Zale Buys Piercing Pagoda

Zale Corp., the largest fine jewelry retailer in North America, has become the world’s largest jeweler and a dominant force in all segments of the U.S. jewelry market with its purchase of Piercing Pagoda Inc. The retailer of low-priced gold jewelry operates kiosks in hundreds of U.S. malls. The deal was announced Aug. 11.

The transaction, says Zale chairman Robert J. DiNicola, “solidifies Zale as the undisputed leader in the jewelry sector, encompassing all price categories, age groups, and categories of jewelry merchandise available to the general public.”

Zale is paying $201 million for the Bethlehem, Pa., company, offering $21.50 per share (34% over Piercing Pagoda’s closing stock price on Aug. 10). The Irving, Texas, retailer also assumes $55 million in debt, which it will retire after the deal is completed. It’s an all-cash transaction, with no external borrowing, thanks in part to Zale’s July sale of its private credit card unit.

“The mall kiosk business has been on our radar screen for a long while [because it is] extremely synergistic with our existing portfolio,” says DiNicola. “The opportunity to acquire Piercing Pagoda [after months of talks between DiNicola and Piercing Pagoda chairman Richard Peske] allows us to enter this business in a dominant and big way.”

Piercing Pagoda’s primary shoppers are adolescents and young adults, and the deal allows Zale to “control all of the major portions of the jewelry sector, from the impulse kiosk business to the outlet store business to the moderate [and] upper moderate business,” says DiNicola. Zale’s other operations include Zales Jewelers (its national brand, with moderately priced items), Gordon’s Jewelers (its regional brand, with more contemporary and somewhat more expensive items), Bailey Banks & Biddle Fine Jewelers (upscale and luxury priced jewelry), Zales Outlet stores (discounted overstock, remainders, and slow-sellers), the Peoples Jewellers chain in Canada, and its Web site (

DiNicola says Zale now can court its jewelry customer “from adolescence to their wedding on to maturity and on through their retirement.”

The deal also restores Zale to its position as the largest jewelry retailer in the world. With Piercing Pagoda’s 940 outlets, Zale will have more than 2,300 stores in the United States, Canada, Guam, and Puerto Rico. Signet Plc, headquartered in London, slips to second place. It has 1,400 stores, 600 in the United Kingdom and about 800 Sterling stores in the United States.

Piercing Pagoda has some 5,000 employees and operates in 640 malls in 44 states and Puerto Rico as Piercing Pagoda, Plumb Gold, Silver & Gold Connection, and Diamond Isle.

Zale Corporation sales totaled $1.794 billion for the fiscal year ended July 31, say preliminary reports, compared with $1.429 billion for the prior fiscal year, a 25.5% gain.

Piercing Pagoda reported revenues of $280 million for the year ended March 31. Its outlets do an average of $300,000 annually, and the average sale is $29. There are 431 U.S. shopping malls that have a Zale store but no Piercing Pagoda kiosk, offering what Zale CEO Beryl Raff calls “a significant opportunity” to expand Zale’s reach to younger consumers.