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click here for freelancing tutoring sitesAbout 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

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Zale Corporation — 2008

Case Analysis # 4

Submitted by: Pauline Mae L. Naranjo

Submitted to: Prof. Rose Lacerona

8/19/2013

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

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

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.

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.

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

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

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.

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.

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.

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

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.

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.

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?

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.