Zale Introduction Zale Corporation is the largest chain of specialty retail jewelry stores in the United States. It currently operates 2,349 stores in the United States, Puerto Rico, and Canada, employs about 16,900 employees, and operates in various segments serving different customer demands. Zale Corporation has been profitable throughout most of its history. However, Zale has recently encountered setbacks including unprofitable margins, unstable leadership, declining market share, and a 50 percent drop in 2006 net income to $53. 6 million. Zale’s Revenues in 2007 declined slightly from 2006 to $2. 4 billion.
Zale is now going back to its roots with a new strategy that focuses on Middle America, wide merchandise assortments, competitive pricing, great value, and a new CEO to execute this strategy, Mary Burton. Ms. Burton’s first full year as Zale’s new CEO was 2007. Mission Statement The Mission of Zale Corporation is to be the best specialty retailer in North America. Our goal is to develop and maximize the finest collection of jewelry brands in order to build lasting customer relationships that will generate solid returns for our shareholders. Internal Analysis And Internal Evaluation Matrix The firm is performing above average.
External Analysis And External Evaluation Matrix The firm is performing above average. Competitive Analysis Porter’s Five Forces Model: 1. Rivalry Among Competing Firms a. Tiffany and Signet are the primary competitors of Zale. Both of these corporations have shown significant growth in the past few years. This poses a threat to Zale as in the future they may take market share away from Zale. The rivalry that is existent amongst these firms comes from the strategies that are implemented by one another. A new technique or strategy that is brought about by one firm will give that firm a strong advantage for a short period of time.
When the other firms catch on and use the same techniques/ strategies the rivalry will only get stronger. 2. Potential Entry Of New Competitors a. With so many startup businesses these days, it is the hope that one day they will grow large enough to put a dent in the market share of these larger companies. New corporations entering into a market that has been controlled by one or two companies for a long time can cause some tension. A rivalry will form on the spot. A good way to eliminate this would be for one of the larger companies already existing in the jewelry industry to buy out and acquire the smaller, new company.
If this cannot be done, then the larger companies must monitor the smaller companies, and analyze their strategies so that they can match them in every way possible. 3. Potential Development Of Substitute Products a. Firms mostly monitor the trends within the industry to track the strategies used by other firms. However, competition does not only arise within the similar industry but also in different industries. Companies in other industry offer products with similar features and functionality or even better act as substitute for the products.
In the jewelry industry we can say that the developments of outlet stores are a substitute to traditional store. 4. Bargaining Powers Of Suppliers a. Suppliers and producers relation always matter especially in the jewelry industry. Suppliers have an important role in production of goods and services. The better the raw material the better the final product. However, this gives suppliers a significant bargaining power when dealing with companies such as Zale. The bargaining power of suppliers effect the intensity of competition especially if there are a large number of suppliers with less availability of raw materials.
The cost of switching suppliers and/or raw material is high. These points in the jewelry industry give power and the upper hand to the supplier to enforce terms and conditions on manufacturers and charge high cost of raw material. 5. Bargaining Powers Of Consumers a. Consumers are the final user of the products, or services. The performance of the companies or corporations tremendously depends upon the consumers. Bargaining power of consumers is higher especially when there are a large number of consumers in the industry and when consumers purchase in large quantity.
Rival firms must offer discounts and additional services to switch the consumer from one brand to another. The bargaining power of consumers is also higher when products and services are undifferentiated and widely available. In this case consumers may demand more discounts and services. As the satisfaction level of consumer goes up the competition level between companies increases. Firms should take care of consumer’s likes and dislikes by maintaining good relations with them. The bargaining power of consumers can sometimes make or break the company. On Generic Strategy Cost Minimization Product differentiation X
Broad Narrow I chose this option because Zale focuses on the jewelry industry only. They are a large firm that continues to grow internally and externally. However, the provide services to a very wide variety of clients. For example they cater to rich, poor, and middle class consumers. It seems as though Zale’s cliental is very broad ranged. Competitive Profile Matrix Zale’s score shows a weaker position than its competitors. Financial Analysis Zale Corporation has recently encountered setbacks including unprofitable margins, unstable leadership, declining market share, and a 50 percent drop in 2006 net income to $53. million. Zale’s revenue in 2007 declined slightly from 2006 to $2. 4 billion. The jewelry industry was expected to grow to 61. 8 billion in 2007. Brand recognition is paramount in gaining and sustaining market share, and there was growing international competition. Zale, at fiscal year-end 2006 (July 31), operated 1,456 specialty retail stores, 817 kiosks, and 76 carts located in malls throughout the United States, Canada, and Puerto Rico, employing approximately 16,900 employees. From an accounting standpoint, 2006 was at best a marginal year for Zale.
Debt increased, earnings per share decreased sharply, cost of sales was higher, and liquidity was down. The American Jobs Creation Act or AJCA created $6. 8 million tax break for the Zale Company in 2006. The Act allows companies to exclude up to 85 percent of foreign earned income as long as the company repatriates the fund in the United States. Zale incurred a $21. 2 million loss on the closing of 32 Bailey Banks and Biddle Stores. Financial performance in 2006 and 2007 were lackluster. However, in addressing shareholders, CEO Burton stated that Zale had a strong balance sheet.
Total assets for fiscal year end July 31, 2007, increased 10. 4 percent compared to fiscal year 2006. The increase in assets was attributed in large part to inventory. Zale attributed some of its inventory woes to the closing of 32 Bailey Banks and Biddle Stores. Zale also maintained that it invests in inventory in order to have a dominant assortment in both diamond solitaires and diamond fashions for the Zale Brand. Analysts suggested that sluggish Zale sales also contributed to inventory problems.
Zale’s long term debt increased significantly from $129 million (fiscal year 2005) to $227 million (2007) which is shown in their consolidated balance sheet. Zale states that its substantial long-term debt is the primary reason it has not paid dividends since 1993 and does not anticipate dividend payments in the foreseeable future. However, Zale did make an effort to reward its shareholders by returning $100 million in the form of share buybacks for fiscal year 2006. SWOT Analysis Strengths 1)Brand name. 2)Targeting all Segments. 3)Moderate Prices. 4)Trained Employees. 5)Knowledge of Diamond.
Weaknesses 1)Limited Locations. 2)Decrease in Inventory. 3)Not thinking Globally. 4)Advertisement. 5)Kiosk Jewelry store operates under different names. Opportunities 1)Open a Zale outlet in Europe. 2)Innovative Design to high-income group. 3)Diversification. 4)Backward Integration. 5)Synthetic diamond. S1,O1 Open branches in Europe with the Zale name, to expand and bring in more revenue. S5, 05 Creating synthetic jewelry will save the company money and will broaden their product range. W1,O1 If the stay in North America alone, this will hinder the growth of the company.
W2,O5 The production of Synthetic jewelry would offset the decrease in inventory. Threats 1)Strong Competitors. 2)Suppliers 3)Global Recession 4)Losing market share to JC Penny 5)Natural Resources S1,T4 Advertise more to attract customers to increase their market share. S3,T1 Produce innovative designs to compete with competitors. W1,T5 Open new branches other than North America W2,T2 Backward integration is needed. Space Matrix BCG Analysis Zale is a Question Mark because they have a high growth rate and at the same time, their market share remains high.
Strategy Recommendation Based on my case study analysis, I believe that Zale should start business in Europe to capture a larger market share opportunity. Zale’s competitors are doing business globally. For instance, SIGNET is doing business in London, and Tiffany is in Japan and earning much more profit making their market share more than Zale. Zale should begin to Backward Integrate. It is not manufacturing jewelry by itself. Instead, they purchase finished goods from Italy. Italy has their own external factor weakness. They suffer from late deliveries.
When Zale does not get its inventory on time, this makes them look bad as customers will have longer waiting periods before getting their merchandise. Zale should also target high-income groups, they are currently targeting mainly Middle- class, but they can earn a lot from high-income groups because of their innovative styles in Jewelry. Zale’s main selling point is their Bridal jewelry. If they diversified into this area (weddings), they would have a great way to grow and take over more of the market share. For instance, alongside selling Bridal jewelry, they can sell Bridal dresses.
Finally, Zale should focus on advertising. Advertising is one of the many marketing tools that are used to attract attention of prospective customers to a business or its products or services. The more effective an advertising campaign, more the customers it draws, and with greater frequency. If Zale focused more on advertising, they will increase market share for sure. Pro Forma Income Statement Balance Sheet Epilogue In 2009, the Zale Company incurred a net loss for the year ended July 31, 2009 of $189. 5 million, compared to a net loss from continuing operations of $6. 5 million, in 2008.
For 2009, revenues were $1. 78 billion compared to $2. 14 billion in 2008, a decrease of 16. 8%. Comparable store sales declined 16. 6% for 2009 compared with a decline of 0. 7% in the prior year. Gross margin for 2009 was 46. 7% compared to 49. 0% in the prior year. The Company incurred special charges totaling $92. 6 million. These charges included: $16. 5 million for store closures; $9. 1 million for store impairments; $14. 1 million for lease contingencies associated with Bailey Banks & Biddle; $8. 3 million for inventory impairment; $5. 0 million goodwill impairment; and $39. million for tax. Net loss for fiscal 2009 was $96. 9 million, compared to a net loss of $16. 5 million in 2008. The Company reported a net loss of $89. 8 million, compared to a loss of $10. 0 million in 2008. Revenues in 2009 were $357. 1 million, a decline of 21. 7% compared to $456. 2 million in the 2008. Comparable store sales for the fourth quarter declined 21. 2% compared with an increase of 6. 1% during the prior year period, which was favorably impacted by clearance initiatives. For the year ended July 31, 2009, selling, general and administrative expenses declined $57. million, or 5. 9%, to $927. 2 million compared to $985. 0 million in 2008. For the fourth quarter of 2009, selling, general and administrative expenses declined $20. 0 million, or 8. 9%, to $205. 1 million compared to $225. 1 million for the prior period. At July 31, 2009, long term debt was $310. 5 million, a net reduction of $15. 8 million, compared to $326. 3 million at July 31, 2008. Works Cited 1)www. zale. com 2)http://www. scribd. com/doc/32609518/Zale-Corporation 3)Fred R. David. Strategic Management:Concepts and Cases. 12th. Ed. ,Prentice-Hall. 2009
