Get ready, America. Jared is coming.
Sterling Inc., the second largest retail jeweler in the United States, is projecting that “several hundred” of its superstores, “Jared – The Galleria of Jewelry,” will open in 100 markets nationwide in the decade ahead. Ten will open this year. Currently, there are seven Jareds (in Akron, Ohio, Sterling’s home base; Denver, Las Vegas and Orlando).
Terry Burman, Sterling chairman and chief executive officer, says, “This, potentially, is our expansion vehicle” for Sterling and a major contributor to growth of the Signet Group, Sterling’s London-based parent firm, for the next several years.
Sterling has 757 other stores; 499 are Kay Jewelers, its national chain, while 258 are stores in regional chains. The company plans to open an average of 25 new stores a year and grow through acquisition of “groups” of jewelry stores, says Burman. “Our greatest growth is expected from Jared,” he says.
Some analysts agree. Thus an April report from the New York investment firm of Lazard Frères & Co. said the expansion of the Jared superstore concept has the potential to generate “$1 billion in revenues over the next 10 years,” based on at least 150 stores.
Details of the Jared plans came during U.S. meetings in April at which officials of Signet – the world’s largest retail jeweler – presented results for fiscal 1998 to institutional investors and financial analysts.
Profits. Signet posted pretax profits of $113 million (up 52%) for the fiscal year ended Jan. 31 on sales of $1.5 billion. This was its third consecutive year of growth in profits. Overall, comparable store sales for Signet rose 6.4% in fiscal 1997 and 6.9% in fiscal 1998. Signet operates 1,374 stores, 774 of them in the United States. Zale Corp., the largest U.S. jeweler, has 1,095 stores.
Almost two-thirds of Signet’s fiscal 1998 sales ($950 million, up 9%) came from Sterling, its wholly owned U.S. subsidiary. Sterling averaged $1.2 million in sales per store (up from $1.1 million in fiscal 1997), say Signet officials, compared with $1.1 million for Zale Corp. Sterling’s Christmas 1997 business was up 11.9%.
The new fiscal year is off to what Signet officials call “an encouraging start,” thanks to a strong Valentine’s Day showing by Sterling and by Signet’s U.K. chains, Ernest Jones and H Samuels.
All this marks a significant turn-around for Signet from six years ago, when it was $183 million in debt after years of aggressive acquisitions. Veteran British apparel executive James McAdam was brought in then to replace former chairman Gerald Ratner and save the company.
Between 1992 and 1997, Signet closed 800 stores (most in the United Kingdom), trimmed costs by $200 million, reduced its debt-to-capital ratio to 33%, installed a new management team, changed its name (from Ratners to Signet) and altered its selling strategies to follow those of its profitable American operations. In 1997, a voluntary three-year, $360 million financing program was added and Signet’s shareholders approved a capital reorganization.
Different business. “This is a very different business than the one I joined six years ago,” McAdam tells JCK. “It has been totally transformed and is now committed to its one product – jewelry – and to being dominant in our two markets, in America and Great Britain.” (Sterling controls 18% of the United Kingdom’s $3.3 billion market. In the U.S., it has 5%, or $950 million, of a $41 billion jewelry market, trailing Zale’s 6%, or $1.3 billion.)
McAdam says he has no plans to move Signet’s headquarters to the United States or open stores in other countries, as suggested by some analysts. Nor are there bids to buy the company, as was rumored on the London stock exchange earlier this year. (Signet did put its entire U.K. business up for sale in 1996, but received no satisfactory offers.)
What Signet is doing, McAdam says, is “raising our profile to get back on investors’ radar screens again.” That was a major reason for the April meetings by top officials of Sterling and Signet, which had done little in recent years to tell the company’s story to U.S. investors. (Some institutional investors in America also soured on Signet in the ’90s when it stopped paying dividends, creating a debt of millions of dollars. That debt was erased in 1997’s capital restructuring. There was no dividend, again, for the fiscal year just ended.)
Some financial analysts and investors apparently are noticing Signet’s radar blip. Its share price rose this spring, and the April 16 meeting at Rockefeller Center in New York City was crowded, unusual for a typical fiscal results session, according to some attendees. Lazard Frères & Co. issued a “buy” recommendation to its clients, noting Signet’s “strong recovery [is] largely complete.” It projects 15% annual earnings growth for Signet over the next several years, based on refurbishing of Signet’s U.K. stores, expansion of Sterling’s Kay stores into the South and West and the aggressive roll-out of Sterling’s Jared stores over the next several years.
Jared concept. The Jared stores were launched in late 1993 by former Sterling chairman Nat Light, but the concept was put on hold in 1995 while Signet remade itself and Sterling went through some management changes, including the appointment of Burman as its chairman. Now, Jared has the full support of Sterling and Signet, especially since existing stores are “exceeding their pro forma sales and profit goals,” says Burman.
The Jared concept capitalizes on several trends, including an increase in “destination” (specific purchase) shopping by consumers, a decline of Mom-and-Pop jewelers in smaller markets and the significant growth of “category killer” superstores (offering all services and products of a single category, such as books or jewelry, in one store). “When people think of their jewelry needs [in coming years], we want them to think of Jared,” says Burman.
Jared stores are free-standing and located near malls. They measure about 5,800 sq. ft. (almost half the size of the original stores) and are approximately five times bigger in size, inventory and average sales than mall jewelry stores.
Jared customers, Burman says, tend to be “more mature and better educated,” and while he declines to give a figure, he notes that “the average Jared sale is twice that in a normal jewelry store.” In addition, he says, there is no significant competitive overlap between Jared and Sterling’s Kay and regional chain stores. “There are different demo- and psychographics involved,” he notes. “The destination shopper goes out to make a [specific] purchase, while mall shoppers go to browse and may not know what they will buy before they get there.”
Markets. Start-up costs for a Jared store are about $3.5 million ($2 million for inventory, the rest divided between receivables and capital investment). First-year sales per store are estimated at $3.6 million, with a projected rise to about $6 million after five years.
Sterling has identified more than 100 markets nationwide (including Dallas and Atlanta) as potential sites for Jared. Most of those markets could sustain two to three Jared stores, Burman says, meaning that “over time we could be looking at 200 to 300 stores.”
A major step toward that future came earlier this year when Sterling chose Captec Net Lease Realty of Ann Arbor, Mich., as national developer of its Jared stores. The agreement calls for $15 million in property acquisitions annually by Captec on Sterling’s behalf. (Captec, a real estate investment trust that invests in long-term, leased retail properties, will acquire and develop sites and lease them back to Sterling on a long-term basis.)
At this point, Sterling is the only major retail jeweler in the U.S. actively adding and promoting superstores. (Helzberg Diamonds, the only other major superstore jeweler, recently changed the name of all its free-standing Jewelry3 stores to Helzberg, to capitalize on success of the Helzberg name and eliminate overlap between its mall and free-standing stores.) Indeed, notes Patrick L. Beach, chairman, president and chief executive officer of Captec, “Sterling is in the forefront of a trend among specialty retailers, many of whom are expanding to larger, free-standing locations.”
Expanding. Meanwhile, Sterling is expanding other parts of its retail operations.
It has identified 100 malls in the Southwest and Southeast for expansion of its national Kay Jewelers and regional chains. In 1997, 48 regional stores were converted to Kay, but Burman says only a few more such changeovers are scheduled among its regional chains.
Sterling is “looking for real estate opportunities to make group acquisitions” of jewelry stores within selected areas from other chains that might be closing or downsizing.
Advertising and marketing have been refined to focus on key selling periods – especially Valentine’s Day, Mother’s Day and Christmas – that “more closely reflect customer buying habits,” says Burman.
Sterling has shifted its primary ad vehicle from print to national TV (with Zale the only other jeweler able to compete at that level). It supports its regional chains with radio ads, direct mail and catalogs.
Core merchandise continues to be upgraded, through improved assortments, new and exclusive jewelry designs and closer ties with suppliers. There is strong emphasis on staff training and customer service. About 25% of the Sterling stores have on-site jewelry repairs, and there is a gemscope in every store to aid in sales presentations.