The Big Story
This Should be Signet’s Next Move
By Michael A. O’Hara
With apologies to iconic industry household names such as Tiffany, Rolex and DeBeers, Signet Jewelers Limited is the most “important” company in the North American jewelry industry. I say this not only because its nearly $7.0 billion in sales volume dwarfs the volume of its next closest retail rival, but also because of its important place in diamond culture.
Signet’s North American brands, which include Kay Jewelers, Zales, Jared, Piercing Pagoda, People’s and others, do two important cultural things for the diamond industry. First, through the most aggressive customer credit program in the market, Signet makes diamond engagement rings available to the masses, particularly young men of marrying age who have not yet established enough credit to purchase such an expensive item (on average, $3,000 to $4,000 in the U.S. and Canada). Second, because of this credit offering and because Signet has stores everywhere – often multiple locations in each shopping center –Signet has contributed significantly to the diamond remaining omnipresent in the North American engagement process and helped that gemstone remain relevant beyond the borders of the carriage trade.
But news last week of significant legal claims from female employees, including allegations of gender-based wage discrimination and sexual impropriety, threatens this important company in existential ways. Surely litigation, even class action litigation, is (sadly) common for most every business of scale. But Signet’s current woes have the potential to be much more than a nuisance. Beyond the implications that this story going viral could have on an end consumer base that is nearly entirely female, concern must focus on the employee base. Of Signet’s 25,000+ North American employees, approximately 17,000, or 68%, are female per The Washington Post. The fact that this many women are involved in a dialog about whether the company they work for has created an environment hostile to women, or has passively enabled one to flourish, is likely not to simply go away without serious remedial action. Signet’s employees talk among themselves, of course, but more importantly, they exist in communities beyond their stores and they are now part of a story that friends and neighbors want to discuss. While gender-based impropriety has declined since the days of Madmen, incidents like this and those raised in the waning weeks of the presidential election show that problems still exist. The change in cultural norms compared to past generations make these stories stand out and, in these days of universal social media participation and social and political turmoil, these allegations could come to define the company. What is the first thing we think of today when we hear the name Bill Cosby?
Signet’s board of directors is highly credentialed, and they have reportedly conducted a thorough investigation into the matter (the underlying claims come from actions originally brought in 2008). From a distance, however, it seems clear what must happen at Signet: they need to bring in a strong, qualified female top-level executive to not only address these gender-equality cultural issues, but also to ensure that the perspective of the company’s female customers and employee base is considered at the highest levels of the company and permeates all decisions large and small. This person would augment the operationally strong existing executive team if the board finds them innocent of wrongdoing; and would replace them if they are culpable.
The right executive should be someone with deep jewelry industry experience, but also bring perspective (perhaps at the board level or in a prior position) from outside of it. She should have gravitas; experience to attack the problem, confidence to make hard decisions and demonstrated competence in operating an entity as complex as Signet. Helzberg’s Beryl Raff is perhaps an obvious example of someone with these qualities, and there are likely others that also check these boxes.
Widespread allegations of gender discrimination and sexual harassment would put most boards of directors on high alert. But for a business operated for and by women, doing nothing or moving slowly is particularly risky. The situation is acutely sensitive but, if handled correctly, Signet can use it to strengthen its bond with women instead of damaging it.
Apparel & Footwear
Lucy Activewear, the women’s activewear company launched in Portland by former Nike executives, will close by the end of the year.
Lucy will be folded into the North Face brand. Both Lucy and North Face are owned by the parent company VF. A decision to keep the Lucy branding after the move has not yet been made.
A Lucy spokeswoman said part of the reason for the change is tougher competition among women’s activewear companies such as Athleta and Lululemon.
“Just in the last eight years, the growth in competition has really been intense from a lot of brands – existing brands, newcomers, ready-to-wear brands that have branched out into athletic wear,” Dzedzy said.
BCBG Max Azria Group, the once-glamorous retailer that has dressed the likes of Drew Barrymore and Kate Winslet, filed for bankruptcy protection Wednesday.
The Los Angeles company is just the latest high-profile local clothier to file for Chapter 11 bankruptcy, following on the heels of American Apparel and Nasty Gal.
BCBG — an acronym for the French phrase “bon chic, bon genre,” meaning “good style, good attitude” — was known for years as a destination for prom dresses, party frocks and stylish clothing at an aspirational-but-attainable price point. But analysts said that the mall staple failed to keep up as shoppers turned both increasingly online and to fast-fashion rivals that deliver trendy clothes at a low price. The company “has fallen victim in recent years to adverse macro-trends.” Those trends include “a general shift away from brick-and-mortar to online retail channels” and “a shift in consumer demographics away from branded apparel.”
Teen retailer Wet Seal, which filed for bankruptcy in February and is closing all its stores, has received a $1.5 million stalking horse bid from Toronto-based retailer YM Inc. YM has submitted an offer for Wet Seal’s intellectual property in a stalking horse bid, which sets the minimum price for other possible offers.
The intellectual property includes social media profiles, brands, trademarks, domain names, an e-commerce platform and data for 5 million customers, the newspaper said.
Founded in 1962, Irvine, California-based Wet Seal filed for Chapter 11 bankruptcy protection for the second time in early February. In January, the company said it was closing its stores after it failed to raise emergency capital or find a willing buyer. The company first filed for Chapter 11 bankruptcy in 2015, after closing more than 300 stores and laying off 3,700 workers.
Crocs Inc. is giving its CEO the boot. The Colorado-based company — whose brightly-hued, plastic clogs are worn by the likes of celebrity chef Mario Batali — is bumping its chief executive upstairs and closing 160 stores over the next two years. With sales in a tailspin, CEO Gregg Ribatt will step down in June, handing the reins to Crocs’ president, Andrew Rees.
Ribatt, who was brought in by Blackstone Group in 2013, will remain on the board of directors. Blackstone owns about 14 percent of the company.
Crocs will have 400 stores after the closures. The C-suite shuffle comes on the heels of a rough quarterly report. Revenue declined 10.5 percent in the three months ended Dec. 31 to $208.7 million, while the company lost $44.5 million in the quarter.
Athletic & Sporting Goods
But for some reason, the majority of fitness brands seem to only make their clothing in small sizes – as if only small people can work out. This week Nike officially released a range for plus-size women, going from size XL up to 3XL. The range features all kinds of workout-ready clothing, with sports bra, running tights, high-tech hoodies and more. Explaining why they chose to create a plus-size range, Nike said: ‘Nike recognizes that women are stronger, bolder and more outspoken than ever. ‘In today’s world, sport is no longer something that she does, it’s who she is. The days where we have to add ‘female’ before ‘athlete’ are over.
Kohl’s, which like most of its competition has struggled to attract shoppers in recent years, is breaking a marketing campaign this week to tell consumers it is now selling Under Armour products in stores and online. Company representatives have called the biggest brand launch—in terms of product— in Kohl’s history. Three 30-second TV broadcast spots will be airing, and Kohl’s is also planning a robust social media presence around the launch. The retailer, which spent $306.5 million on measured media in the U.S. in 2015 according to Ad Age’s Datacenter.
Cosmetics & Pharmacy
Two possible outcomes of Unilever’s strategic review could be an acquisition of either Colgate Palmolive or Edgewell Personal Care, Societe Generale stated in a Thursday research note. The investment firm also upgraded Unilever stock from “hold” to “buy” as well.
The firm also hinted at another possibility, but added this option is less likely.
“Analysts also see the split of the food and personal and home care divisions as an option, but point taking the risk of breaking synergies and a possible takeover by 3G Capital [parent of Kraft Heinz],” Societe General wrote, which was translated to English.
When retailers want to get some attention and rebrand themselves, they’ll often open a splashy flagship store in New York City. Ulta, which built its business by opening stores mostly in suburban strip malls, took 26 years before it finally committed to putting a store in our country’s mecca of fashion and beauty. And that store, slated to open in the fall of this year, will be in a distinctly uncool stretch of the Upper East Side. (It does have stores in Staten Island, the Bronx, and Queens, but this will be its first Manhattan outpost.)
Ulta’s strategy over the last few years has been elevating without alienating. The chain’s business model is unique, selling both high-end (prestige) brands like Urban Decay and drugstore (mass) brands like L’Oréal, as well as a full line of haircare and hair tools.
A 33-year-old make-up brand is looking to make inroads in the U.S. market with a jazzy-looking store that is big on interactivity.
Make Up For Ever opened its first global flagship — and sixth location in the United States — in Manhattan, near Bloomingdale’s. The store features the Paris-based company’s Go Pro Makeup format, which allows up to seven customers to learn and play with various makeup techniques. The setup is unique: Customers sit around a three-sided counter — located in the middle of the store — with a moving conveyor belt. Various sets of products grouped to create specific makeup looks rotate slowly around the bar, allowing customers to hand-pick the makeup skill they want to learn.
Discounters & Department Stores
As Target Corp. continues to reel from the shift to online shopping, executives at the Minneapolis-based retailer dramatically walked back their previous goals for growth and said this year instead would be focused on making significant investments for the future.
Target said Tuesday it will spend $2 billion this year and a total of $7 billion over three years to support its plans, which include price reductions to get more people into stores. Other initiatives — including remodeling stores, launching more private label brands and opening more small format stores — already were in the works.
Until recently, the phrase “DJ at Saks” conjured visions of a smartly suited man attending to the mix at a bar mitzvah. Now we must expand our understanding to include a person who creates the soundtrack for making a purchase.
Let me explain. Saks Fifth Avenue’s new men’s store at Brookfield Place opened last week, and Saturday-afternoon visitors could be forgiven for thinking that the launch party was still in progress. Just past the entrance was a man in headphones—his bald head gleaming hiply, his pot belly pulling at his designer T-shirt—peering over his sunglasses to work two turntables.
The mood? The music was chill, and a geezer dares not guess exactly what tunes were being spun. In any case, the very presence of a DJ was the spin, in marketing terms. In this period of department-store decline, Saks is asking shoppers to rethink our notion of the venerable institution.
Grocery & Restaurants
The warehouse retailer is raising its annual membership fees for the first time since 2011. Costco is boosting the price of its standard Gold Star membership by $5 to $60 a year. The Executive membership, which offers additional discounts and an annual reward on purchases, will go up $10 to $120 a year. The increases take effect June 1 and will affect about 35 million members. Costco typically raises fees every few years.
For the year, total sales increased 5% to $115.3 billion in 2016. Excluding fuel, total sales increased 6.7% in 2016 compared to 2015. Recent mergers with Roundy’s and ModernHEALTH contributed to this growth. Looking to 2017, Kroger anticipates identical supermarket sales, excluding fuel, to range from flat to 1% growth.
The restaurant industry is expecting sales of about $799 billion in 2017 as consumers continue to allocate more money towards eating out, the National Restaurant Association said in its annual industry outlook this week. The $799 billion increased 4.3 percent over last year’s estimated sales of $766 billion, and 1.7 percent when adjusted for inflation. That rate of growth is slightly better than the 1.5 percent increase estimated in 2016. And much of the growth is coming from limited-service options as consumers continue shifting their spending toward quicker, more convenience-oriented fare.
Home & Road
Hhgregg is cutting lose its weakest locations.
The struggling chain said it plans to close three distribution facilities and 88 stores as part its effort to improve liquidity and return to profitability. The closings, expected to be completed by mid-April, will leave the retailer with 132 stores.
The announcement comes just days after the New York Stock Exchange delisted Hhgregg for failing to meet the minimum listing requirement, and amid rumors the chain plans to file for bankruptcy protection.
“We are strategically exiting markets and stores that are not financially profitable for us,” said Robert J. Riesbeck, Hhgregg’s president and CEO.
Amazon.com has enlarged its presence in housewares retailing, posting impressive sales gains in a number of product segments in 2016, according to a report from One Click Retail.
The report zeroed in on the housewares category as “one of the main drivers of Amazon’s success” in 2016, accounting for 15 percent of its year-over-year sales growth. Total net sales for the e-commerce giant were $136 billion last year, up 27.1 percent over fiscal year 2015. Housewares generated nearly $7 billion in sales, up 33 percent from 2015, according to the report titled “The Amazon Effect: U.S. Housewares.”
Jewelry & Luxury
This week, Signet Jewelers, which has absorbed a number of blows in the past six months, was hit by another bombshell: a Washington Post article alleging sexual harassment and gender discrimination at its Sterling division, with excerpts from sworn statements from former employees.
Now, these complaints are not new. Some of these allegations date back decades. They formed the basis for the last group of articles on this issue. What has changed is that the affidavits have now been made public.
Law firm Cohen Milstein, which in 2008 brought a class action arbitration against Sterling for gender discrimination, has posted the 249 employee statements online, with the names of the accused redacted. Reading them certainly indicates that Sterling had a problem.
De Beers has dropped the price of the device designed to automatically batch screen diamond melee by nearly half.
The second-generation Automated Melee Screener, or AMS, is priced at $45,000, compared with $85,000 ($55,000 plus a three-year, $10,000-a-year support and maintenance charge) for the first-generation version introduced to the market in 2014. De Beers said the AMS2 also is about 10 times faster than its predecessor and has a substantially lower referral rate, meaning that fewer diamonds need further testing. A company spokeswoman said the referral rate on the AMS2 is less than 0.5 percent, compared with 2 percent on the first version.
On Feb. 27, U.S. district judge Jesse M. Furman, of the Southern District of New York, revealed the amount of LGC USA’s arbitration award against Julius Klein Group and related entities: $142 million.
That amount includes the initial face value of the award ($111 million), which was said to be equivalent to LGC’s 43.5 percent equity ownership of Julius Klein Group, plus $6.35 million for sight rights. The panel then added additional prejudgment interest. According to the panel ruling, $66.7 million had previously been paid from Julius Klein Group to LGC.
Office & Leisure
To the list of iconic products that are made in the Bay State — a list currently topped by Fluff and Zildjian drum cymbals — we can soon add one more: Play-Doh. Hasbro the Pawtucket, Rhode Island-based toy company, told the Wall Street Journal that it plans to make the moldable children’s modeling clay at a facility in East Longmeadow in the second half of 2018. Hasbro owned the facility now based in the Western Massachusetts town until August 2015, when it sold it to the Belgian game company Cartamundi NV. The company told the WSJ that Cartamundi plans to hire an additional 20 people at the East Longmeadow plant to make Play-Doh.
Play-Doh was invented in Cincinnati in the 1950s, but hasn’t been made in the U.S. since 2004. The company, which outsources all manufacturing, now makes the toy in factories in China and Turkey.
Hasbro executives said the decision was not in response to the election of President Donald Trump, who has boasted that he plans to bring back manufacturing jobs from overseas.
Technology & Internet
This could be the last call for RadioShack. General Wireless Operations, the company that runs the approximately 1,500 remaining RadioShack stores, is reportedly about to file for bankruptcy protection. Unnamed sources cited by Bloomberg said the bankruptcy will likely lead to liquidation rather than another stab at reorganizing.
Sales on Etsy Inc.’s marketplace for handcrafted goods grew 18.8% in its second full year as a public company. Sales on Etsy.com, which the marketplace calls gross merchandise sales, were $2.84 billion in 2016, up from $2.39 billion in 2015. 48% of Etsy’s 2016 sales came through its mobile website and app, up from 43% a year earlier. Etsy is gearing up to launch a new marketplace for craft supplies, called Etsy Studio, in April. With Studio, Etsy aims to bridge the gap between customers looking for do-it-yourself (DIY) projects and those customers buying the necessary craft supplies to complete the project, executives said on a call with investors discussing its full-year earnings results.
Finance & Economy
U.S. economic growth slowed in the fourth quarter as previously reported, with robust consumer spending offset by downward revisions to business and government investment. Economic data early in the first quarter has been mixed, with retail sales rising in January but homebuilding and business spending on capital goods easing. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised sharply higher to a 3.0 percent rate of growth in the fourth quarter
The number of Americans filing for unemployment benefits fell to near a 44-year-low last week, pointing to further tightening of the labor market even as economic growth appears to have remained moderate in the first quarter. The stronger labor market combined with rising inflation could push the Federal Reserve to raise interest rates this month. Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 223,000 for the week ended Feb. 25, the lowest level since March 1973, the Labor Department said.