akron investor days2.q4cdn.com/912924347/files/doc_presentations/2010/...~$35k-100k, asp ~$312...
TRANSCRIPT
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Akron Investor DayTuesday, June 15, 2010
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TERRY BURMANTERRY BURMANSignet CEOSignet CEO
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Safe Harbor StatementSafe Harbor Statement(Private Securities Litigation Reform Act of 1995)(Private Securities Litigation Reform Act of 1995)
This presentation include statements which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, based upon management’s beliefs as well as on assumptions made by and data currently available to management, appear in a number of places throughout this presentation and include statements regarding, among other things, our results of operation, financial condition, liquidity, prospects, growth, strategies and the industry in which the Group operates. Our use of the words “expects,”“intends,” “anticipates,” “estimates,” “predicts,” “believes,” “should,” “potential,” “may,” “forecast,” “objective,” “plan” or “target,” and other similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, including but not limited to general economic conditions, the merchandising, pricing and inventory policies followed by the Group, the reputation of the Group, the level of competition in the jewelry sector, the price and availability of diamonds, gold and other precious metals, seasonality of the Group’s business and financial market risk.
For a discussion of these and other risks and uncertainties which could cause actual results to differ materially, see the “Risk and other factors” section of the Company’s Fiscal 2010 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 30, 2010 and other filings made by the Company with the Commission, which can be found on the Company’s website at www.signetjewelers.com. Actual results may differ materially from those anticipated in such forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein may not be realized. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.
Certain financial information used during this presentation are considered to be 'non-GAAP financial measures'. For a reconciliation of these to the most directly comparable GAAP financial measures, please refer to the Company’s release, dated March 25, 2010, available on the “Latest News” section of the Company’s website at www.signetjewelers.com.
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Program Program WelcomeIntroduce Ron RistauUS Division – Mark Light and US executivesLunchHome Office Tour / Additional presentationsTravel to ClevelandStore ToursTravel to Cleveland Airport or return to AkronDinner with management
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Operating PrinciplesOperating PrinciplesContinuous improvementExcellence in executionNarrow and deepTest before investDisciplined investmentStrong balance sheet & financial flexibilityMonitor performance and manage risk
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Continued Progress in Continued Progress in Executing Two Year StrategyExecuting Two Year Strategy
Leverage competitive advantages to gain profitable market share Reduce business risk
aim to improve store productivitymaintain financial strength & flexibility
Focus on profit & cash flow maximizationWell placed for recovery in consumer spending
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Long Term StrategyLong Term StrategyTake advantage of economic recoveryGain market share in existing store baseInvest in US space growth that satisfies IRR hurdleAcquisitions in N. America of business that meet demanding operating criteria and satisfy required investment returnsConsider other investment opportunitiesReturn cash to shareholder
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Signet UKSignet UK
“Market Leader, High Returns, Strong Cash Flow”
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UK BrandsUK Brands
Sales: £247.8mStores: 34712% of salesNo.1 jeweler in UK
Sales: £209.8mStores: 20510% of salesNo.2 jeweler in UK
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H.SamuelH.Samuel
22%22%naDiamond jewelry
£52£48£37Average selling priceMerchandise mix
28%27%naGold & silver jewelry
£712£718£723Average sales per store (‘000)
25%26%naWatches
347352398Stores at y.e.£248£250£282Sales (million)
Fiscal 2010
Fiscal 2009
Fiscal 2005
Leading middle market brand in UKOnly specialty jeweler using national TV advertising
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Ernest JonesErnest Jones
£228*£202£141Average selling priceMerchandise mix
14%13%naGold & silver jewelry39%40%naDiamond jewelry
£1,027£1,047£1,150Average sales per store (‘000)
35%35%naWatches
205206204Stores at y.e.£210£208£221Sales (million)
Fiscal2010
Fiscal 2009
Fiscal 2005
Leading upper middle market brand in UK
* Excluding charm bracelet category
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0
1000
2000
3000
4000
5000
600019
8119
8319
8519
8719
8919
9119
9319
9519
9719
9920
0120
0320
0520
0720
09
£mLong Term Industry GrowthLong Term Industry Growth
Source: UK Office National Statistics
c.a.g.r. 5.0%
UK Jewelry and Watch Market
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Industry Leading PerformanceIndustry Leading Performance
8.2%
22.9%
EBIT/Total Assets(a)
5 year average
5.7%(2.5)%Typical UK Specialty Jewelers(c)
11.4%(1.4)%Signet UK(b)
Operating Margin 5 year average
Sales Growth 5 year c.a.g.r.2004 to 2008
(a) Total assets excludes goodwill(b) To y.e. January 2009(c) To y.e. 31 March 2009 based on Companies House filings for 5 largest speciality jewelers excluding Signet
Total number of specialty jewelry stores in UK ~7,300
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Sustainable Competitive Sustainable Competitive AdvantagesAdvantages
Leading staff training & development recognized by National Association of GoldsmithsScale, direct sourcing supply chain capability & merchandising expertise14 million name database for customer relationship marketingShopping trend to regional malls favorableUtilization of US best practice & access to exclusive merchandise
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UK StrategyUK StrategyMaintain sector leading operating standardsLeverage strong market position
enhance selling skills and product knowledgeof staffmore targeted and differentiated merchandisingdrive footfall through customer relationship marketingoptimize real estate utilize access to US best practice
Make existing space work harder
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Opportunity to Regain Historic Opportunity to Regain Historic ReturnsReturns(1)(1)
ROCE (%)
39.643.8 41.2
46.0 44.2
26.0
34.0 33.7
24.820.1
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Operating Margin (%)
7.78.8
11.411.010.5
15.515.313.612.911.8
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
(1) Fiscal 2001 prepared under UK GAAP, fiscal 2002 & 2003 prepared under IFRS(2) ROCE excluding goodwill(3) Before goodwill impairment of $108.9m
Fiscal 2001-2005 average:Operating Margin: 13.8%
Fiscal 2001-2005 average: 43.0%
(2)
(3)(3)
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Challenging Trading EnvironmentChallenging Trading EnvironmentMore tentative economic recovery in UK than in USUncertainty due to general election & change of governmentIncrease in selling prices due to:
sterling weaknesshigher cost of gold VAT increase
Q1 resultssame store sales down 0.2%gross merchandise margin down 90 bptsoperating loss $1.4 m (fiscal 2010 Q1: loss $1.3m)
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Attractive BusinessAttractive BusinessClear market leader in scale and operational executionROCE 20.1% in fiscal 2010Strong free cash flowLimited forex exposure
1 cent move impacts operating income by ~$0.2m/0.07%
High operational leverage with potential to return to historic operating margins
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Ron RistauRon RistauChief Financial Officer DesignateChief Financial Officer Designate
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First ThoughtsFirst Thoughts
Initial impressionKey financial strengthsStarting priorities
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Initial Operating ImpressionsInitial Operating ImpressionsDepth & experience of management in US & UK Focus on the customer throughout the organizationExcellent store service & commitment to consistent training & development of store staffA unique accounts receivables process with strong financial disciplines focused on jewelry sales & effective collectionInventory & real estate investment driven by ROI, market analysis and customer demandExcellent financial controls & strong operating processes
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Effective Financial Management in Effective Financial Management in Difficult EnvironmentDifficult Environment
Proven ability to manage costs & working capital while supporting growth initiatives & key corporate prioritiesDisciplined investment appraisal procedures & appropriate hurdle ratesStrong balance sheet & financial flexibilitySignificant potential to leverage the operating structure as store productivity improves
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Key Starting ObjectivesKey Starting ObjectivesMaintain the consistency of financial services as we transition leadershipEffectively relocate selected Group financial support functions to AkronSupport the management & Board as we study & establish our future financial structureMaintain & manage the successful navigation of the current retail environmentContinuously evaluate growth & profit enhancing opportunities
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MARK LIGHTMARK LIGHTPresident & CEO, Sterling Jewelers
“Further growth from a proven strategy”
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US Management StructureUS Management StructureMark Light
President and Chief Executive
Officer
Bob TrabuccoEVP & Chief
Financial Officer
Bill MontaltoEVP & Chief
Operating Officer
Ed HrabakSVP & GeneralMerchandise
Manager
Tryna KochanekSVP Field
Operations
Steve BeckerSVP HumanResources
George MurraySVP Marketing
Mario WeissSVP CreditOperations
Bob KnappSVP Supply
Chain &Distribution
Bruce KennySVP Store
Planning/Real Estate
Steve VeneziaSVP IT
Simon CashmanSVP Finance
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Morning Program Morning Program Mark Light - US Overview, Competitive Strengths & Store Operations Ed Hrabak - MerchandisingGeorge Murray - MarketingBob Trabucco - CreditBill Montalto – Information Support SystemsHome Office Tour or Themed Presentations
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Afternoon Program Afternoon Program Travel to ClevelandJared
Diamonds, Merchandise & Selling SystemDesign & Repair CenterLe VianSterling Performance Matrix
MallStore Design & MerchandisingAssociate Training SystemProfit ManagementStore Standards
Travel to Cleveland Airport or return to AkronDinner with management
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Our MissionOur Mission
Convenience
Value
RewardsServices
CommunicationsProducts
Continuous improvement
IntegrityAssistance
Return onassets
TeamworkA superior customerexperience
To achieve:To conduct ourselves as a company with:
To earn the trust of our customers by delivering:
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Competitive AdvantagesCompetitive Advantages
• Differentiated merchandise
• Sophisticated systems
• GMROI focused
• Superior supply chain
Merchandising
• Strict criteria, regularly reviewed
• High quality locations & store fit
• Leading store productivity
• National television advertising
• Research based
• Champion / challenger approach
• Closely monitored store standards
• Measurable objectives
• Leading training systems
Real EstateMarketingStore Operations
Control and information systems
Very experienced & stable managementConsistency of strategy & execution
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US Business CharacteristicsUS Business CharacteristicsCustomer profile
Kay & Regionals customer’s household income ~$35k-100k, ASP ~$312Jared customer’s household income ~$50k-150k, ASP ~$710(1)
Driven by bridal and gift giving categories45% to 50% bridal related
~75% of merchandise sales diamond jewelry43% of space off-mall
(1) Excluding charm bracelet category
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Factors Supporting Long Term Factors Supporting Long Term Growth in Jewelry SalesGrowth in Jewelry Sales
Recession not changed our customers’ desirefor jewelry
bridalgift givingself reward
Jewelry is the most meaningful gift as an expression of love & commitmentAs real incomes grow, proportion spent on jewelry risesPrice inelastic, wide range of price points to satisfy customer’s budget
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Long Term Industry GrowthLong Term Industry GrowthUS Jewelry and Watch Market(a)
010203040506070
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
$bn
Sources: (a) US Department of Commerce & Census Bureau(b) IDEX
~40% of world diamond sales(b)
c.a.g.r. long term 4.8%; 2 year (4.5)%
• Specialty sales • Non-specialty sales • Internet sales
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NonNon--Specialty SalesSpecialty Sales(1)(1)
Mostly “low end” fashion jewelry, no bridal, no service$0.4bnJTV
Mostly “low end”, minimal bridal, little service element$0.5bnTarget
Mostly high end designer jewelry & watches, minimal bridal$0.4bnNeiman Marcus
Mostly “low end” fashion jewelry, no bridal, no service$0.3bnHSNAll non-precious fashion jewelry, no bridal$0.9bnClaire’s
21% of jewelry sales$17.5bnOther
Mostly “low end” fashion jewelry, no bridal, no service$1.2bnQVCOthers major retailers share of jewelry sales estimated ~5%
Mostly high end designer jewelry & watches, minimal bridal$0.2bnSaks Fifth Avenue
Range of fashion jewelry & watches, minimal bridal$0.7bnJC PenneyRange of fashion jewelry & watches, minimal bridal$0.8bnSearsRange of fashion jewelry & watches, minimal bridal$1.4bnMacy’s
Department stores share of jewelry sales estimated ~10%Mostly “low end”, minimal bridal, little service element$0.3bnKohl’s
Mostly diamond jewelry, minimal bridal, no service $0.5bnCostcoMostly “low end”, minimal bridal, little service element$2.8bnWal-mart
Discounters / Warehouses share of jewelry sales estimated ~11%
(1) Source: National Jeweler
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Impact of the InternetImpact of the InternetJewelry is very personal and diamonds are not homogeneous, so not suited to remote sellingInternet jewelry sales therefore mostly high value certified stones or low value fashion jewelryEstimated to be 4.6(1)% of total jewelry sales
only significant specialty internet jewelry retailer is Blue Nile with US sales of $268.9 millionAmazon jewelry sales estimated at $225 million(2)
many specialty jewelers have websitesMajor impact has been on pricing transparency in certified stones, not volume
(1) Source: Census Bureau for 2009(2) Source: National Jeweler
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2009 Specialty Jewelry Market2009 Specialty Jewelry MarketTotal specialty jewelry sales of $28.3bn(1)
Sterling share 9.1%average selling price ~$350(2)
Mid market estimated to be ~$23bnSterling share ~10.9%
Bridal category estimated to be ~$13bnSterling share ~9-10%engagement, bridal & anniversary average price of engagement ring estimated to be $3,200(2) in 2009
(1) Source: US Census Bureau(2) Source: IDEX
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Consistent Gains in Consistent Gains in US Specialty Market ShareUS Specialty Market Share
Liquidated 1.1%0.7%nilnilFinlay(1,2)
-Liquidatedna1.5%1.2%Friedman(1)
-Liquidated0.9%1.1%1.1%Whitehall(1)
(1) Share of US specialty jewelry market based on SEC filing.(2) Finlay acquired Bailey, Banks & Biddle in November 2007 from Zales,Congress Jewelers in November 2006 & Carlyle Jewelers in May 2005.(3) 2009 based on earnings release February 24, 2010.
1.0%0.9%1.0%0.6%0.1%Blue Nile(1)
4.7%4.9%4.8%3.8%3.1%Tiffany(1)
4.9%5.5%6.3%7.8%5.8%Zale(1,2,3)
9.1%8.6%8.7%7.4%5.2%Sterling 20092008200720041999
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Rationalization of Top US BrandsRationalization of Top US Brands
202
235376178
693923
2009
287261314Gordons(1,2)
n/an/a
n/an/a375375723
1,5082009
436386475410Fred Meyer(3,4)
17In Chapter 11150 ~210Shane(6)
382Liquidated 2008334243Whitehall(1,5)
646Liquidated 2008425n/aFriedman’s(3)
Liquidated 2009
235
154
784926
2008No. of storesSales $mMid market brands
nil
500
415
1,0711,1742004
135726Jared(1)
265400Helzberg(3)
310
1,4392008
Nil
757832
2004Kay(1)
Finlay Speciality(1,2,7)
Zales(1,2)
Calendar
(1) Source: Accounts. (2) July year end.(3) Source: National Jeweler estimate.
(4) Includes Littman’s and departments in supermarkets.(5) Includes Lundstrom.(6) Chapter 11 filing.(7) Bailey, Banks & Biddle; Carlyle; Congress.
1,110 {1,363
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Other Rationalization Since Start 2008Other Rationalization Since Start 2008Liquidated
Christian Bernard, 15 storesFortunoff, 20 storesAlpha Omega, 4 stores
Chapter 11 restructuringRobbins Brothers, closed 6 stores, -38% Ultra, closed 45 locations, -25%
Store closuresReeds Jewelers closed ~28 stores, -30%Don Roberto closed ~23 stores, -23%Hannoush ~15 stores, -19%
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Consolidation in 2010Consolidation in 2010
Signet forecast to close 40 - 50 storesZales closed ~20 year to dateMovado to close 26 storesSamuels to close ~30 storesMichael Hill to close 8 stores
Estimated ~12% of store base exited specialty sector in 2008 & 2009 combined
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Industry Leading PerformanceIndustry Leading Performance
0.8%9.8%8.7%Signet US(5)
(13.2)%1.3%2.7%Typical US Chain Jeweler(4)
(15.1)%(9.2)%(6.1)%Zale Corp(3)
(6.3)%7.5%6.8%Signet US(2)
(19.6)%
EBIT/Total Assets(1)
(12.6)%(13.2)%Zale Corp(3)
Calendar 2009 Performance
Total Sales
Operating Margin Calendar 2008 Performance
(1) Total assets excludes goodwill(2) To y.e. January 31, 2009 excluding goodwill impairment(3) To y.e. January 31, 2009 & 2010 based on SEC Filings and restated quarterly results ex. goodwill impairment(4) To y.e. December 31, 2008 based on JA Cost of Doing Business(5) Excluding benefit from change in vacation entitlement policy
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““Our People Make the DifferenceOur People Make the Difference””
Customer service remains central to selling jewelry
every piece is under lock & keycustomers need to be educated about the product competitive advantagesup-selling and add-ons
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““Our People Make the DifferenceOur People Make the Difference””
Team Membersclear and measurable expectationsconsistent training and feedback on performancemonitoring mechanisms provided daily for every team memberexcellent incentives“Promotion from Within” culturevery good career path opportunitiesabove average retention for retail
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Clear Measurable ExpectationsClear Measurable ExpectationsDaily store standards
store staff “controllables”clear performance expectationsindividual standards integrated into divisional goals
Monitoringovernight reports provided to store staff and District Manager
Customer service feedback
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Strong Team IncentivesStrong Team IncentivesHistorically 20% - 25% of field payroll performance basedSales associate commission
based on own and store performanceencourages team work
Manager profit bonusprofit based bonus monthly store operating statementtrained to be profit business managers
District Manager bonusKPI based bonus
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Best Support Systems Best Support Systems For Our Store TeamsFor Our Store Teams
360 degree communication systemOrganizes tasksTracks individual key performance indicatorsProvides targeted training that is tailored to the needs of the individualImproves executional effectivenessGreater process monitoring and compliance
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Great Merchandising Great Merchandising For Our Store TeamsFor Our Store Teams
Most efficient and flexible supply chainIndividual store by store merchandisingSuperior merchandising systems
enables testingearly identification of trends
Ability to develop differentiated ranges
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Outstanding Marketing Support Outstanding Marketing Support For Our Store TeamsFor Our Store Teams
Leading share of voice and great executionAbility to use national television advertising
built store brand awarenessmarket differentiated product
Sophisticated customer relationship marketingSector leading “brick & click” capability
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Superior Credit Programs Superior Credit Programs For Our Store Teams For Our Store Teams
Tailored to our customers needsLeading authorization and collections system built on jewelry sector dataOperated to our corporate prioritiesExecuted to our customer service standards
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SterlingSterling’’s Medium Term s Medium Term PotentialPotential
Return to historic operating margins and ROCE levels
rebuild store productivityreduce net bad debt
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Opportunity to Regain Historic Opportunity to Regain Historic ReturnsReturns(1)
ROCE (%) 23.0
19.921.7 21.3 22.2 22.1 21.2
15.1
8.111.1
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Operating Margin/Bad Debt (%) 12.4 11.1 12.1 12.4 12.8
9.26.8
9.812.012.8
-3.4 -3.2 -2.8 -2.8 -2.8 -3.0 -2.8 -3.4 -4.9 -5.6
(1) Fiscal 2001 prepared under UK GAAP, fiscal 2002 & 2003 prepared under IFRS (2) ROCE excluding goodwill(3) Fiscal 2009 before goodwill impairment of $408.0m
Fiscal 2001-2007 average:Operating Margin: 12.2%
Net Bad Debt to Sales: -3.0%
Fiscal 2001-2007 average: 21.5%20
10
2009
2008
2007
2001
2002
2003
2004
2005
2006
(2)
(3)
(3)
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Store Productivity/ASP OpportunityStore Productivity/ASP Opportunity
$346
$747
$331
Peak
$1.52m
$5.68m
$1.82m
Peak Fiscal 2010
Fiscal 2010
$329$1.16mRegional Brands
$713(2)$4.05mJared
$307$1.58mKay
ASPAverage Sales per Store(1)
(1) Based only on stores operated for the full fiscal year.(2) Excludes the charm bracelet category.
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Q1 PerformanceQ1 PerformanceChallenging marketplace
total revenue 6.8% comps. 7.2%
Gross merchandise margin up 90 bptsAccounts receivable performance improved by 120 bptsControllable expenses slightly downOperating margin up 470 bptsOperating profit $91.1m, +61.5%Outlook remains uncertain
typically require low single digit comp. sales to achieve leveragemarginal sales profitability against plan usually ~40% during year
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US Sales OutlookUS Sales OutlookPotential recovery in specialty jewelry sales
2009 sales down 9.8% from 2007 peak recovery driven by economy, but outlook unclear
Market share opportunitycapacity withdrawalmany remaining competitors operationally weakened and/or financially constrained
Potential for space growthbegun to see some opportunitieslimited high quality real estate availableapply demanding Return On Investment and operating criteria to all acquisition opportunities
Demanding investment requirements
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US Changes in Square FootageUS Changes in Square Footage
(2)%1,319180224127788Jan 2011 (forecast)
1,750+300+100+~500~850Long term potential
167135(2)Openings4%1,401171304131795Jan 2009
(50)-(36)(4)(10)Closures (approx.)
(1)%
10%
Change in
Space
4794
(6)
789
Kay Mall
2178
-
154Jared(1)
-260
(45)(2)
351Regionals
82Openings (forecast)1,361129Jan 2010
(56)(5)Closures
1,399105Jan 2008Total
Kay Off Mall
(1) A Jared store is equivalent to just over four mall stores in size(2) Includes 14 rebranded stores in 2008 and 2 in 2009
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Growth Potential Built on Increasing Growth Potential Built on Increasing Leverage of Competitive AdvantagesLeverage of Competitive Advantages
Ability to recruit, train & keep best sales associates and field managementSupported by superior execution of other retail disciplinesStrong balance sheet means able to focus continually improving execution Consistency of strategy and leadershipIncreasing market leadership further leverages scale advantages
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Ed HrabakEd HrabakSVP Merchandising,SVP Merchandising,
Sterling Sterling JewelersJewelers
“Supply chain & merchandising initiatives”
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MissionMissionGeneral
right product, right price, right place, right timedevelopment of differentiated rangesoffer value items for price conscious consumer gross margin managementpursue supply chain opportunities
Critical to Jewelryimportance of commodities
• quality control as each diamond is uniqueoptimize inventory investment as largest element of capital
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Competitive Advantages in Competitive Advantages in Supply Chain & MerchandisingSupply Chain & Merchandising
Sector leading systems and proceduresDirect sourcing of loose polished diamondsDetailed understanding of manufacturer’s costs Attractive partner with vendors due to our volume and financial strengthAbility to identify trends early
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Utilize Utilize ““PullPull”” MethodologyMethodologyCategory has slow changes in fashion & limited seasonality
test and run every product/programability to respond to trends within season
GMROI focusedMerchandising reflects individual stores selling patterns, local demographic & regional variationsMaximizes sales, minimizes mistakes
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Advantages of Differentiated Advantages of Differentiated MerchandiseMerchandise
Drives footfall and differentiates storesLower risk of competitive discountingOffered manufacturers’ best ideas ahead of competitionSpeed to marketClearer, more cost effective marketing messageSymbiotic marketing leverageBetter able to execute future development of ranges
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Ideal Partner for Branding Ideal Partner for Branding Commitment to testing and development of merchandising programsTraining of sales associatesAbility to provide marketing supportCritical massEstablished supplier relationshipsProven track record in brandingConsistency of strategy & executionFinancial strength
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Differentiated Merchandise Differentiated Merchandise Increasing Opportunity to Drive Increasing Opportunity to Drive
ShareShareDifferentiated merchandise combines our competitive advantages reinforcing their impact
merchandisingmarketingstore operationsbalance sheet
Opportunities to gain market share fromspecialty sector competitorsnon-specialty jewelry retailersother gift giving and self reward categories
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Highly Recognized Branded Highly Recognized Branded DiamondDiamond
2000: first tested2002: introduced to all storesContinued development of range
cutsproductsLeo Artisan
2008: improved specification2009: expanded bridal range“One of the most recognized diamond cuts in the US”
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Peerless DiamondsPeerless DiamondsExclusive to Jared Launched Fall 2005The Ideal, Ideal cut diamond
ideal cuttriple very high return of light
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Rapid Innovative MerchandisingRapid Innovative MerchandisingOpportunity identified early 2008Tested Mothers Day 2008Rolled out for Holiday 2008Continued strong performance Valentines and Mothers Day 2009Expanded range and improved availability for Holiday 2009Product and Marketing evolving
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Major Initiative For Holiday 2009Major Initiative For Holiday 2009
Followed the Jane Seymour launch templateDifferent product ‘story’ and price points to Open HeartsConcept: for the person who wants to declare their love for anotherCompetition from
“Everlon”Expanding rangein 2010
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Partnering With Branded Partnering With Branded JewelryJewelry ManufacturersManufacturers
“Build a memory”Tested 2008Female self-purchasersJared rolled-out fall 2009Jared TV ad for Holiday 2009Opportunity to convert to Jared customer
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Le Le VianVianStocked in all Jared stores
Le Vian boutiques in selected JaredsExclusive to Signet among specialty mall jewelersMany exclusive designsHigh level of female self-purchaseFirst time advertised on national televisionMarket to Le Vian gala events using CRMCustomer assisted selling system developed with Le Vian
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Test Before We InvestTest Before We Invest
Make sure we are backing winnersidentify best designs within rangeenables more accurate forecastingability to identify and react to changes in selling patterns
Currently testing a range of new fashion programssilver statement jewelrycolor range in partnership with Swarovskicharm bracelet range for all mall stores
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Developing Differentiated Developing Differentiated Ranges for Bridal CategoryRanges for Bridal Category
Accounts for 45% - 50% of US salesOpportunity to leverage polished diamond sourcing advantagesVery few differentiated bridal programs in middle marketPotential to advertise outside gift giving seasons
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Value ItemsValue Items
Ability to take advantage of market anomalies
expertise in marketplacebalance sheet strength
Selected items only, to minimize adverse impact on gross merchandise marginCaters to more price conscious consumer in challenging environment
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Gross Margin DynamicsGross Margin DynamicsDiamonds ~55% of COGS in fiscal 2010
polished diamond prices down in fiscal 2010increases in fiscal 2011
Gold ~20% of COGS in fiscal 2010gold costs +~25% p.a. for last 5 years
Able to adjust prices as commodity costs take time to impact gross merchandise marginMix changes
differentiated ranges / value items / solitaire diamonds
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Gross Margin InitiativesGross Margin InitiativesAble to identify trends early as active in polished diamond marketsSystems and procedures in place to allow considered responseSupply chain improvements
partner with lowest cost suppliers on worldwide basisleverage operational scale, stability and financial strengthenhance supply chain responsiveness
Reduced exposure to competitor discounting
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Pricing ConsiderationsPricing ConsiderationsInelastic consumer response
infrequent purchase of non-standard productintrinsic underlying value
Consumer usually has a $ budget not product specification constraint
merchandising offers wide range of price pointsbridal & other categories have different dynamics
Signet has lowest cost supply chain
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Trend in Operating MarginTrend in Operating MarginNet of changes in Gross Merchandise MarginNet of changes in Gross Merchandise Margin
0
2
4
6
8
10
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Fiscal 05 Fiscal 06 Fiscal 07 Fiscal 08 Fiscal 09 Fiscal 10
%
Fiscal 2011, broadly similar to last year’s level
Negative impact to operating marginPositive impact to operating margin
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Providing Competitive Providing Competitive Advantage to Field StaffAdvantage to Field Staff
Superior quality of merchandiseHigh “in-stock” levels Rapid clearance of slowing linesAppropriately targeted merchandise, including
female self purchasevalue conscious customeryounger malesyounger females
Differentiated merchandise supported by national TV advertising
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George Murray George Murray SVP, Marketing,SVP, Marketing,Sterling Sterling JewelersJewelers
“Sector leading share of voice”
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Marketing LeadershipMarketing Leadership“Every kiss begins with Kay”
largest marketing budget in mid-market sectorfocus on national television advertisingromance & appreciation used as consistent theme over time and across media
“He went to Jared”above average advertising/sales supportawareness & reason drives advertisingused national television for 4 years which creates greater leverage
Regional brandsvery well established local identitiesCRM focused marketing
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Focus on TV AdvertisingFocus on TV AdvertisingVisual product & emotional messageBenefit of national TV advertising
provides greater marketing leveragebrand name recognition in new marketsbetter program placementadditional benefits such as sponsorship opportunities
Limited competitionProven effectiveness
acceleration in Jared sales growth when TV introduced in local marketsKay comp. store sales growth over 6% pa higher than regional brandsgrowth of differentiated product & Kay performance up over last 18 months
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Kay v Regional Brands Kay v Regional Brands Sales per Store Sales per Store
020406080
100120140
Inde
x
Fiscal2000
Fiscal2002
Fiscal2004
Fiscal2006
Fiscal2008
Fiscal2010
Kay Regional Brands
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Building Brand EquityBuilding Brand Equity
Kay advertising awareness has built from just under 45% in 2003 to over 75% in 2009
total brand awareness for Kay is 95%
Jared advertising awareness has built from low teens to just over 70%
Total brand awareness for Jared is in the mid 80%s
Customer experience scores continue to increase driven by visit intent
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High Advertising/Sales RatioHigh Advertising/Sales Ratio
Sterling: Advertising gross of vendor contributionsTiffany: Worldwide spendZale Corp: y.e. July, advertising net of vendor contributions, including CanadaTypical jeweler: JA Cost of Doing Business Total promotional expenditure
0
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2
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2002 2003 2004 2005 2006 2007 2008 2009
% re
venu
e
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Changing Role of De BeersChanging Role of De BeersHistorically a major driver of innovation and marketing within jewelry sectorChange in strategy
away from generic beacon programs e.g. Journey rangefocus on branded merchandise e.g. Everlonrequires retailer marketing contribution
Implications for Signetwhy fund competitor’s marketing?executional difficulties possible exposure to competitor discounting
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Marketing of DifferentiatedMarketing of DifferentiatedProductProduct
Establish differentiated product by leveraging strong Kay & Jared brand equityFully integrated into TV adsOverall budget means product placement possibleLeo 10th year anniversary
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Customer Relationship Customer Relationship MarketingMarketing
Proprietary database of 26 million names built up over more than 15 yearsBuild out customer profilesUtilize multiple “touch” points
in-store, on-line, credit, repairs, extended service plans, warranties, gift cards
Contact via phone, mail & emailBehavioral models built on our customer’s response to our events
continually testing alternative strategiesMajor opportunity created by new Pandora customer in Jared
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Kay.comKay.com
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Jared.comJared.com
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Testing New MediaTesting New MediaUse normal Return on Investment evaluation methodsTested banner ads but very limited successSearch advertisingCarrying out research & development using social media
Jane Seymour micro-site, YouTube, Facebook, mobile and e-cards
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Sustainable Competitive Sustainable Competitive AdvantageAdvantage
National television advertising remains by far the most effective form of advertising in the jewelry sectorKay & Jared are the only retail jewelry brands that have the scale to use it economically and efficientlysuccess with differentiated brands
Leading in application of customer relationship marketingBest integrated e-commerce capability in sectorContinually evaluating alternative strategies Scale to significantly out-spend competitors
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Bob Trabucco Bob Trabucco EVP, Chief Financial Officer,EVP, Chief Financial Officer,
Sterling Sterling JewelersJewelers
“We sell jewelry, not credit”
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Credit an Important Element of Credit an Important Element of Sales TransactionSales Transaction
Sales enabler not a sales driver over half of business transacted on creditcustomers need/prefer to use private label for jewelry
Used by sales associates to trade customer uphigher ASP of about $1,000
Highly effective target marketing vehicleover 3 million account holdersloyalty factor encourages repeat business
Credit customers lifetime value is 3.5X greater
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InIn--house Credit Operationhouse Credit OperationA Competitive AdvantageA Competitive Advantage
Optimizes control of the businessWe manage in context of our business priorities, including gross merchandise margin on saleTailored program to our customers’ needs
score cards specific to our customersrapid collection with targeted strategiesSterling customer service standards
Different risk parameters from a bankability to react faster to changes in conditions
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Third Party Suppliers Have Third Party Suppliers Have Different PrioritiesDifferent Priorities
Bank focus is on maximizing portfolio ROAslower repayment schedule maintains higher balances to drive interest incomecollection is to recoup cash paid to purchase the receivable...not collecting marginlower risk tolerancefluctuating lending standards based on economymerchant fees augment bank’s return
Outsourcing increases, not reduces risk
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Highly Disciplined Approach Highly Disciplined Approach to Creditto Credit
Statistical science applied to all aspects of the operation from Lending to Recovery
consistent standards over the long-termAll portfolios affected by environment
ability to respond quickly focusing exclusively on our customer attributes
Lending: continually assessing performanceRecovery: targeted strategies
e.g., hardship payment programs, security interestFull Service Customer Care approach
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Credit Within Specialty Jewelry Credit Within Specialty Jewelry SectorSector
Zalesfinances ~40% of US fine jewelry salescontract requires $6 million paymentFebruary 2010 Citibank advised “intention to tighten certain customer approval criteria and to close certain high risk accounts”Citibank exercised right to terminate
CIT Chapter 11constrained ability of some independent jewelers to grant credit
HSBC and GE Capitalboth reducing exposure to private label credit
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Sterling Credit CustomerSterling Credit Customer~50% typical bank credit customer
financial flexibilityinterest free option
~50% specialist lendingyoung with limited, if any, credit history
• high level of financial commitments as setting up home
High bridal participationASP well above average
Managing this customer segment is a key differentiator
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SterlingSterling’’s Credit Operations Credit Operation50% to 55% of salesIntegrated into businessIncluded in IRR calculation for store investmentCentralized credit function since 1994
periodic review by outside expertsLending Risk Management is highly automated and disciplined
automated use of third party information sourcesto verify applicationdecision on ~80% of in-store applicants made within 20 secondsreferrals made for inconsistency in applicationadd-on sales managed through updated scoring
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SterlingSterling’’s Credit Characteristicss Credit CharacteristicsAverage balance outstanding ~$1,000Average turn ~8 monthsInterest rate charged average ~20% APR
~25-30% of portfolio is interest free• 20% down payment and minimum purchase
requirement
100% provision for bad debt when aged 90 days on a recency basisAverage ~$845m outstanding in fiscal 2010
moved broadly in line with salesfunded from general corporate resources
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Consistent Lending PhilosophyConsistent Lending PhilosophyLess Volatile PerformanceLess Volatile Performance
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Fiscal
1997
Fiscal
1998
Fiscal
1999
Fiscal
2000
Fiscal
2001
Fiscal
2002
Fiscal
2003
Fiscal
2004
Fiscal
2005
Fiscal
2006
Fiscal
2007
Fiscal
2008
Fiscal
2009
Fiscal
2010
0.0
3.0
6.0
9.0
12.0
15.0
Net bad debtas %
of total sales
Average monthly
collectionrate %
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Further Evidence of Improved Further Evidence of Improved Receivables Trend in Q1Receivables Trend in Q1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Fiscal
2002
Fiscal
2003
Fiscal
2004
Fiscal
2005
Fiscal
2006
Fiscal
2007
Fiscal
2008
Fiscal
2009
Fiscal
2010
Fiscal
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0.0
3.0
6.0
9.0
12.0
15.0
Net bad debtas %
of total sales
Average monthly
collectionrate %
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Competitive Quarterly Competitive Quarterly Year over Year Performance Year over Year Performance
• Signet (U.S.) change in net bad debt as a % of average receivables (annualized)
•Competitive set reported as change in net charge off % of average receivables (annualized)
•Competitive set reported: 2009 annual reports for U.S. charge card performance.
2009-2008
-
100
200
300
400
500
600
700
800
SIGNET (U.S.) CAPITAL ONE BANK OF AMERICA U.S. BANCORP JP MORGANCHASE
CITI TARGET NORDSTROM
Q1 Q2Q3Q4
bps
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Actions TakenActions TakenChanges in lending decisions
updated scorecard for segment of customer baseadjusted lending decisions on particular characteristicsintroduced down payment requirement for some additional customers
Investment in systems and peopleimproved dialer capabilitynew decision engine technology being introducedenhanced recruitment and training proceduresbetter targeting of resources
Improved customer servicestructured hardship programimproved features on websites
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Credit Legislation AmendmentsCredit Legislation AmendmentsAdverse impact
reduced ability to charge interest on late payments related to interest free creditcalculation of outstanding balance level of late fees, still open issueelimination of convenience fees
Incremental costsone-off and on-going operational expenses
Limited availability of mitigation strategiesNet direct adverse impact estimated to be $15-$20 million in fiscal 2011
majority of impact on “other operating income”
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Competitive AdvantageCompetitive AdvantageMost appropriate credit offer, credit being essential in mid market specialty jewelry sector
scale to have jewelry specific systems and modelsmanaged to maximize return to business not to credit activity
Managed to our priorities not those of a third party
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Bill Montalto Bill Montalto EVP, Chief Operating Officer,EVP, Chief Operating Officer,
Sterling Sterling JewelersJewelers
“Sector Leading Systems”
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Information Technology & Information Technology & SystemsSystems
Superior systems are competitive advantageBenefits
enhanced customer servicebetter gross merchandise marginmore efficient use of inventorysophisticated customer relationship marketingcredit procedures for specialty jewelry sector
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Integrated Jewelry Retail Integrated Jewelry Retail SystemsSystems
Retail StoreRetail StoreSystemsSystems
Brick and ClickBrick and ClickMulti ChannelMulti ChannelMarketingMarketing
BusinessBusinessAnalytics and Analytics and Financial Financial ControlsControls
MerchandiseMerchandiseand Supplyand Supply
Chain SystemsChain Systems
Sterling Sterling Systems Systems PortfolioPortfolio
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Differentiated Systems Differentiated Systems
Highlighted in today’s presentationStore Execution SystemMerchandise Assortment Planning Design-A-Ring
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Store Execution SystemStore Execution System
Supports leadership position in field execution, communication and training
provides reporting of performanceautomatically identifies outliers from standardeasy to use task listtasks provide detailed step by step proceduresprovides immediate feedback loop
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Store Execution SystemStore Execution System
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Store Execution SystemStore Execution System
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Store Execution SystemStore Execution System.
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Merchandise Assortment Merchandise Assortment PlanningPlanning
Supports leadership position in jewelry industry
“Pull” merchandise GMROI drivenearly identification of trendscomprehensive testing of new product
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Merchandise Assortment Merchandise Assortment Planning Planning
Product Bill of Materialdetails the make up of an item product attribute tree
Assortment Planning Systemorganize product in Attribute Clusters cluster stores based on sales volume supports micro-merchandising
Underpins Manufacturing and Diamond Sourcing
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DesignDesign--AA--RingRing
Available on Jared.com or in storeOver 15,000 loose diamonds available in virtual assortmentView actual diamond with “virtual loupe”technologyOnly US brick & click retailer with this technologyDiamond delivered to home or store
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The Common ThemesThe Common Themes
Systems enabling superior customer service and executionImprove productivity Integrated but responsive systemsUniquely adapted to specialty jewelry sectorContinuous investment and improvement
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Competitive AdvantagesCompetitive Advantages
Store Operations
Merchandising Marketing Real Estate
• Closely monitored store standards
• Measurable objectives
• Leading training systems
• Differentiated merchandise
• Sophisticated systems
• GMROI focused
• Superior supply chain
• National television advertising
• Research based
• Champion / challenger approach
• Strict criteria, regularly reviewed
• High quality locations & store fit
• Leading store productivity
Control and information systems
Very experienced & stable managementConsistency of strategy & execution
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Our MissionOur MissionTo earn the trust of our customers by delivering:
To conduct ourselves as a company with:
To achieve:
A superior customerexperience
Teamwork Return onassets
Assistance Integrity Continuous improvement
Products Communications
Services Rewards
Value
Convenience