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Who benefits most when two jewelry juggernauts join forces?
When Signet Jewelers, the parent company of familiar names like Kay Jewelers and Jared the Galleria of Jewelry, acquired the giant Zales Corporation with its well-known Zales and Gordons brands, a jewelry juggernaut was created. Signet and Zales were already the two largest jewelers in the United States before this historic merger. Together, they have the opportunity to become an unstoppable powerhouse that virtually controls the US retail jewelry market.
| Jared Galleria of Jewelry Store | Kay Jewelers Store | |
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| Click to Enlarge Image | Click to Enlarge Image |
Investors have already benefited from this sale, with shares of Zales surging 40% on the merger news. Signet shares also rose 12% to a record 52-week high. The jury is still out on whether this monumental merger will offer the same sort of benefits for customers. Consolidation in other industries has shown mixed benefits. The economies of scale that a larger organization brings often result in lower prices for consumers. These savings come at a price however. A large organization must streamline their supply chain to maintain profitability targets, and smaller vendors are often eliminated. This means that although prices are typically good, consumers often have fewer choices.
According to Signet CEO Michael Barnes, “the addition of Zale to the Signet family is consistent with our long-term growth strategy and leverages our combined operating expertise to create better choices for our customers, new opportunities for our employees and makes us a more attractive partner to our vendors.”
Based on what Michael Barnes has already accomplished with his Signet brands, this means big changes for the Zales Corporation in the years ahead. Signet has already completed a multi-year turnaround program that has returned the corporation to profitability. They will almost certainly use the same strategies to return their newly acquired Zales and Gordons brands to profitability as well.
A Retail Jewelry Powerhouse
The combined companies from this monumental $1.4 billion dollar transaction will operate more than 3,600 stores in the United States, in addition to each brands’ online retail operations. It is estimated that this new jewelry powerhouse will generate annual sales in excess of $6 billion. The company will employ nearly 30,000 people.
The merger, which will be financed by bank debt, other debt financing and the securitization of a significant portion of Signet’s accounts receivable portfolio, is still subject to the approval of Zale’s stockholders and must meet regulatory requirements. Industry insiders expect that the sale will go through however, and the transaction is expected to close later this year.
Since all of the brands involved sell watches, the merger will have definite implications for the watch industry. Consolidation is already a fact of life within the luxury industry, so there will probably be no surprises. Some brands will grow stronger through improved access to a larger customer base. Other fringe brands may be hurt, especially if they are eliminated as a Signet vendor.
One thing is certain. With $6 billion in projected sales, there will still be a lot of people buying fine jewelry and luxury watches.
About Gevril Group
Watchmaker and wholesale watch distributor Gevril Group is the exclusive U.S. agent for exquisitely designed and crafted European luxury and fashion watch brands, distributing and servicing some of the best affordable luxury, Swiss and fashion watches. Gevril Group also operates a full-service watch repair, staffed by master Swiss watchmakers. Contact Gevril Group by email or by calling 845-425-9882.
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