Majors
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As big jewelers tumble, who loses, wins business?
By Michelle Graff
September 24, 2008
New York--Though Friedman's Jewelers and Whitehall Jewellers were not necessarily in competition with the average independent jeweler, the bankruptcy of the two retail giants will make waves industry-wide.
Some retailers, both chains and independents, stand to profit from having one less local competitor. Yet many will feel the negative impact of yet another hit to industry suppliers, which have been racked by retail bankruptcies this year and might begin pulling back on their lines of credit.
Friedman's filed for Chapter 11 bankruptcy protection in January, with Whitehall following suit in June, a somewhat surprising occurrence considering that two months earlier, the Chicago-based Whitehall acquired 78 shuttering Friedman's stores for $14.3 million.
These two Chapter 11 cases constitute a major shake-up among North American retail jewelry chains, knocking down two of the nation's top five jewelry-only retailers in terms of number of store units.
According to National Jeweler's Top 50 2008 list ranking of the largest jewelry chains in terms of store units, Friedman's was the third-largest chain in North America, listing a total of 455 stores before it went bankrupt, while Whitehall ranked at No. 5, with 375 stores as of April 11.
There is no doubt that the top-tier shake-up paves the way for other industry players--both chains and independents--to make a move. In fact, in August, Australian retailer Michael Hill announced plans to set up shop in the Midwest with the acquisition of 17 Whitehall Jewellers stores in the vicinity of Chicago.
Meanwhile, Gitanjali USA Chief Executive Officer Nehal Modi says Gitanjali is looking to acquire the leases for 50 to 60 Whitehall locations, targeting stores in the Midwest and California to add to the Rogers and Samuels chains.
Sterling sees an opening Though some retail chains are floundering, Sterling Jewelers says it isn't backing down but building up.
A U.S. subsidiary of the United Kingdom-based Signet Group, Sterling operates 1,402 stores in all 50 states, most notably Kay Jewelers and Jared The Galleria Of Jewelry, and ranks No. 2 on National Jeweler's Top 50 list.
In a recent interview, Sterling President and Chief Executive Officer Mark Light told National Jeweler about the company's growth plans.
Sterling opened 19 Jared stores last year, with plans this year for another 17 new units, which Light described as a "good growth vehicle for the company."
In addition, Sterling opened 68 Kay Jewelers stores last year while closing 17, a net of 51 new stores. The company plans to open 36 Kay stores net in 2008, choosing both mall and off-mall locations, Light says.
Due to falling mall foot traffic nationwide, some retail chains have been turning their backs on the mall model.
Helzberg Diamonds is moving toward opening more freestanding stores because there are too many similar competitors in malls, says H. Marvin Beasley, Helzberg chairman and chief executive officer.
"The trouble with malls is that so often, in the center court, you'll see us in one corner, Zales in another, Kay Jewelers in another--and we all look alike," he says.
But Sterling executives say the chain is not shying away from the shopping mall, with those stores accounting for more than 50 percent of the company's overall business.
Light says the fact that Friedman's and Whitehall ended up filing for Chapter 11 doesn't mean the mall jewelry business is a broken model.
"We believe the mall jewelry business is a healthy business," he says.
And it just might be getting even healthier, according to industry analyst Ken Gassman. He says Friedman's shoppers, who brought in average sales tickets of $165 to $175, will go to Wal-Mart, pawnshops or department stores such as Kohl's to buy their jewelry now.
But Whitehall customers, who spend an average of $325 to $350 per purchase, "will meld into the other seven jewelry stores that are in the same mall," Gassman says.
The Whitehall shopper is a step up from the Friedman's shopper but is still a middle-market, mass-market consumer who will turn to stores such as Kay Jewelers and Zales Jewelers if Whitehall closes, he says.
Light says that Sterling does view the two bankruptcies as an opportunity to capture additional market share, which it plans to do through a mix of good store operations, merchandise and sales training.
Independents in the act While Gassman sees the majority of the Friedman's-Whitehall customers turning to other mall jewelers, some independent retailers are priming themselves for a pumped-up customer base.
Heritage Jewelers in Seaford, Del., is located near a Friedman's store that is closing, and Laurie Vansciver, one of the store's three owners, says the sales staff is already prepared to speak to former Friedman's customers and try to coax them to give the independent jeweler a try.
She says staffers will explain to those customers that even though Heritage's pieces might be more expensive, they are of higher quality and will last longer.
However, if a customer insists they want the same piece they saw at Friedman's, then the store will get it for that person, she says.
Vansciver says Heritage Jewelers, which has been in the same spot for 34 years, expects to benefit from Friedman's closing, as there isn't another jewelry store around for 30 miles.
"They've came and they've gone," she says. "We've stayed as a staple."
At Griffin's Jewelers, with six locations in Alabama, owner Travis Griffin says he has already had customers come into his Pell City, Ala., location requesting sizing for merchandise purchased at Friedman's.
Griffin says he considers Friedman's to have a more "credit-oriented" customer in the market for lower-quality goods than are available at his mid-market to high-end stores.
Nevertheless, he will try to accommodate any former Friedman's shoppers.
"Those people are going to be looking for somewhere to purchase jewelry, so hopefully they'll come to us," he says.
The supplier story While some do stand to benefit from the downfall of Friedman's and Whitehall, Jon Bridge, co-CEO of Seattle-based chain Ben Bridge Jeweler, points out that big bankruptcies tend to have a domino effect in the industry.
Suppliers get burned, and the after-effects trickle down to the retail level.
Gassman agrees, saying that these bankruptcies are going to have suppliers tightening their lines of credit, which is going to make life more difficult for the remaining players.
He says suppliers also will have less money available for research and development of new jewelry styles and products, which could mean a more homogeneous mix.
At Ben Bridge, which ranked No. 12 on the Top 50 list and currently operates 78 stores, the high-end mix of merchandise that features branded diamonds and watch lines such as Rolex, Omega and Tissot, is not likely to attract any Friedman's or Whitehall shoppers.
Bridge says the chain is not expanding its business, but it isn't contracting either. Instead, the jeweler is watching each and every dollar very carefully.
"It's not going to get easier out there right now," Bridge says.
Whitehall Jewellers
--Headquarters in Chicago
--Operates Whitehall Jewellers, Lundstrom Jewelers and Marks Bros. Jewelers stores
--375 stores in 37 states
--Average sales ticket: $325 to $350
--43 percent to 48 percent of customers buy merchandise on credit
Friedman's Jewelers
--Headquarters in Addison, Texas
--Operates Friedman's Jewelers and Crescent Jewelers stores
--455 stores in 23 states in the Southeast, Southwest and Midwest
--Average sales ticket: $165 to $175
--60 percent to 65 percent of customers buy merchandise on credit
Sources: National Jeweler's State of the Majors 2008, industry analyst Ken Gassman, staff research
Editor's note: This story first appeared in the August 2008 print edition of National Jeweler and was updated on Sept. 22 to reflect developments at Whitehall Jewellers.
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Majors
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