|
|
|
|
||
|
||
|
Overview Signet's US business is the second largest speciality retail jeweller in the US with an approximate market share of 7% from 1,025 stores in 45 states at 2 February 2002. In 2001/02 Signet had sales in the US of $1,621 million (2000/01: $1,457 million). At 2 February 2002 the Group operated 970 mall jewellery stores and 55 destination superstores in off-mall shopping centres. Its mall stores trade nationwide as Kay Jewelers ("Kay") and regionally under a variety of well established and respected trade names. The Group's off-mall destination superstores trade as Jared The Galleria Of Jewelry ("Jared"), the largest and fastest growing chain of destination jewellery stores in the US. In the medium term it is planned to grow like for like sales and to increase space by about 6% per annum, a significant part of which would come from the Jared concept. Competitive advantages Success in competing in the US speciality jewellery retail market is attributed by management to a number of factors which are summarised below and are explained in greater detail below. The quality of the US division's merchandising and credit operations; its well trained, well incentivised personnel; its stable, industry-experienced management team; its procedures and information systems; its prime real estate; and its geographic spread all contribute to its industry leading position in the US. In addition, management believes that economies of scale derived from its size, profitability of its stores and its high level of sales productivity give the US business additional competitive advantages in merchandising, purchasing, marketing, real estate and central administration. Compared to its competitors, the US division has the greatest capacity and expertise to direct-source loose diamonds. The casting, assembly and finishing operations are then outsourced. Management believes the direct sourcing allows the business to deliver to its customers superior value and quality in diamond merchandise. A retail diamond sale ultimately depends upon a salesperson's ability to communicate and explain the basis of the superior value and quality of the merchandise to the customer. Therefore the division has developed specialised training for its sales associates. The size of the division and its belief in the importance of staff training allows the business to leverage its training resources and systems more effectively. Strict criteria are used when evaluating real estate investment and management believes that the quality of its store portfolio is superior to that of its competitors. This is reflected in the US division's average sales per store, which are substantially higher than that of other quoted mid market speciality retail jewellers. Quick replenishment of goods sold is ensured by the US division's sophisticated merchandising systems that track and respond to consumer preferences, providing further competitive advantage. This is demonstrated by the cost of inventory to sales ratio, which management calculates to be lower than that of its main quoted competitors. Kay is one of just two speciality jewellery retail brands that have a nationwide presence large enough to take advantage of national network television advertising, the most cost effective way to attract customers and leverage brand recognition. In a very challenging economic environment the US business consistently outperformed the speciality jewellery sector, including its main competitors, and gained market share during the year. US operating profit rose by 9.8% to £145.1 million (2000/01: £132.2 million). Like for like sales increased by 0.6%. During 2001/02 the fundamental strengths and resilience of the business were again demonstrated. Significant competitive advantage was obtained from both merchandising and marketing initiatives, including a further concentration on broadcast media, particularly during the Christmas trading period. Investment in new real estate continued, the total selling space at year end being some 6% greater than that at the start of the year. The successful Jared off-mall superstore chain was further expanded, with the addition of 12 stores during the period, bringing the total to 55. Market place Total US jewellery sales, including those of non-speciality outlets, are estimated by the US Department of Commerce to have been $51 billion in 2001 (2000: $52 billion). The speciality market in which the business competes is approximately $25 billion (2000: $25 billion). Sales in speciality jewellery stores have grown overall at a compound annual growth rate of 3.9% from 1996 to 2001 (US Department of Commerce). The US like for like sales performance over a similar period grew at a compound annual growth rate of 7.3%, with total sales increasing by a compound annual growth rate of 15.1%. The US retail jewellery industry is very competitive and highly fragmented, with a large number of independent retailers. Signet believes that the five largest speciality jewellery retailers account for some 23% of speciality jewellery sales (approximately 15% by number of speciality stores). Such retailers have gained market share over the past five years. The number of speciality jewellery stores has been in long term decline and further decreased from approximately 26,100 in January 2001 to approximately 25,700 in February 2002 (Jewelers Board of Trade). This trend, together with the organic growth of speciality jewellery sales, provides significant opportunity for the more competitive businesses in the sector. In the broader $51 billion total jewellery market the US division competes against department stores, discount outlets, television home shopping and Internet shopping. Management believes that it also competes with nonjewellery retailers for consumers' discretionary dollar spend. The US speciality retail jewellery market enjoys the benefit of a favourable demographic trend. Baby boomers will make the 45-64 year old segment of the population the fastest growing age group over the next ten years. According to US Government sources, the per capita expenditure on jewellery in this age group, averaged over a four year period, is higher than in any other age group.
Store operations Stores in the US division offer jewellery in a wide variety of styles and price points, with emphasis on fine diamond, gemstone and gold products. Approximately 77% of sales are of diamond and gemstone merchandise. In 2001/02 the average retail price of all merchandise sold was approximately $257 (2000/01: $251). It is believed that the consumer places a greater emphasis on service, quality and selection rather than on price. The US division conducts its retail operations through three marketing divisions: Kay, regional chains and Jared. Kay and the regional chains are primarily located in regional and super-regional enclosed malls. The average mall store contains approximately 1,150 square feet of selling space. The design and appearance of stores is standardised within each chain and each store's design is adapted to its size and location. Details of recent investment in the store portfolio are set out below:
It is believed that the US division's prime real estate and ongoing investment in mall store refurbishments and relocations are competitive advantages that build store traffic. Superior like for like sales growth is normally achieved for a number of years following such investment in a store. The benefits from store modernisations normally include an increase in the linear footage of display cases positioned on the store frontage, improved lighting and better access to the store for customers. Strict real estate criteria are applied when considering investment
in stores and these were tightened in 2001/02, reflecting the more challenging
trading environment. For mall sites, corner locations with high footfall
in superior malls are targeted. The Jared chain targets free-standing
sites, that have high visibility and traffic flow, positioned close to
the front of "power strip" shopping complexes. In addition, the retail
centres in which Jared stores operate typically contain strong retail
co-tenancies, including other destination stores such as Borders Books,
Best Buy, Bed, Bath & Beyond, Home Depot and Toys Click to view a map that shows the number and locations of Kay, regional brand and Jared stores at 2 February 2002. The following table sets out information concerning the stores operated by the US division during the periods indicated:
In 2001/02 there was a net increase in store space of approximately 6% (2000/01: approximately 26% including the acquisition of Marks & Morgan). In 2002/03 it is planned to open 12 Jared stores and up to 40 mall stores, the majority of which will trade under the Kay name. Approximately 15 mall stores are planned for closure. Planned net openings should increase retail space by up to 6% by the end of 2002/03. Signet may consider, if appropriate, selective acquisitions of mall stores with similar characteristics to the existing portfolio. Kay The development and expansion of Kay as a nationwide chain is an important element of the growth strategy. Kay, with 667 primarily mall stores in 45 states at 2 February 2002 (27 January 2001: 650 stores), is targeted at the middle income consumer. In the longer term it is believed that there is potential to expand further the Kay chain by around 200 stores (net of closures). The average retail price of merchandise sold in the Kay chain during 2001/02 was $236 compared to $234 in 2000/01. Regional chains In order to increase market share in selected geographic areas the US division also operates mall stores under a variety of established regional trade names including JB Robinson Jewelers, Marks & Morgan Jewelers, Belden Jewelers, Friedlander's Jewelers, Goodman Jewelers, LeRoy's Jewelers, Osterman Jewelers, Roger's Jewelers, Shaw's Jewelers and Weisfield Jewelers. At 2 February 2002 the US division had 303 regional stores, operating in 30 states (27 January 2001: 306 stores). An increase in the number of stores with regional trade names would be considered if real estate satisfying the investment criteria becomes available. The average retail price of merchandise sold in the regional chains during 2001/02 was $263 compared to $264 in 2000/01. Regional chains In order to increase market share in selected geographic areas the US division also operates mall stores under a variety of established regional trade names including JB Robinson Jewelers, Marks & Morgan Jewelers, Belden Jewelers, Friedlander’s Jewelers, Goodman Jewelers, LeRoy’s Jewelers, Osterman Jewelers, Roger’s Jewelers, Shaw’s Jewelers and Weisfield Jewelers. At 2 February 2002 the US division had 303 regional stores, operating in 30 states (27 January 2001: 306 stores). An increase in the number of stores with regional trade names would be considered if real estate satisfying the investment criteria becomes available. The average retail price of merchandise sold in the regional chains during 2001/02 was $263 compared to $264 in 2000/01. Jared is the leading destination speciality jewellery chain, its competition being independent operators, with the next largest chain having less than half as many stores. A Jared store is about five times the size, with five times the inventory, and potentially five times the sales and profits of a typical mall store. This successful off-mall superstore concept targets an underserved sector of the jewellery market and therefore presents significant growth potential. Jared offers superior selection, customer service and value. The customer profile is of a more mature, better educated, higher income customer than that of the US division's mall stores. An important advantage of a destination store is that the potential customer visits the store with the intention of making a jewellery purchase, whereas in the mall there is a greater possibility of the intended spend being diverted. There were 55 Jared stores at 2 February 2002 (27 January 2001: 43 stores). The average retail price of merchandise sold in such stores during 2001/02 was $522 (2000/01: $489) which was more than double that in a mall store. The typical Jared store is about 5,800 square feet and, in addition to significantly expanded product ranges, its size permits enhanced customer services, including in-store repair and custom design facilities. Private viewing rooms are available for customers when required. There are also complimentary refreshments and a children's play area. The Jared concept has considerable growth potential and over 100 suitable markets in total have been identified for future expansion, with many of these markets able to support multiple Jared locations. Accordingly, in the longer term the Jared concept has the potential to expand to over 200 stores nationwide, generating annual sales of over $1 billion. In the first five years of trading a Jared store is projected to have a faster rate of like for like sales growth than a mature mall store. At the end of this period the projected operating margin is expected to have risen to around that of the mature mall stores and give a greater return on capital employed. At 2 February 2002 about 50% of the Jared stores had been open for less than 18 months and only four had been open for more than five years. Store management, personnel, training and incentives The quality of store sales staff is considered critical to the success of the US division. Its training and incentive programmes are designed to play an important role in retaining and recruiting staff. The division's preferred practice is to promote store managers, district managers and regional vice-presidents from within the organisation, thereby helping to ensure continuity and familiarity with store operations, sales training, selling methods and corporate culture. Store personnel must complete their basic training within 90 days of employment. There are also in-house sales training seminars for all sales staff and classes for store management. Supplementing the seminars are in-store computer based training and testing programmes, as well as role-playing workshops designed to strengthen and reinforce selling skills. All retail sales personnel are encouraged to achieve Certified Diamontologist status by graduating from a comprehensive diamond correspondence course provided by the Diamond Council of America. Approximately 45% of full time sales staff who have completed their probationary period are certified diamontologists or are training to become certified. Employees often continue their professional development through completion of a correspondence course on gemstones. The US division also devotes substantial resources to training its managers, and conducts at its corporate headquarters a number of in-house management and career development programmes. These programmes are tailored to address specialised areas such as the managing of high volume mall stores and Jared stores. In addition further training is provided at the annual managers' meeting. All store personnel have daily performance standards to meet and are required to establish and commit to daily goals. The store information system provides a daily comparison of actual performance with the previous day's goals. Individual goals and performance are factored into promotion decisions. Monthly incentive programmes are in place from which store employees receive a bonus based on their individual sales performance. This bonus can increase significantly if the store as a whole achieves certain sales goals for the month. To qualify for the bonus the employees must have successfully completed their basic training. The programmes, which are based on overall as well as individual performance, are designed to promote customer service and operating efficiencies. Bonuses are awarded to store managers based on the profitability of their stores in addition to sales-based incentives. Bonuses paid to district managers are based on the achievement of certain objectives for the stores under their control, including sales and margin goals, operating cost control, training, compliance with loss prevention matters and profitability. Contests and incentive programmes rewarding achievement of specific goals with travel or additional cash awards, are frequently run. In 2001/02 approximately 21% (2000/01: 22%) of store personnel remuneration was incentive based. Merchandising The selection, availability and value for money of its merchandise is believed by the US division to be central to its success. It is also of the view that the emphasis on testing and rapid replenishment of successful products, together with the diamond purchasing strategy, enable the US division to deliver an appropriate range of products. The division has developed and implemented sophisticated inventory management systems, with particular emphasis on merchandise assortment planning, allocation and replenishment. These systems enable tight control to be exercised over inventory, thereby increasing productivity. A model inventory plan is in place for each store and is periodically revised. Approximately 70% of the merchandise is available for sale in all mall stores, with the remainder being allocated to reflect demand in particular markets. The inventory management team works closely with the marketing team to determine merchandise quantities needed to support marketing initiatives, and uses historical sales performance and forecasting models to maximise sales. It is believed that its merchandising and inventory management systems, as well as improvements in the efficacy of its centralised distribution centre, have allowed the US division to achieve inventory turns that are better than those of its quoted competitors. In 2001/02 the average cost of inventory as a percentage of annual sales increased to 36.0% (2000/01: 33.2%) reflecting the immaturity of space added during the year. Other merchandising initiatives are designed to create competitive advantage through providing a distinctive selection of product. Programmes have been established in conjunction with certain vendors for the provision of exclusive merchandise. For example, an exclusive distribution agreement for the US market has been entered into with the Leo Schachter Company to sell the Leo Diamond. This diamond has a new and patented cut resulting in greater brilliance than a conventional diamond of equal colour, clarity and weight. The Leo Diamond comes with its own independent certification, known as the "Return Of Light". Leo Diamond merchandise is currently available in all Jared and all Kay stores. In 2001/02 the bridal category accounted for approximately 44% of merchandise sold, with diamonds being some 94% of this. It has proven to be a stable category, not subject to seasonality, and has been an area of steady growth in sales over the past three years. The table below sets out Signet's US merchandise sales mix as a percentage of net sales for 1999/00 to 2001/02:
Purchasing The US division purchases loose diamonds on the world market. The casting, assembly and finishing operations are outsourced. This accounts for approximately 55% of diamond merchandise sold. It is believed that this approach to purchasing results in a competitive cost and quality advantage by reducing the cost of intermediate steps in the supply chain. Contract casting and the setting of loose diamonds are generally utilised on basic items or programmes with proven historical sales patterns which are not volatile, and which represent a lower risk of over or under purchasing. Furthermore, this purchasing strategy also allows the buyers to gain a detailed understanding of the manufacturing cost structure, thus improving the prospects of obtaining better terms for the supply of finished products. Merchandise considered likely to have greater unpredictable sales patterns is purchased complete as finished product. This provides the opportunity to hold shelf stock with vendors and to make supplier returns/exchanges, thereby reducing the risk of over or under purchasing. Merchandise held on consignment is used to enhance product selection and to test new designs. This minimises the exposure to changes in fashion trends and obsolescence whilst giving the flexibility of returning or exchanging non-performing merchandise. At 2 February 2002 the US division held approximately $133 million (2000/01: $113 million) of merchandise on consignment (see note 12). In 2001/02 the division's five largest suppliers collectively accounted for approximately 25% (2000/01: 21%) of its total purchases, with the largest supplier accounting for approximately 9% (2000/01: 6%). Marketing and advertising Store brand name recognition by consumers is believed to be a critical factor in jewellery retailing, as the products themselves are usually unbranded. The US division continues to strengthen and promote its brands and build store brand name recognition through a range of media advertising including television, radio, print, catalogues, circulars, point-of-sale signage, in-store displays and the Internet. Established strategic marketing and advertising research programmes provide a strong understanding of jewellery customers and their purchasing profile. Advertising and marketing expenditure increased by 12% to $101.5 million in 2001/02 (2000/01: $90.3 million), primarily as a result of the continued expansion of the Jared concept and total mall sales growth. As a percentage of net sales the gross expenditure amounted to 6.3% (2000/01: 6.2%). In 2001/02 lower advertising costs enabled the US business to increase the number of broadcast advertising impressions at a greater rate than the increase in expenditure. For all of its brands the US division concentrates its advertising activities at those times during the year when customers are expected to be most receptive to the advertising message. During the 2001 Christmas trading period the number of Kay television impressions increased by 13% and radio advertising impressions were up by 10%. In the case of Kay stores, the cost of network television advertising is leveraged as the number of stores increases. Kay uses a romance based theme in its advertising and the slogan "Every Kiss Begins With Kay". Campaigns for Jared and regional chains use regional radio advertising supplemented by direct mail as a cost effective medium to support and enhance name recognition. A Jared television advertising programme was tested in selected television markets during 2001/02. The programme will continue in 2002/03 in order to develop a more complete understanding of the dynamics of advertising Jared on television. All the US stores use printed advertising catalogues that feature a wide selection of merchandise. Each year the US division produces 11 catalogues which are prominently displayed in the stores. Many of these catalogues are also mailed direct to targeted customers. The US division employs statistics and technology-based systems to support a direct marketing programme using its proprietary database of over 18 million names to strengthen its relationship with existing customers. The programme targets current customers with special savings and merchandise offers during the key trading periods. Invitations to special promotional events hosted in its stores are also extended throughout the year. During 2001/02 the Internet marketing site for Kay (www.kay.com) was upgraded. The improved web site displays an expanded merchandise assortment available in-store and is easier to navigate as a result of enhanced search engine capabilities. Other features added to the web site include customer registration and the ability for customers to compile a gift "wish list". Various credit programmes help to establish long-term relationships with customers and complement the overall marketing strategy by encouraging both additional purchases and higher unit sales. A variety of in-house credit programmes are offered for customers who wish to finance their purchases and who meet credit standards. Management regards the provision of an in-house credit programme as a competitive advantage. The in-house credit operations table below represents data related to the in-house credit business for the past three financial years. In-house credit sales represented approximately 50% of total US net sales in 2001/02 (50% in 2000/01). Certain programmes offer interest-free financing and, to reduce credit risk, down payments are generally required. These averaged 16% of the purchase price in 2001/02. In most states customers are offered optional third party credit insurance providing coverage for in-house credit purchases in the event of burglary, death, disabling injury, leave of absence or unemployment. Centralised credit authorisation and collection processes are based at the division's headquarters in Akron, Ohio. The creditworthiness of each applicant is evaluated by the scoring of credit application data, together with the use of credit data obtained through on-line access to third party credit bureaux. This system is capable of processing and approving the majority of credit applications in less than two minutes after data input. Using statistical methods, the US division has implemented scoring models that support its collection systems and strategies. During 2001/02 collection efforts and strategies were redirected, increasing the emphasis placed on contacting accounts at earlier stages of account delinquency. In addition to the in-house credit card, the US business accepts major credit cards. Sales made with major credit cards are treated as cash sales and accounted for approximately 35% of total US net sales during 2001/02 (2000/01: 33%). Management tools and communications Management information systems provide detailed, timely information to monitor and evaluate virtually every aspect of the business. All stores are supported by the internally developed Store Information System ("SIS"). The SIS includes electronic point of sale ("EPOS") processing, inhouse credit authorisation and support, a district manager information system and a satellite-based communications system, which supports data transmissions and companywide electronic mail in real time. At the end of each day, data captured by the EPOS system is automatically transmitted to headquarters and is used to update sales, in-house credit and perpetual inventory systems and to determine inventory replenishment for stores. The US division's information systems are highly integrated and comprehensive, providing management with daily, weekly and monthly operating and statistical reports, including timely information about inventories, sales, gross profit margins, payroll, receivables and operating costs. They also allow for comparison of actual, budgeted and prior year performance for every individual store and make it possible to follow and analyse product and regional sales trends. The merchandise processing system enables management to track automatically each individual item of merchandise from receipt to ultimate sale, and to monitor sales, gross margins and inventory levels by store, by merchandise category and by individual merchandise item. The division's automated, paperless merchandise picking system can replenish up to approximately 180,000 pieces of merchandise in a single day. In addition, an automated daily merchandise piece counting system was put in place in stores, improving employee productivity and significantly enhancing the effectiveness of this important loss prevention measure.
Regulation The US division's operations must comply with numerous federal and state laws and regulations covering areas such as consumer protection, consumer privacy, consumer credit, consumer credit insurance and employment legislation. Management endeavours to monitor changes in these laws to ensure that its practices comply with the requirements.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Key
features during 2001/02
Us.
