Retailscope

RAPAPORT... The last stop for diamonds is the retail store. Here is a behind-the-scenes look at what is happening in retail in the U.S.

Breeden Establishes Stronger Presence in Zale Corp.
Zale Corporation appointed Richard Breeden, chief executive officer (CEO) and chief financial officer of the hedge fund Breeden Capital Management LLC and former chairman of the Securities and Exchange Commission (SEC), to its board three days after the fund increased its stake in the jewelry retailer. James Cotter, a founding partner of Breeden Capital Management, was also named to the board, bringing its membership to eight.

Breeden now owns over 18 percent of Zale’s outstanding shares after raising its stake four times in January, the final time from 15.9 percent or 7.1 million shares, based on 44.6 million shares outstanding as of November 30, 2007.

Zale stated that it welcomes Breeden and Cotter’s “perspective and experience as investors and strategic advisors” in boosting its business at malls, the company’s primary venue. The jeweler, like other retailers, has been struggling due to weak consumer spending and lowered its second-quarter earnings forecast in the wake of diminished holiday sales. It cut capital spending for the year from $100 million to $85 million and will close approximately 60 stores in the next 90 days.

Derco Files for Chapter 11
Derco Fine Jewelers, a San Francisco-based retailer and manufacturer, filed for Chapter 11 with the U.S. Bankruptcy Court.

The unsecured creditors, who are collectively owed around $4.8 million, include: Adir Ltd.; Arslanian Freres; Daniel K; Eclipse Jewelry Corp.; EFD (USA) Inc.; EFD Diamonds Ltd.; Etessai Bros. Corp.; Eurostar Diamond Traders; FIBI Fine Diamond Manufacturers; H. Pinashi, Inc.; KGK Diamonds LLC; Koder Co.; Madro Kaprealian; Olympic Diamond Corp.; Ousher Lerner; Sachrida Styling; Waldman Diamond Company; and WF Diamonds Inc.

In addition, Derco owes LaSalle Retail Finance $11 million. The jeweler, established in 1939 by Krikor Der Abrahamian, operates businesses in the U.S., Antwerp and the Middle East.

Macy’s to Close Nine Stores
Macy’s announced that it will close nine of its stores, which employ around 900 people, by March of this year. Staffers affected by the closures will be offered positions at nearby stores or receive severance packages and assistance finding new jobs.

“While the decision to close stores is difficult, it is necessary that we do so selectively in locations with declining sales and where we have been unable to identify sufficient growth opportunities,” commented Terry Lundgren, chairman, chief executive officer (CEO) and president of Macy’s.

The affected stores include Canton Centre in Canton, Ohio; Crossroads Mall in Oklahoma City, Oklahoma; Family Center at Riverdale in Riverdale, Utah; Prien Lake Mall in Lake Charles, Louisiana; Randall Park Mall in North Randall, Ohio; Rolling Acres Mall in Akron, Ohio; Sharpstown Center in Houston, Texas; Valley View Center in Dallas, Texas; and Washington Square in Indianapolis, Indiana.

In the wake of the closures, Macy’s will operate a total of 815 stores and plans to open five new stores in 2008, with six to eight sites anticipated for 2009. The company launched ten stores and one furniture gallery in 2007.

Cartier Ushers in Engagement Season
Cartier unveiled its new bridal salon concept to coincide with the beginning of the engagement season, which extends from December through February and is aptly named; studies have shown that 15 percent of all proposals occur in December, with the trend continuing through Valentine’s Day.

The first salon opened last summer on Fifth Avenue in New York, with three others following in San Francisco, Dallas and Boca Raton. Cartier stores across the country are now being renovated to reflect the concept of the salons, which are designed to be more intimate than the standard jewelry store and carry only bridal offerings. Specialists are available to provide individual advice to customers, and some salons will feature private viewing rooms.

In conjunction with the salon concept, Cartier has introduced new wedding bands featuring creative and classic settings and a bridal personalization service called “Set for You by Cartier,” and has updated its bridal website, www.cartier.com/bridal.

Cartier hopes to complete salon renovations on its 35 North American stores by the end of 2009.

Harry Winston Appoints New Chief Financial Officer
Harry Winston Diamond Corporation appointed Alan Mayne as chief financial officer. Mayne replaces Alice Murphy, who has left the company.

Mayne most recently served as chief financial officer of CHUM Limited, a Canada-based mining firm, and held senior positions at TD Securities.

The company also appointed Matthew Barrett and Micheline Bouchard to its board of directors, bringing the membership total to nine. Barrett is the former chairman and chief executive officer (CEO) of Barclays PLC and the Bank of Montreal, where he was employed for 37 years.

Bouchard is the former president and CEO of ART Advanced Research Technologies. She currently serves on the board of directors of Telus Corporation, Citadel Group of Funds and Home Capital/Home Trust.

Tiffany & Co. Foundation Awards Grant to TransFair USA
The Tiffany & Co. Foundation has awarded TransFair USA, the nation’s only independent certifier of Fair Trade products, a $100,000 grant to assess the feasibility of Fair Trade certification for diamonds.

TransFair’s study will examine the possibility of implementing a Fair Trade standard for the diamond industry, given its ongoing social and ethical issues, particularly those pertaining to mining conditions. Over a million mine workers are paid less than $1 per day and face serious health hazards, such as the impact of mercury generated by burning amalgam, a standard way to recover gold, and the increased risk of silicosis, lung cancer and other diseases as a result of exposure to toxic substances.

The aim of the study is to produce a certification system that offers advantages to every tier of the industry, improving both community relations and working conditions.

Alpha Omega Retains Officials
Alpha Omega Jewelers request to allow Michael O’Hara of Consensus Advisors LLC and Gordon Lewis of Altman and Co. LLC to remain as chief restructuring officer and chief financial officer, respectively, throughout the jeweler’s Chapter 11 proceedings has been granted by federal bankruptcy judge William C. Hillman.

The U.S. Trustee’s Office had filed an emergency motion asking Judge Hillman to replace O’Hara and Lewis after its December discovery that $6.6 million in inventory was missing from Alpha Omega, according to Eric Bradford, counsel for the Trustee’s Office. The motion was denied.

Alpha Omega hired O’Hara in early November and Lewis last spring.

Slow Holiday Season Carries Over into New Year
Many larger jewelry companies posted heavy declines in comparable sales for November and December, with the Zale Corporation losing 9 percent for the period. Finlay Enterprises same-store sales dropped 6 percent, while Signet reported an estimated 7 percent drop. Signet’s U.S. operations, which declined 8 percent, contributed significantly to its total loss.

The sales decreases created a ripple effect on Wall Street; shares in each of the major jewelers have fallen by double-digit percentage points since the beginning of the year. Zale shares lost 5.28 percent, while Signet was basically flat at $11 per share. Finlay stock fell 3.2 percent to $1.21.

Jewelers were not alone in reporting weak holiday sales. Most large U.S. chains announced lower December sales, with the exceptions of Saks and Neiman Marcus.

Article from the Rapaport Magazine - February 2008. To subscribe click here.