Jared

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Introduction
Jared is the leading off-mall destination specialty retail jewelry chain in its sector of the market, based on sales, with 171 stores as at January 31, 2009 (February 2, 2008: 154). The first Jared store was opened in 1993, and since its roll-out began in 1998 it has grown to become the fourth largest US specialty retail jewelry brand by sales. Each Jared is equivalent in size to about four of the division’s mall stores, meaning that Jared, in space terms, is equivalent to nearly 700 mall stores. Its main competitors are independent operators. The next two largest such chains with some 23 and 20 stores respectively entered Chapter 11 proceedings in January 2009. Details of Jared’s performance over the last five years are given below:

Jared targets an under-served sector at the upper end of the middle market. This customer is more mature and has a higher income than that of Signet’s US mall store customer. An important distinction of a destination store is that the potential customer visits the store with a greater intention of making a jewelry purchase, wherea  in a mall there is a possibility that the potential shopper is undecided about the product category in which they will ultimately make a purchase.

The average retail price of merchandise sold in Jared stores during fiscal 2009, excluding a new charm bracelet launched in some stores, was $764 (fiscal 2008: $747), which was more than double that of a Signet US mall store. Jared targets households with an annual income of between $50,000 and $150,000. Such households account for about 50% of US jewelry expenditure.

Jared sales were $726.2 million during fiscal 2009 (fiscal 2008: $756.4 million). In the fourth quarter the Jared consumer was more adversely impacted by the economic environment than the division’s mall customers. The portfolio of stores increased by 17 to 171, and the Jared website became transactional during fiscal 2009. Management plans to open eight Jared stores in fiscal 2010 and this format continues to account for the majority of the division’s new store space.

A key point of differentiation, compared to a typical mall store, is Jared’s higher quality of customer service. As a result of its larger size, more specialist staff are available and additional in-depth selling methodologies may be used, such as the ‘white glove’ presentation of timepieces.

Every Jared store has an on-site design and repair workshop where most repairs are completed within one hour. The center also mounts loose diamonds in settings and provides a custom design service when required. Each store also has at least one diamond viewing room, a children’s play area and complimentary refreshments.

Investment Model

In the first year of trading a typical Jared store requires an investment of about $3.9 million, of which about 75% is working capital.  First year sales are projected to be some $3.4 million and to make a contribution on a ‘four wall basis’.  In the first five years of trading a Jared store is forecast to have a faster rate of sales growth than that of a mall store over the same period.  At the end of this period the planned sales level is $5 million to $6 million and the expected operating margin is comparable to that of a mall store at maturity, with a greater return on capital employed.

The chain is immature with only 46% of stores having traded for five or more years.  In their fifth year of trading the average sales of a Jared store was some $5.4 million which is above the target level set at the time of the original investment.  The average sales per store for those Jared locations that have been open for six years or more was $5.3 million in fiscal 2009 (fiscal 2008: $6.4 million).  The average sales per Jared store open for the whole of fiscal 2009 was $4.5 million (fiscal 2008: $5.4million) reflecting the challenging economic environment seen for the whole of calendar 2008, but particularly the fourth quarter, which appeared to effect  the upper middle market  harder..

Since the concept was first tested in 1993 it has been continually evaluated, developed and refined.  Management believes that compared to its competitors, Jared benefits from leveraging the division’s established infrastructure, access to a pool of experienced store managers, and availability of capital required to develop and grow the brand.  In the current environment fewer Jared stores are likely to be opened than in recent years.

Merchandising
Jared’s merchandise range is about five times the value of one of the US division’s mall stores and includes larger and better quality diamonds, such as the Peerless Diamond, the Leo Artisan and the Hearts Desire ranges. T he diamond selection also includes an extensive choice of loose stones in sizes from 1/5 carat to three carats.  There is a wide selection of settings into which the chosen stone can be set on-site.  Additionally, each Jared has a virtual diamond vault linked exclusively to a vendor’s inventory, allowing an item selected by the customer to be delivered to a Jared store, usually within 24 hours.

In fiscal 2009 watches accounted for about double the merchandise mix in Jared to that of the division as a whole.  The range [, which continues to be expanded,] includes Baume & Mercier, Cartier, Montblanc, Movado, Omega, Rado, Raymond Weil, Rolex, Tag Heuer and Tissot. Each store also has a comprehensive selection of gold and colored stone jewelry.

Marketing
Historically Jared advertised on radio for most of the year and complemented this during key trading periods by advertising on television.  The move by Jared to national rather than local television advertising, which began in fiscal 2007, provides the opportunity for improved advertising leverage in future years. Jared has a higher advertising to sales ratio than the division’s mall stores because it is a destination store and is still at an early stage of development. In fiscal 2009 national radio advertising was used for the first time.  The advertising is designed to build name recognition and visit intent through an emphasis on selection and service and utilizes the tag line “He went to Jared”.  A special catalog featuring luxury watches was produced for Jared.  A transactional capability was launched on the Jared website during the third quarter of fiscal 2009.

Real estate
The typical Jared store has about 4,900 square feet of selling space and 6,100 square feet of total space. Jared locations are normally free-standing sites in shopping developments with high visibility and traffic flow, and positioned close to major roads.  The retail centers in which Jared stores operate, normally contain strong retail co-tenants, including other category killer destination stores such as Barnes & Noble, Best Buy, Home Depot and Bed, Bath & Beyond, as well as some smaller specialty units.  It is planned to open 8 Jared stores in fiscal 2010, which were contracted for completion before the economic downturn.