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
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

The 10 Most Dangerous States to be a Cop

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!