Signet Jewelers Has A New Plan

Transcript of the video:

Signet Jewelers announced a massive shift in strategy, highlighting a significant difference between the approaches of previous CEO Gina Drosos and J.K. Symancyk who replaced her in November.

Now I wrote a piece for The Diamond Press (see: Signet For Sale? A Strategic Change is Needed) a few weeks ago calling out Drosos after a major shareholder wrote a letter pressing for a strategic change and pointing a finger at Symancyk for the poor holiday season, and urging for a review which it said should include a potential sale of the company.

Signet shares tanked following that letter or continued their decline, frankly. The company has halved in value within just three months of its peak at the end of November.

Now, Signet published its earnings last week, on Wednesday. The numbers themselves didn’t really offer anything new, beyond perhaps its guidance, which slighted toward the positive.

But for the last year, we already surmised, revenue was down 7% to $6.7 billion dollars, same-store sales were down 3.4%, and profit slumped 92% to $61 million dollars.

What the financials did reveal though once again was the difficulty Signet has had to stimulate growth, and the need for the strategic change that that shareholder demanded and which Symancyk presented with the earnings.

And I think he hit all the right notes, and it seems the market did too. The share jumped around 16% in the days following the presentation.

And not to toot my own horn, but in my piece, I offered my opinion, for what it’s worth, of what Signet needed to address. And some of those Symancyk is now tackling, such as changing the company’s narrative regarding its banners, and remember that word, banners, we’ll come back to it. Its differentiation between natural and lab-grown diamonds, or the lack of differentiation, and the need to refresh its image. So, you’re welcome, J.K.   

Okay, ego boosted. Now let’s move on.

But before we get into the nitty gritty of the strategy, we need to understand Signet’s structure. Signet Jewelers is essentially a holding company with a number jewelry business in its portfolio, and that’s part of what Symancyk is trying to change. One of his goals it seems is to make the group more congruent, integrated, and efficient, I think.

But what are those businesses? It includes many names you’ll know; Kay Jewelers, Zales, Jared, online sellers James Allen and Blue Nile, Diamonds Direct, Banter by Piercing Pagoda, Peoples Jewelers in Canada, and H. Samuel and Ernest Jones in the UK. And Signet has a services division and a wholesale operation. People forget, it’s a De Beers sightholder and has a diamond manufacturing facility in Botswana.

But its core is retail, and it ended last year with 2,642 store locations. It is the largest jeweler in the United States, both in terms of sales and in terms of retail doors. Signet matters. It should be a bellwether for the industry, but it has lagged the market in the last few years.  

So, what’s the plan to turn that around, and restore its leadership role? Firstly, the strategy goes by name of Grow Brand Love. Executives like to name their strategic programs so get used to hearing that phrase from Symancyk and his team.

Grow Brand Love tackles three areas, or strategic imperatives, to use Signet’s words.

The first is a shift to a brand mindset. And I think this marks the biggest change. A) because it’s long overdue, and B) more importantly because it represents a change in the company culture.

Signet has always referred to the businesses in its portfolio, that’s Kay, Zales, Jared etc., as banners, which gives off a very corporate vibe. It’s not a very welcoming term that consumers might relate to. And it’s true, consumers aren’t reading Signet’s 10K SEC filing. But they do pick up on corporate energy, which stems from a mindset. So, we shouldn’t dismiss this a trivial matter of simply terminology.

And Symancyk said exactly that in the earnings call presentation. He said as follows:

“Brands build loyalty with customers through emotional and engaging connections, while banners are transactional, literally a static nameplate on the door.”

And that’s worth quoting, because from our point of view it’s not just about Signet. These are cultural shifts that I think everyone in the industry needs to be thinking about.

I ask you. Are you presenting as a name plate to your customers? Whether you’re on Main Street, in social media, sitting in a 20th floor office in one of the bourses, or digging dirt for diamonds. One builds loyalty through emotional and engaging connections.

So, well said J.K. And it’s been a glaring misstep at Signet for decades. If one considers the name recognition that Kay, Zales and Jared have, these are brands, they’re not banners. And that’s where the focus will be moving forward, particularly on those three names. But ultimately the aim is to create a stronger identity for each of the name plates in the portfolio, and a clearer distinction between them.    

And that involves a modernization both in terms of product design and store presentation. And I like this line they used in their investor presentation, to have Signet’s marketing focus on emotion rather than promotion.

So, that’s strategy area number 1 – branding.

The second centers on product mix, and highlights Signet’s approach to the bridal segment, where it claims 28% of the $10 billion US bridal market, and the fashion segment where Signet says it holds 6% of the $50 billion market.

The company’s bridal sales fell 8% to $2.9 billion for the year, and sales of fashion jewelry dropped 5% to $2.6 billion. Signet also a smaller watch segment, and as mentioned, services and wholesale that all contribute to revenue.

While it’s a leader in bridal, the real growth opportunity is in fashion, particularly I think when we talk in terms of driving transaction volumes. And that seems to vbe where the main growth focus will be for Signet.

But from our diamond industry point of view, we see Signet thinking about bridal as more of a natural diamond segment and fashion leaning more toward lab grown diamonds. Obviously, one is not to the total exclusion of the other, but Symancyk signaled that Signet would be more proactive in promoting and protecting the emotional idea behind a natural diamond, and that underpins the bridal segment.

And here again, what’s true for Signet is true for the rest of the industry. We’re seeing across the board that retail prices of lab grown diamonds are declining because wholesale prices have tanked in the last few years. And jewelers are reconsidering their relationship with lab grown because they’ve been selling more lower price-point product, through their synthetics offering, and that has affected their top line revenue and their bottom-line dollar profit. It’s true that retailers make better margins off lab grown – that’s sales over cost of sales – but you pay for inventory, you pay rent and wages in dollars, not in percentages.

So that’s part of Signet’s story and it will be very interesting to observe the extent to which the largest seller of bridal jeweler can reclaim that space for the natural diamond market.

Getting away from the natural versus lab grown issue that we all love, within this second strategic imperative, there’s a very distinct change in Signet’s approach, and maybe highlights a difference in what Drosos was able to do and her approach and what Symancik is required to do.

Any growth we’ve seen from Signet in the last few years has driven by acquisitions. James Allen, Blue Nile, Diamonds Direct, Rocksbox, within its services division. Drosos set a revenue goal of nine or $10 billion dollars and the only way it was going to reach that was by acquiring companies. And that fooled the market for a while as the share price rose.

But it was never true sustainable growth, as same-store sales declined quarter after quarter. Growth under Symancik must be organic, and from the presentation I think that’s the instruction he’s been given by the board. Same-store sales is the most important metric that we need to watch.

Okay, the final pillar, or strategic imperative, involves a reorganization of Signet’s operations, simplifying the portfolio by clustering its brands in four different areas.

Those are Milestone & Romantic Gifting Jewelry, which is where Kay and Peoples sit;

Zales and Banter is where apparently one goes for Style & Trends;

Inspired Luxury is presented by Jared and Diamonds Direct;

And in the category of Digital Pure Play we have Blue Nile, James Allen, and Rocksbox.

Functions such as media buying, merchandizing, sourcing, services, and IT will be centralized accordingly, and the leadership will also be organized in that way. Part of the whole strategy is to cut costs and be more efficient, and that involves cutting about 30% of management positions and closing about 150 stores. Signet will also reposition about 200 strong performing stores that are in declining venues, AKA malls, to off-mall locations.

And that’s it in a nutshell. What I like about the plan is that it is practical, it doesn't set unrealistic goals of cutting x hundred million dollars in costs or reaching x billion dollars of revenues within a certain time period.

That said, we need to recognize the nature of the corporate entities that operate in the diamond and jewelry industry. Their priority is ultimately to satisfy shareholder expectations, even if that means selling a lower price point product like synthetics because it’s perceived as the growth item at the time. It can be very short-term looking.  

Corporate executives have a limited term in their positions and their success is measured by the share performance and not how they might propel the industry forward, even if we in the industry sometimes expect of them.

I’m encouraged that Symancyk’s plan somewhat aligns the needs of shareholders with the direction that is required for the industry to self-correct. That is to reinvest in natural diamonds, and the value, both emotional and financial, that they offer, and a focus on creating strong brands and stories that resonate with consumers.

What do you guys think? Is Signet on the right path with its new strategy, or at least sending the right message to the market? That’s the stock market and the jewelry market, of course.

Either way, we’ll be keeping an eye on Signet’s execution of its Grow Brand Love strategy. Signet expects same-store sales to between flat and up 2% in the current first quarter and between negative 1.5% and positive 2.5% for the year. Let’s hope they beat that as we hope the diamond and jewelry market exceeds expectations in 2025.

Thanks for watching. Don’t forget to like this video and subscribe to my channel, and log on to the diamond press for more. I appreciate your supportI’m Avi Krawitz, I’ll see you next time.