How a hard-charging CEO is changing the world’s largest jeweler

If you want to see the epicenter of the jewelry business, visit Signet Jewelers’ headquarters in Akron, Ohio. The 500,000-square-foot campus houses 2,500 employees—all of whom do the not-so-easy work of supporting the company’s U.S. retail division, Sterling Jewelers, which totals 1,954 stores, including such varied brands as Kay Jewelers, Jared the Galleria of Jewelry, outlets, and regional stores, not to mention the company’s growing e-commerce presence. (Signet also owns 511 stores in the United Kingdom under the Ernest Jones and H.Samuel labels.) The campus includes a duck pond—soon to be converted into a park—as well as an on-site Kay store (in case employees get the jewelry urge) and a ­cafeteria called The Diamond Grille.

Sterling also gave JCK a rare look inside its sorting and distribution departments—where the company is increasingly using radio frequency to control its inventory. One word that kept cropping up is scalable—meaning that if the company expands, and there are plenty of signs that it intends to, it’s in a good position to adapt. One thing Sterling is particularly proud of: that boast in its commercials that every Jared diamond is “hand-selected and inspected.” It’s true! JCK watched the gems go under the loupe.

H.Samuel store in Dublin	Kay Jewelers in the Meadowbrook Mall, Bridgeport, W.?Va.
Jared store in South Hills Village, Pittsburgh	Ultra Diamonds outlet in Arundel Mills, Hanover, Md.

We also had a chance to speak with CEO Michael Barnes, the Texas native with a slightly perceptible drawl who spent 25 years at Fossil before assuming Signet’s top job in January 2011 following the departure of longtime head Terry Burman. During our talk, Barnes made it clear: Signet isn’t resting on its laurels, but intends to charge head-on into the future.

What is your focus over the next few years?
When I came into this role, fortunately, I was not inheriting a turnaround situation. It was what I would term a sustaining success situation.… What we needed to do is to have an evolution of the business model—not a revolution, but a strong evolution. I could see areas where we had to focus more, where we had bigger opportunities, more opportunities.

Open Hearts Family by Jane Seymour silver necklace with 0.05 ct. t.w. diamonds; $119.99

For instance, the branded merchandise. They had started into branding before I got here. The Leo Diamond was the first branded diamond. It’s been around for a little over 12 years now. Other than that, most of the strong brands are still in early innings: Open Hearts by Jane Seymour, Neil Lane bridal, Tolkowsky Ideal Cut diamonds. I’ve spent most of my career in branding, and I saw the value when I came here of this evolution into branding. It’s a way to differentiate ourselves from so many competitors out there.

You can go into any jeweler in America and you can buy nonbranded diamond jewelry. But you can’t buy Jane Seymour Open Hearts or Neil Lane bridal, or a Tolkowsky diamond.

The brands also eliminate the problem many retailers have with showrooming. You can’t go in and buy branded merchandise if it’s exclusive to us. So that is something else that really helps our business long term.

You have said that proprietary branded merchandise now represents 27 percent of your merchandise mix. Could that go higher?
The way we look at branding is multifold. Brands in general account for somewhere in the neighborhood of 40 percent-plus of our merchandise sales. About 27 percent of that mix would be our exclusive and/or differentiated brands. I think there is huge opportunity to drive those. Most of them are still very new.

Neil Lane Bridal ring with 1.7 cts. t.w. princess-cut diamond in 14k white gold; $3,999.99

[As far as the 27 percent,] I think it will go higher. We haven’t set an exact target on that. We want to let it find its own correct level. I don’t want to push it further or faster than I should.

What makes a brand suitable for your company?
Credibility is important. If you look at the Neil Lane brand, Neil Lane is a jeweler. He owns a store in Los Angeles. He has been in this business for many, many years. I think that brands need to stand for something. They need to be innovative. They need to have a real DNA about themselves. That is all very important. It’s not just about putting a name on something and calling it a brand. It’s about a history. It’s about what is in that brand DNA that resonates with our customer.

Digital sales are up some 40 percent year on year. What do you attribute that to?
We brought in some great talent that is very experienced and they are doing a fantastic job in driving this. There are several different pedestals that we are working on within that digital ecosystem. One is that we did renew and revive the Kay and Jared websites last year. It’s a much better customer experience. It’s much easier to navigate online. And then we finally busted into social media in a big way. We launched Facebook and Twitter for both Kay and Jared, all last year. They are 1 year old, and the pace at which we gain fans and followers is really pretty dramatic. The Facebook team contacted us and wanted to do a case study because they were amazed at how quickly we were attracting followers. We basically attracted over a half million followers in a year’s time.

We look at this as a digital ­ecosystem—not just e-commerce, because we believe it’s all the parts working together with e-commerce, social media, blogs, even technology within our stores, which is something that has been very important to us, and we launched in a major way last year. Each store now has two touch-screen devices that our associates and store managers can use to work with our customers. It is really about evolving in the future, being very innovative with products and designs and brands, and driving the digital ­ecosystem, in a big way.

Do just Kay and Jared have e-commerce sites, or do the regional brands have them as well?
The regional brands do not have sites right now. Our focus really is on Kay and Jared. Our regional stores—we have a couple of hundred of those at this time, and a lot of those are great stores with long historical regional presences, and the people that we have in those stores are fantastic. They get the same training, they are all basically managed exactly the same way, with the same merchandise. They just don’t have the advantage of the national advertising that we have with Kay and Jared. But there are still some great stores out there.

Do you see a future for the regional stores? Last year, you shut about 10 percent of them.
What we are doing, and we do this with our entire portfolio, as leases come up for renewal, we look at the return on investment that we have within those stores and the profitability that they drive. If it’s the right thing to do, if it’s appropriate, we renew the lease. If it’s not the right thing to do from a ­profitability standpoint, then we wouldn’t renew the lease, regardless of the brand. The regional stores have gone down in the number of doors over the last number of years as the result of that ongoing review that we do.

How is the purchase of Ultra Stores progressing?
We finished the year with Ultra with 110 stores. And you add to that the 34 doors we have with Kay in the outlet malls, it was a great acquisition for Signet. It immediately moved us into a leadership position in a channel of distribution that we should be a leader in. It put us equal to the next player in the outlet malls with about the same number of doors.

The other thing that Ultra brings to the party is, they have a tremendous amount of experience in operating outlet stores. That’s a slightly different customer for us and in some ways it’s a new customer. There are ways to optimize that channel that will add to the productivity—which is currently good—that we have in the outlet stores. We are very pleased with the acquisition and the transition is going very well. Most of the stores will be transitioned by midyear.

What about the leased departments that Ultra runs?
I don’t have an answer on that. Leased departments are something that are new to us. What we’ve said is, let’s take a little bit of time, and let’s analyze it, and make sure that we think about what are the opportunities on a go-forward basis. Are there expansion opportunities? Until we really get a good, solid analysis on that, I really don’t have an answer.

Would you be interested in any other acquisitions?
I’m pretty consistent with this. People talk about an open to buy—I think everybody should have an open to talk. I believe that we need to remain open and opportunistic. If another great opportunity presents itself and after careful and thoughtful analysis, it happens to be the right thing to do, just like [Ultra] was, then we should certainly consider doing other acquisitions in the future.

Signet Jewelers’ Akron, Ohio, headquarters

There is always talk that Signet might merge with Zale. Could that really happen?
That would be something else, wouldn’t it? I couldn’t really address a question like that. The best thing to say is, we would be open, opportunistic, and always willing to talk if something looks like it is worth considering.

There were also reports that you might sell the British business.
I generally don’t comment on rumors. It is a no-win situation to go down that path. We believe that our U.K. business continues to be a core asset for us. Even with that fact that it hasn’t performed at the levels that it has in the past, if you look at the ­environment they are working in, and how some other retailers are doing there, it’s pretty good. We still have a strong operating income, we still run positive cash flows in the business, and we have the No. 1 market share. That continues to be a very important business for us.

Would you be interested in expanding into other countries besides the U.S. and the U.K.?
When I say we’d be open to opportunities out there, that goes within the countries that we are in right now—the U.S. and the U.K.—and outside of countries that we are in right now. If there is an opportunity for an expansion into new geographies, we need to be thinking about that and considering that.

Both Kay and Jared have very familiar slogans. Kay has been using “Every kiss begins with Kay” for more than a decade. Could that ever change?
Everybody knows “Every kiss begins with Kay” and “He went to Jared.” Those are woven into the fabric of America.

It’s true! Every Jared diamond is hand-selected.

Do we need to evolve? Yes, I think so. And some of the new commercials that we did this past holiday—and I think we launched eight new creative spots—they were terrific. We got a lot of good feedback. Because of the fact that everyone knows the slogan “He went to Jared,” we were able to talk more about the Jared environment and the customer experience that we can deliver. And then at the end of it, we could say with authority, “And that is why he went to Jared.” There is a little bit of an evolution going on there. “He went to Jared” will always remain, but it gave us the opportunity to build upon that.

You now are a Rio Tinto Select Diamantaire. There is talk that your rough diamond sourcing initiative may try for a De Beers sight.
If there is an opportunity for us to gain access to quantities of diamonds that are appropriate for Signet, then we certainly want to talk to those groups and those ­companies, and we want to build great, long-lasting ­relationships with them. Including De Beers.

How do you see the industry as a whole?
The industry has been consolidating and we’ve gained market share on a regular basis over a pretty long time frame. If you take a 10-year backward­-looking historical look, we have gained market share just about every year, and in aggregate, we have double the market share we had 10 years ago. We believe we can continue that direction. I see this landscape continuing to consolidate. This is still a much more fragmented industry than many others.

Some have said you are a more aggressive leader than Signet has seen in the past.
We have focused on all the opportunities that are there in front of us and have to make sure that we are not too inward looking. Signet is a very successful company. The store brands have done fantastic and we continue to drive a leading business in this industry. But there is so much more we can do. And we need to be more aggressive. We need to open our minds to experiences and innovations that maybe weren’t there four or five or six years ago.

It’s like the famous hockey player said, we have to skate to where the puck’s going to be. We can’t just be thinking about what is the landscape today. We have to think about what the landscape is going to look like in five years.