Three Who Came Back

Bankruptcy is supposed to be bad for a business.

Yet some jewelers say bankruptcy reorganization was the best thing that could have happened to them. Samuel J. Merksamer, president of Merksamer Jewelers, even suggests that those who haven’t gone through one may have a competitive disadvantage in the 1990s. “Those of us who have downsized and reorganized are leaner and more focused” on customers, business and profitability, he says.

Certainly no one advocates bankruptcy restructuring as standard operating procedure. But any jeweler can benefit by imitating the requirements of bankruptcy reorganization – taking a hard look at operations and costs in order to cut deadwood and fat, upgrade systems and modify marketing to stay profitable.

Glennpeter Jewelers on the East Coast and Barry’s Jewelers and Merksamer Jewelers on the West Coast are examples of businesses that were forced to reevaluate their entire operations – including information systems, management, marketing strategies, credit, staff training and inventory control – because of bankruptcy reorganization. Here is how each emerged stronger as a result.


Headquarters: Monrovia, Cal.

Size: 162 stores in 16 states.

Annual sales volume: $135 million (fiscal 1995, estimated).

Barry’s Jewelers, the fourth-largest U.S. jeweler, has been a successful retailer for four decades. Yet it took a major restructuring to “make us a better business” and one that can thrive in the competitive 1990s market, says President Terry L. Burman. “It completely changed our organization.”

Founded in 1956, Barry’s was one of the fastest growing U.S. jewelry chains in the 1980s. Between 1982 and 1990, Barry’s grew from 52 stores to 228, thanks in part to the acquisition of Zale Corp.’s southwest Mission Jewelers.

Sales increased not only because of additional stores, but also because of easy credit. But in 1991, Barry’s hit a financial brick wall. Recession and dismal holiday sales, high customer credit delinquencies and some operational problems from expansion created what Barry’s called a “deterioration” in its financial condition.

Working with bankers and bondholders, Barry’s spent much of 1991 on a plan to restructure debt and operations, which included tightening margins and closing almost 70 unprofitable or overlapping stores. The company filed the restructuring plan and a petition for bankruptcy reorganization (in order to implement the plan) in federal court. Within four months, banks, bondholders and the court approved the plan and Barry’s exited from bankruptcy protection.

The plan gave bondholders control of the company, converted $100 million of bank obligations to a new loan and a line of credit, and provided for full payment of claims by trade creditors. Burman says the last point was vital since “in an industry based on faith and relationships, we want Barry’s to continue being viewed as a valuable partner.”

Wide-reaching changes: But it wasn’t enough just to fix the balance sheet and leave everything else in place. “How did we know they wouldn’t melt down again?” asks Burman. As a result, every aspect of operations has been overhauled.

For example, a virtually all-new and expanded senior management team was installed. The team includes new chiefs in operations, finance and credit from other leading retailers such as Tiffany, Gordon Jewelry, Kay and Gumps. It also includes vice presidents to oversee store operations, loss prevention, real estate and training. “We didn’t have the depth of management prior to the restructuring that we have now,” says Burman, who was named chief executive officer in 1993. “Now we have in place a good management team capable of continually refining our strategy to react to market situations and opportunities.”

The restructuring also resulted in centralization of operations. Previously, individual stores did credit approvals and collections, bought some merchandise, created their own displays and arranged their own advertising. Now all credit, merchandising and marketing functions for all stores are handled at headquarters, with input from store and district managers. This reduced expenses and placed the stores’ focus on sales and service, says Burman.

Senior executives visit stores more often (Burman travels 15%-20% of the year, Senior Vice President Robert Bridel up to 30% and regional vice presidents up to 50%). They used to visit stores to direct operations; now they do so to review operations and get suggestions.

Credit & sales strategy: Barry’s employs 225 people at headquarters, 125 of them in the credit department (up from 14 before the restructuring). Most credit-department employees handle collections, using upgraded computerized credit management systems that improved collection rates and allow almost instantaneous credit approvals for qualified applicants. “Centralizing credit enabled us to con centrate on collection efforts to stop problems now, instead of scratching our heads afterward,” says Burman.

In-house credit remains a big part of Barry’s business (63% vs. 70% before restructuring), “But we have become a market-driven retailer, with credit as part of our marketing package to enhance sales opportunities rather than our former strategy of pushing credit,” says Burman. “In the ’80s, we said, ‘Buy because we have credit available.’ In the ’90s, you can’t do that. Customers want the right item, at the right competitive price and assurance of good before- and after-sale service.”

This change in marketing strategy also affected the merchandise mix sightly. Diamond and gemstone jewelry comprise 66% of net sales (up from 64% two years ago) while watches are 7% (down from 9%). The rest of the mix is virtually unchanged: gold jewelry at 15%, non-diamond rings at 5% and giftware, repairs and miscellaneous at 7%.

Computers & training: Since 1992, Barry’s has invested heavily to upgrade its information systems and train staff.

State-of-the-art computerized systems give the company a tight grip on credit, inventory replenishment, customer demand and market trends. Daily, weekly and monthly updates on sales, margins, returns on investment, cash flow, inventory levels, fast- and slow-movers, and accounts receivable are “the difference between just counting beans and having the information necessary to manage business profitably,” says Burman. “We can react to problems before they become severe, while creating maximum efficiency by replenishing daily, according to geographic trends.”

Barry’s also instituted a comprehensive employee training program designed to boost sales and enhance customer service through sales and product knowledge. The program uses videotapes, interactive workbooks and weekly meetings. All employees, including part-timers, must take the program within 90 days of starting. The aim is to make salespeople feel comfortable with the products they sell and confident about themselves, says Burman. “Selling jewelry involves creating confidence in a piece of jewelry, so the person selling it has to be able to convey that confidence.”

Return to profitability: Severe as it was, the restructuring was necessary to compete effectively, says Burman. “The world has changed,” he says. “Retailing is much more competitive in pricing, styles and customer service. In every aspect, it is more sophisticated.”

Barry’s response to these changes enabled it in late 1993 to trade stock notes and cash (as well as cut its debt-to-equity ratio) for $87 million of debt held by Wells Fargo Bank and Fidelity Management and Research Co. of Boston. The company also received a three-year, $35 million revolving line of credit from First National Bank of Boston. In late 1994, Barry’s finalized a one-for-five stock split (reducing 20 million shares to 4 million) that boosted its stock’s price and marketability.

Barry’s ended fiscal 1994 (ended May 31) with a return to profitability after five years of losses. The company posted revenues of $129 million, net earnings of $1.5 million and a comparable-store sales gain of 7%. For this fiscal year, same-store sales were up 13% as of January (the most recent figure available at press time). Executives expect full-year revenue to top $135 million.

New directions: Barry’s is following what its annual report calls “an aggressive approach” to expansion. Thanks to the 1993 recapitalization and credit line, the company can expand into new markets, increase inventory and remodel existing stores, says the report.

Sixty percent of Barry’s stores are in California and Texas. To mitigate the impact of any future regional recession, the company is focusing on growth in other existing and new markets. In late 1994, it opened 23 stores in Illinois, Indiana, Ohio, North Carolina and South Carolina.

Barry’s wants to open or acquire 10-20 stores annually. “But a big store count isn’t our goal,” says Burman. “Building profits and store value is.”

At the same time, the company will reduce its chain names for more efficient and cost-effective advertising and promoting and for better identification among consumers. In the early 1990s, the Barry’s chain included 17 logos; that will drop to six by year’s end and possibly four after that.

Barry’s has no immediate plans to try other trendy types of retailing, such as ‘superstores’ or computer on-line retailing. “Our challenge is to keep our format competitive and viable in a changing marketplace,” says Burman. “We have our management team, systems and strategy in place [and are] focused on improving performance, adapting to foreseeable changes in the marketplace and thriving.”


Headquarters: Schenectady, N.Y.

Size: 15 stores in New York, Connecticut, Massachusetts and Vermont.

Annual sales volume: About $16 million.

It’s a retailer’s nightmare: forced bankruptcy. But that’s just what happened in 1991 to Glennpeter Jewelers, a successful 38-year-old family company.

It was a time of national recession, sluggish sales, large retailer bankruptcies and nervousness in the banking industry. Glennpeter’s bank and largest creditor was bought by TrustCo. Despite Glennpeter’s timely payment record, TrustCo. converted the jeweler’s long-term loans to demand notes and sought an immediate payment of $500,000.

Unable to reach agreement with TrustCo., Glennpeter filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Act. The bank wanted to liquidate the company, but U.S. Bankruptcy Court decided it could stay open through Christmas. That was long enough to save the firm.

Glennpeter had $1.6 million in net holiday sales. Many vendors also came to its aid, sending letters of support and, in one case, offering $5 million of goods during reorganization. It was “a very consuming six months,” says President Jeffrey Weiss. “But the support and loyalty of our people, our managers and our vendors was phenomenal.”

At year’s end, the court approved an agreement between the jeweler and TrustCo. that called for closing a few stores and payment to TrustCo. of $1.6 million immediately and $5 million at 10% interest in monthly payments through 2002.

No credit: Not a pleasant experience. Yet, it profoundly affected Glennpeter’s marketing strategy. “Chapter 11 changed us from a credit jeweler to a cash jeweler,” says David Blackmore, vice president of operations. “Before, we sold credit, not jewelry. Now, we’re a jeweler who has credit [by an outside firm] if a customer wants it.”

That wasn’t by choice initially. During bankruptcy reorganization, Glenn peter couldn’t use its in-house credit. “We dropped our margins to be competitive and went after the customers with cash,” says Weiss. That strategy continued when the company left bankruptcy reorganization in 1992.

Closing its credit department (20 people) trimmed operational costs. “We aren’t saddled with expenses from our own charge card, and we don’t have to write off bad debt

annually,” says Blackmore. Credit’s share of business has dropped from 60% to 22%, margins have shrunk and annual volume has “significantly

increased,” says Weiss. “The result is an extremely strong balance sheet.”

Customers & merchandise: The changes also subtly altered Glenn peter’s customer base and merchandise mix. When the company relied on credit, its primary customers were 18-24 years old, and punk rock radio was an important advertising outlet. “Now we attract people ages 24 to 40 who have money,” says Weiss.

As a result, Glennpeter stores now carry larger and better quality diamonds, more expensive items and fewer watches and gemstones than three years ago. The mix is 60% diamond jewelry, 20% colored stone

jewelry, 12%-14% gold jewelry and about 4%-5% watches. Repairs and miscellaneous items account for the rest. Before restructuring, the ratio was 45% diamond jewelry, 30% gemstone jewelry, 9%-10% watches and 12%-14% gold jewelry.

Certification program: Less credit and greater focus on diamonds aren’t the only reasons why Glenn peter’s diamond sales have grown significantly in the past couple of years. A big factor is a two-year-old diamond grading and certification program.

Glennpeter established Advanced Gemological Laboratories Inc. at its headquarters to grade diamonds according

to standards of the Gem ological Institute of America. Weiss, a graduate gemologist, and an independent outside gemologist review all data. After a diamond is graded, its image is scan-

ned into a computer, printed, laminated and put on the certificate. Blackmore says the program is a strong selling tool because it boosts consumer confidence in the jewelry and the jeweler.

Adds Weiss, “We want to be perceived as an honest company with a lot of integrity. If [our] grading is wrong in any way at all, the customers get their money back.”

The program’s reputation has spread beyond Glennpeter’s own customers. The lab now gets referrals from some of its vendors and other area jewelers. Accurate, honest grading and certification of diamonds are “good for the industry, even if they are our competitors,” says Weiss. “And the more this is used, the more it verifies its credibility.”

Replenishment: Glennpeter’s inventory replenishment system has some 1,500 items, but it focuses on the top 200 (based on past performance, computer data and managers’ input on local trends).

Stress is always on products that can be replaced quickly, especially in busy seasons. This past Christmas, for example, the jeweler focused on 22 items and ordered in depth, a gamble that paid off in a big way. “Sales take care of themselves if you have the inventory,” says Blackmore.

Glennpeter’s inventory management and replenishment system is upgraded annually, with improved hardware (such as color screens on point-of-sale terminals) and software (for faster, more timely replenishment information), as well as

regular reviews of what’s selling, where and why.

The most significant change, though, is a recent shift to per-store replenishment. Rather than do it by product category, the company now replenishes merchandise on a per-store basis, providing what’s best for each one, says Blackmore.

Manufacturing & training: Glenn peter manufactures 50% of its merchandise. That’s slightly more than a few years ago and the jewelry is slightly better quality, priced from $75 to $3,000.

Weiss admits making jewelry was difficult for the company in the early 1990s, “when there were a lot of closeouts and we could buy cheaper than we could produce.” Today, however, it’s a different story. “It’s a definite advantage,” he says, “because we can control the quality and consistency of what we sell, react fast to market demand, give fast turn-around late into busy seasons and, of course, do custom work for customers.”

Because the company makes some of its own jewelry, salespeople also tend to know more about it, believe in it and back it.

Glennpeter has spent much time and money in the past few years on improving and changing staff training, including “intensive” instruction in diamonds. “In the past, companies like ours were more concerned with how to sell. Now we’re just as concerned with product knowledge, so salespeople know what they’re selling.”

In addition to in-store training, all 150 people who work in Glennpeter stores must visit headquarters at least twice a year (managers come eight to 10 times) for meetings, training and tours of the operation. “It’s important for them to see how we make our jewelry, to talk with us about diamond quality and to see our lab,” says Weiss. “We also keep an ample supply of stones illustrating such aspects as cut, clarity, enhancement or lasering” for staff review.

Results: Effects of Glennpeter’s changes in the past three years are impressive. Sales were up 34% to $16 million last year (“our best year in 10 or 11 years,” says Blackmore); same-store sales rose 33%.

Glennpeter is exploring other retailing channels. It already cosponsors “Shopping Connection,” a twice-weekly TV shopping show that features several area manufacturers. The show is broadcast to southeast New York and much of New England. The company also is studying on-line retailing (selling to consumers via computers). “[This will] change the retail business,” says Blackmore. “Jewelers have to get involved in it now rather than play catch up later.”

As for expansion, Glennpeter’s growth strategy calls for strength-

ening existing stores rather than adding new ones. “We want to invest our money in building up volume, improving systems and increasing inventories,” says Weiss. “We may add a store or two in the next couple years, but our main interest is a strong balance sheet rather than new outlets.

“Our game plan is to continue what we’re doing. We have a very solid core here, and we’re confident in what we’re doing.”


Headquarters: Sacramento, Cal.

Size: 47 stores in 10 states.

Annual sales volume: more than $47 million.

The late 1980s and early 1990s were like a roller-coaster ride for Merksamer Jewelers. The company went through a merger and was bought back; it ballooned and shrank in size; it went through bankruptcy restructuring twice – all within six years.

Merksamer had no control over its first bankruptcy. In 1986, the chain (then 11 stores, all in California) was bought by Hooker Corp., an Australian company. Over the next three years, it grew to 80 stores in 12 states.

But, Hooker – overextended by rapid expansion and sluggish sales – filed for bankruptcy protection in 1989, and the roller-coaster started for Merksamer Jewelers.

Second time around: After Hooker filed for bankruptcy protection, U.S. Bank ruptcy Court approved a plan to sell Merksamer to KTW Acquisitions Co., formed by President Sam Merksamer and largely financed by GE Capital Corp.

Unfortunately, the buy-back came as the U.S. economy fell into recession, so growth needed to pay off the debt from the purchase didn’t occur. In 1992, Merksamer filed for bankruptcy protection again and closed half its stores – about 40.

The second bankruptcy turned out to be a blessing in disguise, says Sam Merksamer. Forcing the company to reduce debt by downsizing and being more competitive “brought us closer to our customers. Management is able to focus on what they want and on running the business profitably.”

That’s essential in today’s competitive retail market, he says. “In the ’90s, the customer dictates to the retailer, not vice versa. Our total focus now is on customer demand” and making the jewelry-buying experience “as easy and pleasant as possible.”

Selling strategy: Two concepts – value-pricing and market-driven merchandising – now influence Merksamer’s retailing strategy in everything from merchandise to store design.

Value-pricing means competitive prices, especially on gift and fashion merchandise, without the facade of discounts or markdowns. “We give the ‘sale’ price every day,” says Merksamer. “Formerly, if a piece of jewelry retailed for $1,295, salespeople had up to $300 leeway to make a sale, and we might sell 10 a month. Now that same piece is priced every day at $995, and we sell 15 a month.”

All merchandise in a Merksamer store has a price tag. “Too often consumers see jewelry and think, ‘It’s beautiful but I can’t afford it,'” says Merksamer. “We price everything because we want them to look and see they can afford it.”

The business itself is very market-driven. “What the customer wants – based on what we learn from frequent focus groups, close tracking of sales and so on – is what our stores will stock,” he says.

Upgraded information systems are a big help. “Now we stay on top of the current styles – they’re in a year, at most, then pulled,” he says. “We replenish inventory twice a week. What’s sold on the weekend is replenished by Monday. What sold during the week is replenished on Thursday. So it’s possible to sell an item on the weekend, and then sell another one just like it Tuesday.”

Diamond bridal jewelry accounts for 50% of the total merchandise mix, while other diamond jewelry accounts for 25%-30%. Gold comprises about 10%, and watches and services make up the rest. (Watches accounted for the biggest change in mix; they once made up 35%, most of them Rolexes.)

Ads & stores: Merksamer ads and store design reflect affordability. The company’s promotional fliers were “pretty elegant, like they were for a museum, in the late 1980s – when we presumed our competition was other jewelers,” says Merksamer. “Now we know it’s the restaurant, the electronics store, the trendy fashion store that are all competing for the same discretionary dollar.”

The company’s latest fliers and inserts are eye-catching and colorful, display prices prominently and contain Sam Merksamer’s “Commitment to You” regarding value-pricing and customer service.

As for the stores themselves, gone is the elegant black granite that once dominated the design. New stores feature light wood paneling, bright lighting, open floor plans, well-stocked cases, visible price tags and gemscopes built into counters. The total look is designed to say, “We sell quality jewelry that anyone can afford,” says Merksamer.

Training: The company’s focus on product knowledge, the Four C’s and the seven steps to closing a sale have given way to “Merksamer’s Quality Service Creating Loyal Customers.” The new program still includes product and sales instruction, but the focus now is on catering to the customer. The first level of training involves quality service; the second, selling skills; and the third, management instruction.

“Customers don’t want to be sold, they want to be taken care of,” says Merksamer. “Rather than concentrating on warranties and the like, [the new curriculum] stresses talking and working with customers.”

Growth: Financially stable, with strategy firmly in hand, Merksamer wants to expand again. While California remains the company’s base, long-term plans call for most future growth to occur elsewhere. In late 1994, for example, the company opened stores in Kansas City, Kan.; Kansas City, Mo.; and Washington, D.C. Annual growth of three to four stores is expected.

For now, the company won’t try any new forms of retailing such as computer shopping. “Our business is growing so fast, we’ve got our hands full” without trying something new, says Sam Merksamer.