Merchandising Each store has a core inventory package that includes those items promoted by Kay’s marketing. This core inventory is supplemented on a store by store basis by items selected by the division’s central merchandising function based on the sales pattern of each individual store. In fiscal 2009 greater emphasis was placed on using our supply chain expertise to provide good value to customers while maximizing gross merchandise margins, and gaining increased differentiation through exclusive merchandise, such as Le Vian and the Open Hearts collection designed by Jane Seymour. Marketing The romance-and-appreciation-based theme of Kay’s television advertising program continued to utilize the tag line “Every kiss begins with Kay”, which has significantly improved brand name recognition since it was introduced in 2000. For holiday 2008 emphasis was also made across all media that Kay Jewelers is the “number one jewelry store in America”. Management believes that national television advertising is the most efficient and cost-effective form of paid-for marketing and its use enhances brand name recognition nationwide, provides marketing leverage and improves the ability to lease prime store sites. Television advertising is supplemented with national print advertising in USA Today. In fiscal 2009 the US division produced 11 Kay catalogs, each of which featured a wide selection of merchandise and were prominently displayed in stores and mailed directly to targeted customers. Tele-inviting is also used. The Kay website was enhanced further and e-commerce sales increased significantly during fiscal 2009 but remain small in the context of the brand. Real Estate Kay stores have historically been located in enclosed regional malls. Since 2002, new formats have been developed for locations outside of traditional malls, because management believes these alternative locations present an opportunity to reach new customers who are aware of the brand but have no convenient access to a store, or for customers who prefer not to shop in an enclosed mall. Such stores further leverage the strong Kay brand, marketing support and the central overhead. In addition, nearly all current retail developments undertaken in recent years by investors are in formats other than enclosed regional malls. Enclosed Regional Malls The average Kay store in an enclosed regional mall contains approximately 1,250 square feet of selling space and 1,600 square feet of total space. The design and appearance of stores is standardized. The typical capital and working capital investment in the first year of trading is about $1.0 million. To maximize customer footfall, these stores are normally only opened in center court locations, corner locations by the main entrance or in corner locations by the food court; around 60% of the stores have center court sites. In fiscal 2009 a net 6 new mall stores were opened, bringing the total to 795. Off-mall Locations Off mall locations include ‘power’ centers and ‘lifestyle’ centers. A power center is a suburban open air shopping complex where the retail mix is predominantly ‘category killer’ superstores with some smaller specialty units. Lifestyle centers are suburban open air shopping centers where the retail mix is biased toward fashion stores and is also likely to have a large number of restaurants and other leisure facilities such as a movie theatre. At January 31, 2009 there were 113 such stores trading, a net increase of 18 during fiscal 2009. These stores are expected to have a lower initial capital expenditure, lower rents and lower sales per store at maturity than that of the Kay chain average, and are anticipated to satisfy the normal return on investment hurdle set by the Group. Outlet Locations A test of Kay in outlet malls began in fiscal 2007 when four stores were opened. These stores provide penetration into the value conscious sector of the market and are located in two types of centers: ‘Factory outlets’, in which 50% or more tenants are manufacturers’ outlets; and ‘Mixed use’ centers, typically with one million square feet of manufacturers’ outlet units, traditional mall stores and large space retailers. The core merchandise is the same as in all other Kay stores, as is the pricing structure, but the range in such outlet locations is supplemented by clearance merchandise rather than fashion product. At January 31, 2009 there were 18 (February 2, 2008: 10) Kay stores in outlet locations. The capital expenditure to open an outlet store is around 15% less than that of a traditional mall store. |