Majors
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Is Zale chief's strategy 'nuts' enough to work?
By Michelle Graff
December 02, 2008
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| New Zale Corp. CEO Neal Goldberg plans to revive the struggling jewelry chain by offering new merchandise such as Zale's branded "Celebration" diamonds, pictured. |
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Irving, Texas--Jewelry retailing experience is conspicuously absent from the resume of Zale Corp. Chief Executive Officer Neal Goldberg.
Yet the retail veteran, who was appointed last December after executive stints at Macy's, Victoria's Secret and Gap, hasn't let his outsider status stand in the way of making big changes at the struggling jewelry chain.
Goldberg succeeds Betsy Burton, who was promoted internally to the CEO post in February 2006.
Since taking over, Goldberg has shuttered a net total of 50 stores and kiosks, completely overhauled 135 more, cut ties with two-thirds of the company's vendors and restructured the corporate management team. His strategy: to reinforce Zale's position as a value retailer and return to basics.
"We really believe we're about value," he said in a recent interview with National Jeweler. "That's who we are."
Goldberg says critics have assailed him as "totally nuts," arguing that his bold moves have been too much, too quickly for an 84-year-old chain that operates more stores than any other jewelry chain in North America. But the latest financials suggest Goldberg's fresh take might be working so far. For the fourth quarter ended July 31, the company experienced a 6.1 percent increase in same-store sales and revenues, significant gains given the economy.
The retail rally lost some steam last week, however, when Zale Corp. announced that its same-store sales declined 3.7 percent in the first quarter of 2009 amid souring U.S. economic conditions. Revenues for the first quarter totaled $364 million, compared with $377 million in the prior period, a decline of 3.5 percent.
In deciding what changes to implement at Zale, Goldberg spent his first year away from the company's Irving, Texas, headquarters, visiting hundreds of stores to better understand the strengths and weaknesses of its current business model. One of his observations: Jewelry stores tend to display too much merchandise, sending an unclear message to shoppers.
Goldberg's yearlong cross-country travels also prompted him to conclude that Zale competed too hard on price while its merchandise mix floated in a "sea of sameness."
"The only thing that made a difference was the price, and you can't win on that," Goldberg says.
So he began sourcing new merchandise, keeping in mind that Zale's customers turn to the stores for diamonds, and they're looking for certain price points. He also reduced the company's vendor base by two-thirds to improve efficiency in what was a big move for the 2,135-store retailer.
"That's huge," Goldberg says. "One of the things we want to do is become more important to fewer people."
A trip to one of Zale's 135 "pacesetter" stores--a sort of proving ground for change at Zales, where all the proposed changes have been implemented--is visual proof of Goldberg's philosophy.
The store--whose location Zale wanted to keep under wraps--still has its fair share of circle and Journey diamond jewelry, and customers popping into Zale with plans of popping the question will find a wide selection of diamonds.
The entire back row of display cases is dedicated to bridal, including Zale's new, branded "Celebration" diamonds.
Under the company's logo on the wall is a new Zale tagline: "America's Diamond Store Since 1924."
"If people want to buy a diamond from you, they have to trust you, and those years of experience convey a sense of trust," Goldberg says. "We were always about diamonds. We'll always be about diamonds."
Mixed in among the diamond mainstays are pieces that are a definite departure from tradition. A line of edgy timepieces inspired by the works of tattoo artist Ed Hardy have their own display cases, and across the aisle, more cases contain fashion jewelry from Heather Benjamin, Venetian Glass and Samuel B.
In Goldberg's mind, the fashion stock needs to be both "narrow and shallow," made up of quick-turners that comprise a small percentage of overall stock.
"Fashion is important," he says, "but important in the right amount."
For what is sure to be a challenging Christmas season, Zale has high hopes that its fresh outlook on merchandise, coupled with an emotional new advertising campaign called "Love Rocks," will rally business.
Zale's "Mom Rocks" commercials, which aired before Mother's Day, provided the public a sneak preview of the campaign.
As of early fall, Goldberg was tight-lipped about Zale's holiday marketing plans, saying only that the ads would appear in "many places" outside of normal broadcast television stations.
"It's not how much you spend in a category," he says. "It's about how efficient that spend is. There's some things up our sleeve that we've tested and some things we haven't tested that we're very excited about."
Either way, Goldberg expects the spots to have a big impact.
"I think people will have tears in their eyes," he says.
Asked about Goldberg's strategy, Paco Underhill, CEO of market research and consulting company Envirosell, says he agrees that too much merchandise overwhelms shoppers and says he advises modern retailers to make "less is more" their mottos.
As for Goldberg's lack of jewelry experience, he says jewelry is one industry that can really use an outsider's intervention.
"One of the things to realize is it isn't Zale competing with [other jewelry stores]," he says. "It's Zale competing with everyone else in the shopping concourse for the consumers' discretionary dollar."
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Majors
A shareholders' class-action lawsuit has been filed against Zale Corp., its chief executive officer and three former executives, claiming the Irving, Texas-based, 1,931-store chain deliberately deceived investors. Read More
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