m of two minds about this. Every holiday, we are inundated by sentimental jewelry ads on TV. Now obviously this formula works, but the monotony of it all is wearying.  So it’s good that Zale is trying something different.

On the other hand, these are still tough times. Goldberg told an analyst that this new strategy was “tested,” but, given that Zale is in dire need of good news, some of my sources have questioned whether the company should be making a major change in marketing strategy like this, at the most important time of the year.

-         Zale did get something of an unexpected publicity boost recently, when Tiger Woods (reportedly) told a friend that he may “have to run to Zales to get a ‘Kobe Special,’” which he defined as a “house on a finger.” Now he is unlikely to find such a ring at an actual Zale. But it just goes to show how strongly the name “Zale” is equated with “jewelry” in the consumer mind, even among people who likely haven’t shopped at Zale’s in ages.  So, for all its problems, people should remember that the Zale brand still has considerable power and potential.

-         Zale isn’t the only retailer to have lousy November comps; so did Saks (another great name). On the other hand, Blue Nile said it had a great Thanksgiving weekend.

Most forecasters think the overall holiday will be flat. But it looks like, within that, there may be wide variations. This isn’t shaping up as a holiday where most everyone does well, or one like last year, where everyone does terrible. This could be a holiday with clear winners and losers. Everyone who cares about this trade hopes Zale will land in the first category.  There is still time for that to happen, and Zale executives are smart people who clearly care about their company and have made a lot of clever moves. But for now, this ever-nervous trade is getting nervous-er.

Rob Bates

JCK News Director