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Zale Corporation — 2008
Case Analysis # 4
Submitted by: Pauline Mae L. Naranjo
Submitted to: Prof. Rose Lacerona
8/19/2013
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About Zale Corporation
Zale is multifaceted. One of North America's largest specialty jewelry retailers,
Zale sells diamond, colored stone, and gold jewelry (diamond fashion rings, semi-
precious stones, earrings, gold chains); watches; and gift items at some 1,125 stores and
655 kiosks, mostly in malls, throughout the US, Canada, and Puerto Rico. The firm,
which targets the value-oriented customer, has a trio of large chains aimed at different
jewelry markets: Gordon's Jewelers, flagship chain Zales Jewelers, and Piercing Pagoda.
Zale also operates about 130 jewelry outlet stores, run more than 200 stores in Canada
under the Peoples Jewellers and Mappins Jewellers names, sells online, and offers
jewelry insurance.
For nearly 90 years, Zale Corporation has provided extraordinary ways to say "I
love you." As a leading specialty retailer in North America, the Zale family of brands
provides our customers with fine jewelry, watches and gift items that offer great value at
more than 1,930 locations throughout the United States, Canada and Puerto Rico, and
online at www.zales.com and www.gordonsjewelers.com. With an exceptional
assortment of jewelry and gifts, including diamonds and an exclusive wedding collection,
our brands are famous for helping turn important milestones and celebrations into
priceless, life-long memories. (http://www.zalecorp.com/AboutZaleCorp.aspx)
The Zale Corporation Story
From a single Zales Jewelers store in 1924, to six
retail brands with approximately 1,900 stores
throughout North America and online at
www.zales.com and www.gordonsjewelers.com,
Zale Corporation has stayed true to its original
vision: Provide customers with quality
merchandise at the lowest possible price. After decades of growth, we are now more
3. passionate than ever about being the jeweler people turn to for the perfect expression of
love.
Time Context
1920s
Morris and William Zale have a vision: Provide
customers with quality merchandise at the lowest
possible price. The vision becomes reality with the
opening of the first Zales Jewelers store in Wichita
Falls, Texas, on March 29, 1924. Inventory includes small appliances, cameras and
cookware, in addition to jewelry.
1925
The Zale brothers launch a revolutionary
marketing strategy with a credit plan of "a penny
down and a dollar a week," making jewelry and
other merchandise affordable to the average
working American.
1938
The success of the credit policy, coupled with friendly customer service, leads to a period
of tremendous expansion, with roughly one new store each year for a total of 12 stores in
Oklahoma and Texas by 1942. A cooperative buying system is established to centralize
the purchase and distribution of merchandise for all stores, which enables the company to
buy in larger quantities at lower prices. Centralized buying marks the beginning of the
chain store concept for Zales.
1941-1944
Zales Jewelers responds to the limited production of consumer goods during World War
II by maintaining its current prices on jewelry, limiting expenses and looking for growth
opportunities. Zales acquires Corrigan's of Houston, its first "carriage trade" (fine
4. jewelry) store in 1944, eventually leading to the launch of the Bailey Banks & Biddle
brand.
1946
Zales Jewelers moves its headquarters from Wichita Falls to Dallas.
1950s
The company installs one of the country's first computer systems and is among the first
major jewelers to institute management training.
1957
Zales Jewelers broadens its reach, opening the first store in a shopping center ─ a major
shift from operating only in downtown locations. The same year, Zales announces the
initial public offering of its stock (ZLC) and begins trading its public shares on the
American Stock Exchange the following year.
1960s
Following the discovery of synthetic diamond technology, the company diversifies,
branching out into shoes, sporting goods, drug stores, furniture and catalog stores.
Reflecting this diversity, the company name becomes Zale Corporation.
1970s
M.B. Zale retires as company chairman in 1970. The company's sales triple during the
decade to $1.04 billion in 1980.
1984-1985
Zale Corporation unveils acquisition of the 890-carat "Incomparable Diamond," the
largest internally flawless diamond in the world. In 1985, Zale moves its world
headquarters to Irving, Texas.
5. 1986-1989
The leveraged buyout of Zale Corporation by Peoples Jewellers of Canada and Swarovski
International of Austria is completed. Gordon's Jewelers, a 469-store chain, is acquired in
1989.
1990s
In 1992, Zale Corporation files for Chapter 11 bankruptcy, but emerges the following
year as a financially stronger company after restructuring its debt. Five years later, annual
sales top $1.3 billion, showing profit in all four quarters for the first time since the
reorganization.
1998
Zales Outlet is launched, giving the corporation 13 locations in premier outlet centers
nationwide. Online shopping is launched at www.zales.com.
1999-2000
Zale expands with two major acquisitions: Peoples Jewellers of Canada and Piercing
Pagoda.
2007
Zale expands its e-commerce business with the launch of www.gordonsjewelers.com. To
better focus on the core business and increase returns on capital, Zale divests the Bailey
Banks & Biddle brand.
2008
Zale Corporation creates a new management team under the leadership of CEO Neal
Goldberg that includes veteran Zale executives and new talent with significant retail
experience. The JCK-Harrison Group Consumer Jewelry Study also ranks Zales #1 in
unaided brand awareness.
6. 2009
Zale Corporation marks the 85th anniversary of the opening of the first Zales Jewelers
store with a donation to the M.B. and Edna Zale Foundation, presented to Donald Zale,
son of company founder M.B. Zale. Zales Outlet unveils its e-Commerce site with the
launch of zalesoutlet.com.
2010
Zale continues to expand its e-Commerce business with two significant launches:
pagoda.com, providing an online presence for Piercing Pagoda, and
peoplesjewellers.com, bringing multi-channel shopping to consumers across Canada.
Summary of the Case
Zale’s is an organization that has shown significant increase and decreases over
its lifetime. Zale’s is a specialty retail jewelry corporation that only focuses on the best of
jewelry. A lot of Zale’s ups and downs have to do with the economic situation. When the
economy is booming the jewelry is on the rise but, when the economy is struggling,
jewelry is usually the first to be hit. In this case, Zale should try to reach out to some of
the less fortunate folks. Zale’s operates stores in the U.S., Puerto Rico, and Canada. They
employ approximately 16,900 employees in 2,394 of their stores.
Although Zale’s is the largest specialty retail corporation, they have suffered to
maintain their dominance in the industry. There are several reasons why Zale’s is not
leading their competition. One reason is because of their organizational structure. They
lack with consistent leadership because of the often changes of CEO’s. They also lack on
their focus strategy. Before they become the most dominating jewelry corporation they
must first figure out which way they are going to lead their company and who is going to
lead them. They are going in a new direction when Neil Goldberg became CEO in 2007.
Along with the leadership problems Zale’s also have external and competitors to deal
with. Externally the jewelry industry is gaining and sustaining market share, and is
7. growing international competition. This can become a problem because most jewelry are
created or come from international waters. This should encourage Zale’s to expand their
company more across the globe. They should take a chance in the growing market to earn
more revenue. Also when the economic situation is horrible jewelry takes a hit. A study
has shown that more people would take synthetic diamonds or natural diamonds, only
because of the bad economy and to reach consumers that are not able to spend an arm and
a leg for jewelry.
Zale’s have 3 major competitors, which are Signets, Tiffany, and the Surging
Blue Nile. With Signet leading in revenue at $3,403,500,000 they come second with its
profit margins in at 11.20%. While Tiffany’s leads in profit margins with 15.20% with
only 8,120 and 3rd in revenue at 2,395,000,000 right behind Zale’s at 2,439,000,000.
While all the top competitors in specialty jewelry, Zale’s will have to expand their
product line and service to continue to compete and have a chance to lead their
competitors.
With Zale’s being in a tight competition, they are doing some good things such as
supporting organizations that oppose the mining of dirty gold. Zale’s are primarily
pursing a direct sale strategy, offering products throughout all segments from basic to
fine jewelry.
Vision Statement
Provide customers with quality merchandise at the lowest possible price. After decades of
growth, we are now more passionate than ever about being the jeweler people turn to for
the perfect expression of love.
Mission Statement
The Mission of Zale Corporation is to be the best Corporation is to be the best specialty
retailer in North specialty retailer in North America. Our goal is to America. Our goal is
8. to develop and maximize the develop and maximize the finest collection of jewelry finest
collection of jewelry brands in order to build lasting brands in order to build lasting
customer relationships that customer relationships that will generate solid returns for will
generate solid returns for our shareholders.
Improved Mission Statement
The mission of Zale Corporation is to be the Corporation is to be the best specialty
retailer in the World. Our goal is to enhance our merchandise assortment to ensure that
we offer styles that inspire and reflect the lifestyles of our customers.
Honors / Awards / Recognition
1. Linz Award
Part of the Zale corporate culture is to recognize exemplary leadership and volunteerism
that enhance the life of fellow citizens. Each year we reaffirm this commitment through
our sponsorship of the Linz Award - one of Dallas County's oldest and most prestigious
civic honors. The Linz Award was created in 1924 by Simon Linz, one of the founders of
Linz Jewelers, acquired by Zale Corporation in 1989. The award has recognized Dallas
County citizens whose civic or humanitarian efforts have created the greatest benefit to
the community. Now in partnership with The Dallas Morning News, Zale Corporation is
proud to continue the legacy of this award.
9. I. Central Problem
The main problem of Zale Corporation in this case study is how they will recover
from its below average performance of the past six years. This happened due to having of
unfocused strategy, lack of consistent leadership, and uncertain economy. Zale’s is
competing but must find ways to advance their corporation either by expanding globally
or product line.
II. Objectives
To be a world class jewelry provider to all classes
To provide customers with quality merchandise at the lowest possible price
To regain its once stellar performance in the jewelry retailing industry
To improve from its below average performance for the past six years
III. Areas of Consideration
SWOT Analysis
STRENGTHS
1. They have decades of experience and expertise in the diamond industry. They
have great knowledge regarding diamonds.
10. 2. They have over more than 1,930 locations throughout the United States, Canada
and Puerto Rico, and online at www.zales.com and www.gordonsjewelers.com.
3. The company has comprehensive wedding, bridal, engagement and anniversary
collections, which gives it a competitive edge over its competitors.
4. Another competitive advantage comes from a large variety of men’s, women’s
and children’s jewelry.
5. Financing options through Zale’s credit card. The revolutionary marketing
strategy with a credit plan of "a penny down and a dollar a week," was introduced
in 1925 for making jewelry and other merchandise affordable to the average
working American.
6. It’s the first company to use Institute management training in 19506. Has a strong
workforce of nearly 13000 employees
7. On line purchase has been a great experience for the people and thus increases in
sales. Large retail network of Zale Corporation in North America.
8. The company’s trademarks and trade names help to sustaining its competitive
position in the jewelry industry.
9. Diverse brand portfolio is also one of the strength of the company.
Weaknesses
1. Poor financial performance in 2008, 2009, and 2010 shows the company has
suffered from the financial crisis more than any of its competitors.
2. The company has a very high debt-to-equity ratio compared to industry average,
which means Zale uses a lot of leverage and does not have a very strong equity
position.
3. Zale’s ability to generate internal funds and its borrowing capacity has weakened
the last couple of years.
11. 4. Zale has a very concentrated customer base. The locations of the company’s stores
are limited to North America. This is a disadvantage because most of Zale’s
competitors are more geographically diversified. Although the company has
expanded its business online, it has mostly expanded its business in North America.
Competitors, such as Blue Nile and Tiffany, now operate in countries in Europe and
Asia through a web portal, which makes it easier to reach a broader specter of
customers. By focusing mainly on regions in North America, the company increases
its risk and limits growth at the same time.
Opportunities
1. Strongly performing e-commerce business. Through its website, customers can get
information about various stones, maintenance advice, and help on product
purchases. The website also allows consumers to design their own jewelry, such as
rings and wedding bands. Internet sales accounted for 3 percent of Zale’s revenue in
2009.
2. Cost-reduction initiatives would help to reduce SG&A expenses and thus help the
company to become profitable again.
3. Changing demographics. The number of Americans aged 45 to 64, the segment of
the population that typically has the highest income, is forecast to increase by about
4 percent between 2010 and 2020 compared to a 10 percent increase in the
population overall. Many jewelry stores rely on higher-income customers for much
of their business.
Threats
1. If the general economy performs poorly, discretionary spending on goods that are,
or are perceived to be, “luxuries” may not grow and may decrease.
2. Increased competition can affect the sales of the company in future
3. Increased minimum wages also put a threat in front of the company
12. 4. The concentration of a substantial portion of Holidays, Valentine Day and
Mother’s Day) means that disruptions.
5. Sudden decrease in cash flow and earnings makes the company more “vulnerable”
in the sense that the company is not generating enough money
6. The Diamond Trading Company, which is the number one supplier of diamonds,
can affect prices and supply of diamonds.
7. Zale is more vulnerable to discretionary purchases, such as downturn and consumer
spending slows. Since a majority of the store brands under Jewelry segment targets
the middle economic downturns and consumer spending slows. Since a majority of
the store brands under the Zale’s Fine Jewelry Segment targets the middle-income
consumer base, the company is also more vulnerable to economic downturns than the
higher-end jewelry sellers.
IV. Alternative Courses of Actions
Alternative course #1:
They should start business in Europe to capture a market opportunity, because
competitors of Zale are doing business globally, SIGNET is doing business in London,
Tiffany in Japan and earning profit their market share more than Zale.
Advantage: Externally, the jewelry industry is gaining and sustaining market share, and
is growing international competition. This can become a problem because most jewelry
are created or come from international waters. This should encourage Zale’s to expand
their company more across the globe. They should take a chance in the growing market to
earn more revenue.
Disadvantage: Risks of failing since they have problems when it comes to brand
awareness. The acceptance of people in North America may not be the same in Europe
since they have a lot of competitors.
13. Alternative Course # 2:
Zale should do backward integration because it is not manufacturing jewelry by itself,
they purchase finished good from Italy, due to problem in external factor of Italy Zale
also suffers in shape of late delivery of Goods.
Advantage: When they do this it will lessen the problems of having late delivery goods.
Disadvantage: Large amount of money are needed for investments in this kind of plan.
Alternative Course # 3:
Zale should target high-income group, they are currently targeting mainly middle- class,
but they can earn a lot from high-income group because Zale have more innovative styles
in jewelry.
Advantage: Through this, they are expanding their target markets and it will help in
increasing sales and income.
Disadvantage: Even though Zale already has this established brand name, still people
belonging to high-income group will not risk to buy with Zale Corporation due to its
below average performance for the past years.
Alternative Course # 4
Zale should do diversification in Bridal dresses, as they are specially known for Bridal
jewelry so they have an opportunity to diversify that business.
Advantage: This will attract more customers since they are not only involved in jewelries
but also with gowns and dresses that could be compliment products. Since they are
already known with Bridal Jewelry, it could be a stepping stone of expansion.
Disadvantage: When they add this Bridal dress, it will need a lot of requirements since
Zale Corporation will have a different kind of business.
14. V. Strategy Formulation / Recommendation
I therefore conclude that the best solution to the problem is alternative course of
action #1. Zale should consider the recommendation to start a business in European
market. Externally the jewelry industry is gaining and sustaining market share, and is
growing international competition. This can become a problem because most jewelry are
created or come from international waters. This should encourage Zale’s to expand their
company more across the globe. They should take a chance in the growing market to earn
more revenue.
VI. Plan of Action
1. Expand more international and explore the growing market overseas. Like Zale’s
competitors, it must expand its business not only in America but also in other
place in the world. Through this, they could gain more market share and in effect
will strengthen their profitability.
2. Marketing-Led Strategy and Special Programs. Increase direct marketing efforts
dramatically to create brand awareness while investing in store updates and new
product lines. Also, repositioning Zale brand.
3. Zale’s should reach out to more to customers in this time of economic struggles.
While they sale fine jewelry, they should add low-moderate priced jewelry as
well.
4. Zale should continue to build a strong organizational structure because without a
strong organization, the company will fall again.
5. Clearing out old inventory.
VII. Potential Problems
1. What if the expansions may lead to failure?
2. What if people in other countries will not patronize products of Zale Corporation
because of its perceptions in the past?
15. 3. What if the economy in relation to diamonds becomes uncertain frequently?
VIII. Contingency Plans
1. Close Down Unprofitable Stores. Zale should consider closing down its
underperforming stores. Specifically, at least 20% of its current stores are
operating at significant losses without reasonable hope of improvement. For
example: Stores with declining sales and a soon-expiring lease term should be
closed first.
2. Focus on Few Brands, Divest Others and Increase Designer Jewelry. BCG
Analysis shows the company should concentrate only on profitable brands and
divest unprofitable brands. This will also help the company to increase its brand
value.
3. Implementing recommended cost-reduction plan, Zale’s SG&A expenses as a
percent of sales would decrease, but would remain higher than the industry
average. For example, SG&A expenses as a percent of sales to be 35% for the
next five years and then 30% in the terminal year.
4. Zale could pursue range from selling off its Canadian stores or its Piercing
Pagoda chain to merging with its rival, Signet Jewelers Ltd., owner of Kay
Jewelers and Jared, The Galleria of Jewelry. It could also sell its Gordon Jewelers
division. Due to the demographic changes and increase in the proportion of the
wealthy population, Zale should consider introducing high-end designer jewelry
similar to what Helzberg Diamonds sells at a few locations. Designer jewelry will
help the company to drive sales up.
