REAL ESTATE

‘The King Kong of Jewelry’: Signet-Zales deal creates a conundrum for retailers and malls

BY CSA STAFF

By Michael Lebowitz, director of jewelry, White Pine Jewelry Solutions

Signet Jewelers’ $1.4 billion deal to acquire 90-year-old jewelry mainstay Zales made big headlines back in February. But reporters, analysts and investors were not the only ones paying attention to the pending purchase — as soon as they heard the news, mall managers and mall-based jewelers knew the King Kong of retail jewelry had just been born.

After all, as the parent company of Kay Jewelers and Jared the Galleria of Jewelry, Signet is already the largest jewelry chain in the U.S. and U.K. Its acquisition of Zales would give birth to a $6 billion retail jewelry gorilla with the potential to throw its weight around in all kinds of ways.

When it comes to mall real estate, for instance, the biggest names in jewelry tend to have their pick of the choicest locations at center court, sometimes on two levels. Forgetting for a moment the names above the storefronts, it’s worth pointing out that Signet’s U.S. division operates 12 brands in 50 states with over 1,400 locations; Zales boasts six brands at nearly 1,900 locations. Combined, that’s a lot of space.

And so as Signet pushes for better locations for its many brands, those with less leverage will likely be shunted down the halls to second-tier inline spaces. (And, of course, they will have to compete with the rest of the retailers vying for prime spaces on the racetrack between the anchors.)

On the lease-negotiation front, meanwhile, Signet execs will be able to sit down at industry deal-making events and play a sharper game of chess: “We will go to this mall and this mall if you’ll let us put stores in these two A-class malls.” Or “we’ll upgrade our Zales stores at your B malls in this market, if you give us better space over here.”

Years ago, back in my jewelry retailing days, my company operated three stores, one of which was in a mall. As an independent retailer, it was already tough to negotiate given the weight of the big boys of retail jewelry. When developers get high rents from national chains, they tend to expect mom-and-pops to be every bit as productive — either that, or they look askance at independents from the start. Remember, thanks to overage clauses, landlords get additional percentage rent whenever stores cross certain sales thresholds. As a result, some landlords look at independent jewelers and ask: “Is this tenant ever going to get to a number that will make more money for me?” Historically, the answer has often been no. The arrival of King Kong is not likely to help independents in this regard.

All of that said, landlords well understand that homogeneity has become a problem for many malls. How can these centers attract more shoppers while catering to the needs of their new behemoth tenant? One approach is to shop the many Signet brands and see what truly resonates with the demographic you are trying to attract. Don’t just sit with the corporate real estate person who sells you on the brands they want to lease space for. Spend the time, money, and energy to visit and shop the different brands to analyze their appearance, their product offerings and overall image. Speak with shoppers to learn which jewelry brands appeal to them and why. Jewelry-industry consulting firms that are not directly affiliated with King Kong can provide some help in this regard.

Outside the jewelry sector, other categories of stores may feel the effects of Signet’s acquisition of Zales, including anchor department stores, better women’s clothing boutiques and accessory stores. All of the above tend to be vulnerable to competition for product sales and real estate. Developers are forever dealing with the politics of jostling positions to appease tenants and to enliven the tenant mix for shoppers. Much like the seating planners at weddings of dysfunctional families, landlords can be forced to bend to those with the strongest wills.

Jewelry manufacturers also are in a dilemma here. On the supplier side, the Signet-Zales deal means manufacturers that once catered separately to these firms now have fewer alternative negotiating partners. They are now more likely to get the shorter end of the stick on exclusivity, pricing, terms, returns, markdown dollars, advertising, cancelled orders and more.

Like it or not, the gorilla is just about to be born. For many of us, the only option is to play the role of jungle dweller Jane Goodall. Sit, watch and learn.

Jewelry industry veteran Michael Lebowitz is director of jewelry at White Pine Jewelry Solutions, the consulting division of White Pine Trading LLC, one of the world’s largest recycled diamond companies. [email protected]

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REAL ESTATE

Englewood Construction completes Harry Carray complex in Chicago

BY Dan Berthiaume

Chicago – Englewood Construction ‘s food service and restaurant group has completed Harry Caray’s 7th Inning Stretch and the Chicago Sports Museum in Chicago’s Water Tower Place. The national general contractor has also completed a Native Foods Café in Chicago’s Hyde Park and is working with Native Foods Café to roll out its concept nationally.

Harry Caray’s Restaurant Group hired Englewood to build a new complex that pays tribute to Harry Caray, the Chicago Cubs baseball broadcaster. The 22,928-sq.-ft. complex houses Harry Caray’s 7th Inning Stretch, a restaurant serving American cuisine, and the new Chicago Sports Museum.

The destination, which opened April 2, combines dining, entertainment, private event venues and retail. Designed by the Chicago-based firms Barker/Nestor Architecture + Design and Ingrassia Design, the urban industrial aesthetic pays homage to Chicago’s historic Water Tower.

The dark wood walls of the 250-seat restaurant and bar are covered with photographs from Harry Caray’s private collection as well as authentic sports memorabilia. HDTVs throughout the space will be tuned to sports channels. Newly installed windows offer views of the city skyline to the north and the east.

In addition to this downtown Chicago destination, in Chicago’s Hyde Park neighborhood, Englewood recently completed an interior build-out for Native Foods Café. This is the fourth location in Chicago for the fast-casual vegan restaurant chain. Chicago-based Norr Illinois Inc. was the project architect.

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Natural Grocers opens Utah store

BY Dan Berthiaume

Lakewood, Colo. – Natural Grocers by Vitamin Cottage Inc. has opened a store in Logan, Utah. The Logan store is its second Utah location.

"We are thrilled to expand our nutrition expertise and delicious food options to Logan," said Kemper Isely, co-president of Natural Grocers. "We look forward to engaging with the local community about healthy living."

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