Overview

Signet is the world’s largest specialty retail jeweler by sales, with stores in the US, UK, Republic of Ireland and Channel Islands.

Business segments

The Group’s results derive from one business segment–the retailing of jewelry, watches and associated services. The Group is managed as two geographical operating segments: the US division (approximately 76% of sales) and the UK division (approximately 24% of sales). Both divisions are managed by executive committees, which report through the Group Chief Executive to the Group Board. Each divisional executive committee is responsible for operating decisions within parameters established by the Group Board. The following tables set forth the Group’s sales and operating performance in each of its geographical markets for each of the past three fiscal years.

(1) 53 week year

(2) Includes sales made in the Republic of Ireland and Channel Islands

US

In the US, in 2008 the Group had an approximate 3.9% share of the $65.8 billion total jewelry market (source: U.S. Bureau of Economic Analysis (“BEA”)). The BEA figures are subject to frequent and sometimes large revisions. Signet operated 1,401 stores in 50 states at January 31, 2009. Its stores trade nationally in malls and off-mall locations as Kay Jewelers (“Kay”), and regionally under a number of well-established mall-based brands. Destination superstores trade nationwide as Jared The Galleria Of Jewelry (“Jared”). The US market accounts for just under 50% of worldwide jewelry sales (source: Jewelry Industry Research Institute). The Group is the largest specialty jeweler in the US with sales approximately one and a half times those of the next biggest such retailer.

UK

In the UK, in 2007 Signet had an approximate 10% share of the £5.5 billion total jewelry market (source: Office for National Statistics (“ONS”) revised January 2009). The ONS figures are subject to frequent, and sometimes large revisions. Data for 2008 is due for publication on March 27, 2009.The stores trade as “H.Samuel,” “Ernest Jones,” and “Leslie Davis,” and are situated in prime ‘High Street’ locations (main shopping thoroughfares with high pedestrian traffic) or major shopping malls. The UK market accounts for approximately 7% of worldwide jewelry sales (source: Jewelry Industry Research Institute). The UK division operated 558 stores at January 31, 2009, including 14 stores in the Republic of Ireland. The UK business is the largest specialty retailer of fine jewelry in the UK with sales approximately 1.8 times those of the next biggest such retailer.

The growth of the UK jewelry market can also be estimated from the volume of hallmarking of jewelry items containing gold carried out by the Assay Offices in the UK. Hallmarking volumes grew at a compound rate of 2.2% from 1997 to 2004. In the last four years the volume has been variable and declined by 17.7% in 2005, by 14.2% in 2006, by 4.8% in 2007 and by 34.2% in 2008.

The Group’s sales are seasonal, with the first and second quarters each normally accounting for slightly more than 20% of annual sales, the third quarter a little under 20% and the fourth quarter for about 40% of sales, with December being by far the most important month of the year. Due to operating leverage, the operating income of the Group is even more seasonal, with nearly all of the UK division’s, and a little over 50% of the US division’s operating income normally occurring in the fourth quarter. Group expenses occur broadly evenly during the year, while net financing expenses are higher in the second half of the year reflecting the peak in working capital requirements just ahead of the key holiday trading period.

Operating philosophies

The Group aims to build long term value by focusing on the customer and providing a superior merchandise selection in high quality real estate locations. Effective advertising draws consumers into our stores, where the objective is to provide outstanding service. The operating philosophies that help the Group achieve these aims are:

• excellence in execution;
• test before we invest;
• continuous improvement; and
• disciplined investment.

back to top

Group strategy

Over recent years the Group’s long term strategy for delivering shareholder value has been to:

• maintain a strong balance sheet;
• continue the achievement of sector leading performance standards on both sides of the Atlantic;
• maximize store productivity in the US and the UK; and
• grow new store space in the US.

However, fiscal 2009, particularly the fourth quarter, was very challenging. As a result the Board reviewed its strategy and made significant adjustments to reflect the changed economic environment. The Group’s revised strategy is to enhance its position as the strongest operator in the middle market specialty retail jewelry sector and capitalize on the decrease in competition when consumer expenditure begins to recover. This involves maintaining a balance between the sustainable competitive advantages that the Group has established and the need to reduce risk, maximize profit and to strengthen the balance sheet through cash generation.

Sales will continue to be driven by leveraging the Group’s competitive strengths with the objective of maximizing gross merchandise margin dollars. In late fiscal 2009 and early fiscal 2010, a meaningful expense saving program was implemented and significant inventory reductions are planned to align both more closely with lower sales levels. Capital expenditure has also been substantially reduced, with decreased spending planned on both existing operations and space growth. New store openings have been largely eliminated. In the current marketplace it is preferable, and a much lower risk strategy, to grow profitable market share by focusing on sales productivity in existing stores.

While the level of expenditure on jewelry is discretionary, the expression of romance and appreciation, for example through bridal jewelry and gift giving, remain very important human needs, as is self reward. Central to the Group’s success is helping to satisfy those needs. Therefore the training of staff so that they can better understand the shopper’s requirements, communicate the value of the merchandise selected and ‘close the sale’ remains a high priority. The Group’s supply chain and merchandising expertise, combined with its size and balance sheet strength, enables it to increase differentiation in the marketplace through its exclusive merchandise, while also offering a compelling value proposition in more basic ranges. The Group’s marketing is effective and cost efficient, with its leading ‘share of voice’ leveraged through national television advertising and customer relationship marketing, both of which benefit from scale. At a time when the specialty jewelry sector is undergoing an accelerated rate of consolidation as weak competitors exit the market, these advantages become even more important.

Trademarks and trade names

Signet is not dependent on any material patents or licenses in either the US or the UK. However, Signet does have several well-established trademarks and trade names which are significant in maintaining its reputation and competitive position in the jewelry retailing industry. These registered trademarks and trade names include the following in Signet’s US operations: Kay Jewelers; Jared The Galleria Of Jewelry; JB Robinson Jewelers; Marks & Morgan Jewelers; Belden Jewelers; Weisfield Jewelers; Osterman Jewelers; Shaw’s Jewelers; Rogers Jewelers; LeRoy’s Jewelers; Goodman Jewelers; Friedlander’s Jewelers; Every kiss begins with Kay; Peerless Diamond; Hearts Desire; Perfect Partner; and Open Hearts by Jane Seymour. Trademarks and trade names include the following in Signet’s UK operations: H.Samuel; Ernest Jones; Leslie Davis; Forever Diamond; and Perfect Partner.

The value of the Group’s trademarks and trade names are material but are not reflected on the Group’s balance sheet. Their value is maintained and increased by the Group’s expenditure on staff training, marketing and store investment.

Maintaining our competitive edge

Our strengths lie in our superior staff, processes and systems accross all retail disciplines. These have been built up over time and developed according to the above objectives and philosophies.

Excellence in customer service

• Continuous training in customer service & product knowledge
• Highly motivated staff 
• Sales-facilitating credit programmes

     Superior merchandise selection

• Demand-driven merchandising systems
• Value adding supply chain capabilities
• Increasingly exclusive product ranges

Leading brands

• Sales growth driving marketing leverage
• Largest marketing budgets in specialty jewelry sector
• Building brand values
• Repair service building trust & customer visits

     High quality real estate

• Prime store locations
• Service oriented design
• Improved customer experience through consistent store investment