Up Front

Zale to Pay $75 Million for Its Former Owner

Marking a reversal of fortunes, Zale Corp., the largest U.S. retail jeweler, plans to buy Peoples Jewellers Corp., Canada’s biggest jewelry chain. Peoples had owned Zale when the latter went into bankruptcy in 1992.

The all-cash deal, worth about $75 million ($115 million Canadian), is expected to close before the end of May. The acquisition of the 175-store chain will make Zale the largest specialty retail jeweler in the Western Hemisphere.

Zale Corp., headquartered in Irving, Texas, operates about 1,140 stores under the names Zales Jewelers, Zale’s Outlet, Gordon’s Jewelers, and Bailey Banks & Biddle Fine Jewelers. It also has a Web site, Zales Direct (www.zales.com). Peoples becomes its sixth division. No changes in name, operations, or personnel are planned. However, Clare Copeland, Peoples’ president, was uncertain whether he would stay. Zale hopes to increase Peoples’ average sales per store from $700,000 (U.S.) to $1.1 million, the average for Zale’s stores, in the next few years.

The acquisition is Zale’s first excursion into Canada and a return to the international market, where it was a major player in the 1970s and ’80s. “This is a natural extension of our long-term plan to expand Zale Corp. both internationally as well as domestically,” says Robert J. DiNicola, Zale chairman and chief executive officer. Both companies are mall-based with similar-sized stores and market to a similar clientele of middle- to upper-middle-income customers.

Ironically, Zale was the American arm of Peoples a decade ago. In 1986, after three unsuccessful attempts, Peoples—with help from Swarovski International of Austria, a producer of jewelry and lead crystal—acquired Zale in a $550 million leveraged buyout. In 1989 the new owners paid $400 million for Houston-based Gordon’s Jewelers, the second largest U.S. jeweler. Recession and enormous debt created serious financial problems. In 1992, Zale’s creditors forced the company’s Zale division into 18 months of bankruptcy restructuring.

In 1993, Peoples went bankrupt and lost control of Zale. Zale emerged as an independent and financially stronger firm and in 1994 gained a new management team led by DiNicola, a former executive of Federated Department Stores. By 1998, Zale’s retail divisions were restructured and profitable. Annual sales topped $1.3 billion, and the company enjoyed 20% annual gains in net earnings.

“As a result of our strong cash position, this transaction will not require any external financing,” says DiNicola.—William George Shuster

GIA to Lazare Kaplan: Fess Up

Claiming the industry’s integrity is at stake, the Gemological Institute of America has called upon Lazare Kaplan to be more open about its new diamond “whitening” process. “[GIA] has received very little information from the parties involved,” says its president, William E. Boyajian. “It’s usual for GIA to be consulted well in advance by firms involved in gemstone treatments, and I see this situation as no exception.”

Lazare Kaplan calls the process “proprietary” and won’t say what it is. The company claims it improves a stone’s “brilliance, brightness, and color” and is permanent, irreversible, and undetectable. However, Dr. James Shigley, GIA’s director of research, wants to double-check those claims. “They’re saying this isn’t a treatment, that it’s undetectable,” he says. “We can’t confirm that.”

Lazare Kaplan has sent GIA samples of the new stones, but not unprocessed rough. Shigley claims he can’t make judgments about the “after” without seeing the “before.” Sheldon Ginsberg, Lazare Kaplan’s executive vice president, says the company would share the process with GIA if it signed a confidentiality agreement. Shigley confirms this and says, “We’re trying to work out some way to share information, so we hope to reach an agreement which is good for everyone involved.”

Lazare Kaplan had originally intended to sell the stones beginning in April but now says it will hold them off the market pending its negotiations with GIA.

Ginsberg says the process was developed by General Electric and that GE is so concerned with secrecy that it hasn’t patented the entire process, only parts of it. People in the diamond industry speculate that the process involves some kind of “heat-and-pressure” treatment—also known as annealing—similar to what is sometimes done to sapphires. If that’s true, some believe the process would have to be disclosed under the Federal Trade Commission’s Guides for the Jewelry Industry.

But Ginsberg says, “We looked at federal law, state law, and the Federal Trade Commission rules, and we determined this process does not require disclosure. We could have kept this secret. But we issued a press release, gave samples to the GIA, are selling from a special subsidiary, and are giving first-time buyers a disclosure certificate and encouraging them to disclose down the line. We felt we weren’t legally required to take any of the steps but think this is the proper and responsible thing to do.”

The “whitened” stones will be sold exclusively via a new subsidiary, Pegasus Overseas Ltd. in Antwerp.—Rob Bates

Service Merchandise Files for Bankruptcy

Service Merchandise Co. Inc., which calls itself “America’s Jeweler,” was forced into involuntary bankruptcy by five of its major vendors in mid-March.

The vendors said the national jewelry and home products retailer owed them more than $8 million. On March 15 they filed an “involuntary bankruptcy reorganization petition” in federal court in Nashville, Tenn., and asked the court to supervise the firm’s restructuring. That same day, Service Merchandise’s board of directors authorized the company to start voluntary bankruptcy proceedings as soon as possible.

Service Merchandise closed 134 of its 347 stores in February. In early March it cut the staff at its Brentwood, Tenn., headquarters by 150 people and closed its distribution center in Dallas.

Chief executive officer Bettina M. Whyte, a corporate turnaround specialist recruited by Service Merchandise in January, says the firm will use the Chapter 11 process to transform itself into “a stronger, more focused, and healthier chain.” She says employees and vendors will be paid without interruption and that stores will remain open.—William George Shuster

Former IJO Chief Joins Scull

Jack Gredinger, former president and chief executive of the Independent Jewelers Organization (IJO), has been named president of Scull and Co. Inc.’s new education division.

Until now the North Bergen, N.J.-based Scull organization has provided management consulting services primarily to jewelers and wholesalers with revenues between $1 million and $50 million. The education division is for jewelers with less than $1 million in revenues “who are frustrated not making the kind of money they want to make,” says Gredinger. “Our job is to help them be better businesspeople.”

Scull is marketed solely through word-of-mouth and selects its members for their willingness and ability to manage business growth. Scull declines to disclose its monthly fee for the education division, except to say that fees are linked to the growth or decline of a client’s revenues.

After Gredinger left IJO in 1996, he opened a consulting business with Boston-based Di Star Ltd., where he helped launch the branded Hearts on Fire diamond through an exclusive network of retailers. In early ’97, Gredinger became Di Star’s chief executive. But by mid-’98, he decided to step down. “Helping independent jewelers grow their business is really my first love,” he says.

The education division will teach smaller-volume jewelers critical skills in managing store finances, inventory, marketing, advertising, sales training, staff, and business growth. Participants meet at Scull’s offices for 21/2-day training and problem-solving sessions twice a year and report financial data weekly and monthly. The numbers are pooled and shared without attribution among education group participants.

In its first month, Scull’s new education division attracted 10 retail jewelers as clients; the goal is to form five groups of 20 jewelers each. For information, call (800) 648-9329.—Jessica Stein Diamond

JCK Industry Fund Offers $400,000 in Grants

Requests for 1999 grants from the annual $400,000 JCK Show Jewelry Industry Fund are being accepted until Nov. 1. The funds will be distributed to individuals, groups, or organizations based on their ability to increase awareness and knowledge of jewelry products among consumers and retailers. A panel consisting of representatives from manufacturing, retailing, JCK magazine, and the JCK Shows will select the grant recipients, who will be announced during the JCK International Jewelry Show in Orlando in February 2000.

The JCK Industry Fund was established last year, and six organizations were chosen to receive grants ranging from $12,000 to $148,000. They were the Jewelers Vigilance Committee, the American Gem Trade Association, the Jewelers’ Security Alliance, the Gemological Institute of America, the American Jewelry Design Council, and “Counter Intelligence,” a program developed by Jewelers of America on behalf of the Jewelry Information Center’s Industry Image Task Force.

Requests for this year’s grants must be in writing and must include the following information:

  1. The purpose of the proposed project.

  2. The amount requested.

  3. The timing of the expenditure of the funds.

  4. Historical budget data indicating the significance of the project as demonstrated by previous financial commitment.

  5. The measurable benefits expected.

  6. An agreement that JCK has the right to reasonable financial analysis and controls to ensure the funds are spent in accordance with the grant request.

Grant requests should be sent to The JCK Shows, Attn. Industry Vice President, Reed Exhibition Companies, 383 Main Ave., Norwalk, CT 06851. A grant can’t be used to replace or substitute an existing funding source for an ongoing program. Grants are made on an annual basis only.

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