Time Goes, Buy: Signet Jewelers Ltd. (SIG), Blue Nile, Inc. (NILE), Zale Corporation (ZLC)

Page 1 of 2

The 2008 financial collapse and subsequent recession decimated Zale Corporation (NYSE:ZLC), one of the oldest and most respected names in jewelry in the USA and Canada.  Since 2010 the company, with new management in place, has shown remarkable progress.  While still a speculative situation, the company is likely to return to profits this year.

Zales has been a fine jewelry retailer since 1924.  It currently is operating 1117 stores in the USA under the names of Zales & Zales Outlet and Gordon’s Jewelers and in Canada under the names Peoples Jewellers and Mappins.  It has a well-regarded website.  In addition, it owns Pagoda with 652 locations.  Pagoda performs ear piercing and sells less expensive jewelry, principally of silver and gold.  Pagoda is not an integral part of its fine jewelry business.  It is important to note that the general definition of fine Jewelry includes watches.  This can cause distortions in making comparisons.

Signet Jewelers Ltd. (NYSE:SIG)In 2008, the financial market collapsed and a recession set in.  The jewelry business suffered a severe decline.   As the industry recovered, changes came.  Companies considered the economy the catalyst and the major problem.  Unlike other industries, jewelry faced almost 20% inflation in its raw materials of precious metals and diamonds.  New technologies, particularly the web, opened sales channels and changed marketing approaches to make use of the web and social media.  Big box stores, department stores, chains and pure E-tailers established their footprints in their own ways.

The jewelry business has for the most part recovered and is growing moderately at around 3% or somewhat above in nominal terms.  The return to profitability, in part, is a result of changes in earlier business models as well as significant additions to these models.  Without reflecting on these, it is not easy to perceive the chances for Zales to fully recover.

The major drivers in the industry’s recovery are:

1). The major drop in interest rates.  Interest is a significant industry expense.

2). The single most significant reason sales have increased is inflation.  Raw materials represent over 80% of cost. The price of precious metals and diamonds soared during this period.  Some studies suggest that on an inflation adjusted basis, the industry has still not fully recovered.

3). Slowly improving consumer spending and optimism.

4). Rapidly increasing use of the web.

5). Eliminating unproductive stores and cautious increases in new stores.

6). Good performance in watches.

The major inhibitors of growth are:

1). Decline in marriage rate.

2). Re-merchandising product lines to accommodate the increase in product cost.

3). Also decreasing SG&A to right size costs and improve profit.

There has been an increase in capital expenditures in the industry, but not in anticipation of rampant growth. Little has been spent on new stores.  Some investment has gone into remodeling existing stores.  A large portion has gone into systems for the web, inventory and other controls.

Today, Wal-Mart is the largest jewelry retailer and owns the bottom end of the market.  Amazon is the most significant jewelry E-tailer.  Independent jewelers are continuing to close.

The battle for market share in the higher side of the middle market is what Zales is engaged in.  Signet Jewelers Ltd. (NYSE:SIG) is Zales’ closest competitor because they own Kay Jewelers.  Signet has much more capital, stronger systems, and cheaper costs.  On the other hand, Zales appears to be more creative and aggressive with its merchandising. Blue Nile, Inc. (NASDAQ:NILE) has taken a total web approach.  They compete by holding diamonds in inventory and manufacturing on demand, eliminating markdowns.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!