The Perils of Competing with Discounters
By Al McClain
What happens when a retailer decides to target more affluent customers, because sales are down and they’re worried about Wal-Mart and other discounters?? If you’re Zales jewelers,
As reported this week in the Wall Street Journal, Zales decided to go after more upscale consumers in early 2005, following a tough Christmas season, and while feeling
the heat from discounters, along with online retailers and TV shopping networks.
Here are some of the changes Zales, a mid-priced jeweler, made:
- Dropped inexpensive, low-quality jewelry for more fashionable high-end pieces with better margins
- Began buying from overseas, cutting out U.S. wholesalers
- Changed its marketing slogan to “Be Brilliant”
- Eliminated most of the company’s $99 diamonds, and their accompanying TV ad campaign
- Eliminated many traditional holiday sales
- Added pieces designed to look like those sold in upscale stores
- Began to group items in matching sets, instead of by categories
- Changed 30 percent of the product, and 15 percent of its suppliers
- Eliminated catalog promotion of their monthly payment plans
Meanwhile, Signet (Zales’ primary jewelry store rival, and owner of Kay) was by buying cheaper cuts and getting finished product from overseas, using the money it saved on sourcing,
marketing and training.
Signet surpassed Zales as the largest U.S. jeweler while all this was going on. Their CEO, Terry Burman, targeted mom and pop jewelers who have 70 percent of the market, rather
than focusing on discounters who sell low-end merchandise and have much smaller selections.
Back to the present: Zale’s interim CEO, Betsy Burton, is in the process of straightening this all out – going back to stocking everyday diamond jewelry; grouping merchandise
by category; and introducing a new marketing campaign with a tag line for Zales: The Diamond Store.
Moderator’s Comment What’s the moral of this story? When you are a retailer losing share to discounters (and who isn’t or hasn’t these days), is it best
to make radical changes as Zales did or experiment with strategies and tactics that can help you find new customers and markets?
In hindsight, it’s easy to see that Zales overdid the course corrections. But, with investors demanding performance NOW, and behemoth competitors siphoning
of market share, the temptation to make big changes has to be enormous. And, modest changes might not be enough, anyway. –
Al McClain – Moderator