28 / 90
25
DEVELOPED MARKET RETAILERS ARE UNDER PRESSURE, BUT
SOME BUSINESS MODELS PERFORM STRONGLY
In developed markets, multiple business models exist
within diamond jewellery retail, ranging from luxury
chains to small, independent, family-owned stores.
Many of the large listed retailers across the US, Japan
and Europe have failed to meet their cost of capital,
resulting in negative returns
4
(see Fig. 9). Leading US
speciality jewellery chains closed over 2,000 doors in
the last five years, with several traditional large chains
such as Whitehall, Friedman’s and Finlay no longer
trading
5
(see Fig. 10). No new jewellery retail chains
of scale have emerged to replace the doors lost when
these stores ceased to trade.
Not all developed market retailers make returns below
their weighted average cost of capital (WACC). Among
several retailers that have established successful
business models is Tiffany, which maintains one of
the highest margins of its peer group
6
. Blue Nile is
another example: the company is unusual in achieving
negative working capital by minimising inventory and
maximising payables, as consumers pay for their items
before they have been acquired by Blue Nile
7
.
FIG. 9:
FINANCIAL RATIOS FOR A SELECTION OF
LISTED JEWELLERS IN DEVELOPED MARKETS
Source: Bloomberg
Per cent
i
Blue Nile’s 2013 annual report states that the company has
negative working capital
ROIC
2012 Most recent
EBIT
2012 Most recent
Signet
Jewelers
15
14
15
14
Zale
Corporation
7
3
5
1
JC Penney
-13
-10
-2
-11
Blue Nile
i
40
3
54
3
Jewelry
Tsutsumi
3
13
3
13
Tiffany
15
21
19
18
US
Tasaki
Shinju
5
1
-2
-3
JAPAN
Damiani
-5
-4
-6
-5
EUROPE
FIG. 10:
UNITED STATES JEWELLERY CHAINS’
DOORS OVER TIME
Source: Company filings
i
Signet Jewelers acquired Ultra in 2012, with stores now
incorporated in Signet Jewelers’ (US) total
ii
Signet Jewelers acquired Zale Corporation in 2014
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
6,500
6,000
5,500
5,000
4,500
411
317
274
155
95
88
2013
3,847
1,679
1,471
300
234
104
59
2006
6,275
2,350
1,307
793
485
Reeds
Fred Meyer
Gitanjali
Helzberg
Signet Jewlers (US)
Friedman’s
Whitehall
Zale Corporation
ii
Finlay
Ultra
i
No longer trading
Chains ranked top 10 in 2006