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Although Facebook’s purchase of WhatsApp has dominated the business headlines over the past week, Signet Jewelers’ imminent acquisition of close competitor Zale Corp will be a much larger transaction in terms of the acquired company’s revenues. The latter also represents the most significant shift in global jewellery competition since brand Bvlgari was acquired in 2011. Apart from changing the global hierarchy, I expect this acquisition to prompt strategy reforms for leading players across North America. In this opinion piece, I evaluate the development’s effect on three distinct geographical levels.
As of 2012, Chow Tai Fook and Richemont were the two largest jewellery players in the world, with Signet ranked a distant third. However, Signet and Zale combined accounted for a 2% retail value share of global jewellery sales in 2012, propelling the alliance above Richemont into second place.
Even though Signet may not retain its global ranking by value sales in calendar year 2013, it now enjoys an extremely developed distribution network in three substantial jewellery markets (the US, Canada and the UK) as its total number of retail outlets exceeded 3,000 in December 2013. This gives Signet a distinct advantage over several brands, such as Bvlgari and Pandora, which are trying to reduce their dependence on third-party retailers.
Accounting for nearly 6% of national value sales in 2012, Signet Jewelers was already the leading jewellery player in the US. However, as discussed in the company profile Signet Jewelers Ltd, the company needed acquisitions and refined product lines in order to extract growth from its largest market. By acquiring the second largest player, Zale Corp, Signet has increased its share to 8.4% and consolidated its leadership in jewellery. The third largest manufacturer, Tiffany & Co, held a share of less than 3% in 2012 and offers limited competition to Signet’s non-luxury jewellery portfolio.
Within the US, Signet’s recent strategy has several similarities with that of Zale, which could help ease the integration of the two companies. Retaining these common efforts, the company is likely to pursue a recent focus on internet retailing, increase its reliance on brands exclusive to its retail chains and encourage cross-selling of these exclusive brands across the leading retail chains it will own, including Kay Jewelers, Jared the Galleria and Zales.
Although Signet has been the historical leader in jewellery sales in both the US and the UK, its limited geographical presence constrains the company’s influence at regional and global level. As such, the following slide taken from the above-mentioned company profile suggests some new markets that the company could possibly explore.
As the leading jewellery player in Canada, commanding a market share of 3.2% in 2012, Zale not only offers Signet a new market but also minimises the logistics and promotional costs associated with intercontinental operations. While the company is likely to prioritise an efficient merger and the consequent consolidation of its market share in Canada and the US, Signet’s long-term strategy must also include the exploration of markets outside North America for sustained global success.
Despite their commonalities in terms of retail networks and markets of operation, there is a stark difference in Signet and Zale’s financial situations. In their most recent fiscal years ending in 2013, their EBITDA margins (EBITDA to revenues ratio) were 17% and 4%, respectively. As such, increasing Zale’s profitability is a key concern for Signet, and one which it plans to achieve by sharing best practices across several functions. These will include outlet operation and positioning, supplier contracts, advertising expenses, as well as financial reporting. In terms of the global landscape, Signet’s latest move positions it as a formidable challenger to the top two jewellery manufacturers and poses a concern for any new player hoping to establish a presence in North America.