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Zale Corporation - 2008

Sharynn Tomlin Angelo State University

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 approximately 16,900 employees, operates in .various segments serving different customer
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,,,,, ic.,c,Iuy cuwuiacreu setoacxs inctuuing unprofitable margins, unstable leader ship, 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.

Morris B. Zale opened his first jewelry store in Wichita Falls, Texas, in 1924. From its inception, Zale stores offered credit, with payments typically spread out over 12 months. Despite the great depression of the 1930s Zale continued to expand, growing to 12 stores by 1941 with revenues over $2.73 million. Zale avoided debt during these periods and most earnings were reinvested in the company. By the mid- 1960s, Zale operated the world's largest retail jewelry chain. The company again made a major acquisition in 1962 by acquiring Bailey Banks & Biddle. By 1974, in addition to its retail jewelry stores, Zale had grown to include 351 shoe stores, 83 drug stores, 146 clothing stores. 25 sporting goods stores, and 13 tobacco/newsstand concessions. By the early 1980s, Zale began selling off its non jewelry retail operations. During the 1 980s, jewelry sales bottomed out, due in most part to the recession of the 80's. Moreover, the value of gold and diamonds, which generally appreciates, began to fluctuate. Profits slipped from $33 million in 1981 to a loss of $6 million in 1982. By 1986, the company suffered a loss of $60 million. Due to the lack of profits, Zale disposed of its European retail operations. In 1988, the Zale Company was sold to Peoples Jewelers and the Austrian Swarovski Company, each with 50 percent ownership, and they took Zale pri vate. In months of 1990. Zale posted a $64 million loss and then a loss of $106 million in the first six 1991, followed by filing for bankruptcy in 1992. Zale emerged from bankruptcy in 1 993 with 700 fewer stores. In 1 994, Robert DiNicola, ex-CEO of Macy's, was hired. ushering in a new era of recovery for the debtplagued company. By 1998. Zale appeared completely recovered from bankruptcy, with revenues exceeding $1.43 billion. DiNicola retired in 2002, and Mary Forte was named CEO. Ms. Forte resigned in 2006 and Betsy Burton replaced her. Zale of late has lost market share to Signet LLC and has even considered merging with Signet Group LLC, but CEO Burton has rejected the idea. On December 20, 2007 Neil Goldberg took the position of presidency. Zale's current organizational structure is shown in Exhibit I.

President, Chief Executive Officer.

and Director

Neil Goldberg

Acting Chief Administrative

Officer, Acting Chief Financial

Group President and President,

Zale North America

Group Senior Vice President and President, Corporate

Officer, George R. Mihalko

LjjA .Zim eann m

Senior Vice President,
Human Resources Mary Ann Doran

Gilbert P. Hollander

Senior Vice President and President, Gordon's Jewelers

Frank C. Mroczka

Vice President and President, Zales the

Diamond Store

Senior Vice



Senior Vice
President, ECommerce Steven Larkin

50 Senior Vice President, Real


Senior Vice President, Supply Chain Susann C.


Senior Vice President,


Nancy O. Skinner

Cynthia T. Gordon

Stephen C. Massanelli

Counsel, and Secretary. Hilary Molay

'.Senior Vice President, Chief Information Officer

Mark A. Stone

Senior Vice President, Loss Prevention George J. Slicho

External Issues
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. The retail fine jewelry industry is segmented into two types: chain stores and independents, with chain stores holding the largest share of the market. Jewelry stores employment exceeded 155,000 people in the mid-2000s, with most of the 30,000 stores located in California, Texas, New York, and Florida. The majority of jewelry sales occur in New York, Chicago, Los Angeles, Boston, and Washington, D.C. A strong economy and low unemployment boosts the sale of luxury goods, including jewelry. affected by cooling economic conditions. According to Jewelers' Circular Keystone, as well as the U.S. Census Bureau, about 25 percent of the specialty retail purchases traditionally occur in December with diamond jewelry accounting for nearly 50 percent of the specialty retailer sales. However, in the last few years consumers have shown an increased interest in designer jewelry. According to statistics offered by Claritas Inc., "Chicago will lead with jewelry and watch sales totaling about $2.5 billion into 2007 ... the average consumer will spend about $500 per year on fine jewelry ... Jewelry sales were expected to rise to $61.8 billion by 2007."1 Although Wal-Mart generates the highest jewelry sales, Zale remains the dominant specialty retailer. Due in part to the technological advancement of communications in the early part of the past decade, mass merchants, such as home shopping channels, mail-order firms, and other discounters, quickly emerged as a competitive force. This trend was followed by the explosive growth of Internet sales. As of 2006, online jewelry sales was the fastest growing category and accounts for 3.6 percent of sales, a 20 percent increase from 2005 and generating online sales in excess of $2 billion. Specialty retailers have also included the distribution of store catalogs in order to generate sales. Introduction of synthetic diamonds at a fraction of the cost of natural diamonds may also become a major competitive factor in the near future. Apollo Diamond Inc., located in Boston, Massachusetts, and Gemesis Corp. of Sarasota, Florida, who have manufactured synthetic diamonds, have been overwhelmed with the positive response from consumers.



An online poll conducted by

CNBC revealed that about "71 percent of consumers would

also be willing to purchase the synthetic diamond rather than the natural diamond."2

Environmental and Social Responsibility

Nearly 80 percent of newly mined gold is used in jewelry, so jewelers like Zale and others play a significant role in saving and sustaining the environment. Eight leading jewelers, including Zale Corporation, Cartier, and Tiffany & Co., are supporting organizations that oppose the mining of so-called "dirty gold" With this influential backing, the pressure on gold mining industry is rising. To resolve growing concern about how gold is produced, Jewelers of America and other jewelry and mining groups created the Council for Responsible Jewelry Practices in May 2005. Nongovernmental organizations such as Oxfam America and Earthworks launched the "No Dirty Gold" campaign in 2004, speaking in the name of communities whose livelihoods and environments are threatened by irresponsible gold mining. The "No Dirty Gold" campaign promotes a system to determine where and under what circumstances gold is mined. Similar to the campaign to eliminate conflict diamonds, the "No Dirty Gold" campaign is based on the Golden Rules that represent human rights and environmental reform standards for the mining industry. Zale, Cartier, Tiffany & Co., and others are among the twelve leading jewelers that have endorsed the Golden Rules.


In 2005, 24,741 jewelry retailers operated in the United States. Leading the pack were Zale Corporation and Tiffany & Co., both generating revenues in excess of $2 billion annually. Traditional jewelry retailers offer customers upscale merchandise, preferential treatment, and product savvy personnel, attributes not common among the discounters and Internet retailers. Diamonds continue to dominate overall sales with bridal seasons and holidays remaining the optimum buying periods. Zale faces a variety of competitors who are not exclusively operating in the jewelry industry, such as department stores like JCPenney, discounters like Wal-Mart, online retailers, and television home shopping programs such as QVC. Even though Wal-Mart has the largest market share in the industry, it is not considered a direct Zale competitor. However, the following competitors target the exact same markets as does Zale.

Signet (

Signet Group PLC originated as a single jewelry shop in Richmond, Surrey, England in 1949. Now Signet is the world's largest specialty retail jeweler. Today, Signet Group conducts operations in both the United States. and the United Kingdom. In the United States, Signet operates (2006) 1,221 stores in 50 states with sales making up a market share of 3.9 percent of the total U.S. jewelry market. Nationwide, its mall stores are known as Kay Jewelers and regionally under several other different brand names. Jared, The Galleria of Jewelry, is the trade name of their U.S. superstores. Signet operated 591 stores in the United Kingdom as of 2006 under the names H. Samuel, Ernest Jones, and Leslie Davis. Its U.K. sales made up 17 percent of the total U.K. www. jewelry market. Kay Jewelers also conducts worldwide e-commerce at its Web site, In 2006, Signet reported an 8.5 percent revenue growth, which averaged to a 4.8 percent revenue growth over the past five years.

Tiffany & Co. (

Tiffany & Co. was founded in 1837 and is now a jeweler and specialty retailer, whose merchandise offerings include an extensive selection of jewelry (82 percent of net sales in fiscal 2005), as well as timepieces, sterling silverware, china, crystal, stationery, fragrances, and accessories. In 2005 Tiffany & Co. accumulated net sales of $2.395 billion, which demonstrates growth in net sales compared to 2004 of about 8.6 percent. Today, more than



150 Tiffany & Co. stores and boutiques serve customers in the U.S. and international markets. There were 8,120 employees around the world as of January 31, 2006. Tiffany uses several channels of distribution. More than 50 percent of U.S. retail of 2005 covered store retail and non-Internet business-to-business sales; 38 percent con-

of usines sisted of international retail and wholesale, as business and Internet sales. About 6 percent amoibut be ds-tomarketing such as direct mail catalog, and so on, and 5 percent from other channels. For p 2005, the United States represented approximately 60 percent of Tiffany's net sales. Japan represented 20 percent, other Asia-Pacific at 8 percent, Europe 6 percent, and the remainder in other markets.

Odimo Inc. ( )
ols fin e ew luxuryt not achieved y, a

Odimo Inc. competes directly with Zale in online sales. Odimm goods, and brand-name watches. Since its formation in 1998,

profit in a single year and has accumulated a $67 million deficit in nine years of operation.
However, the company continues to remain solvent and keeps on making acquisitions and expanding its product lines. Since the 2000 ands 2 f , "the company's 0 s and revenues have 0 c.worldof at hake ontinued to corn and monumental steps forward, but they have still never been able to climb out of the red.-

Blue Nile Inc. ( )

competition with Z e. B Blue Nile Inc. is another online diamond dealer in d nd does not maintain aryl sign le is experiencing explosive growth and amazing profits tht e an cant product inventories. When a customer orders a diamond from Blue places an order for the product from one of twelve wholesale suppliers comp y to and th stone is set, polish and shipped wholesaler then ships the diamond 2 3 p Bc Nmarkup inean industry where e50 percent has All of this is done for a me ne always been the norm. Since going public in May of 2006, Blue Nile's stock has increased by 32 percent. What started out as a "small Internet venture has become a giant Co the industry tumnoa sells as many engagement rings in the United States as Tiffany rizes the sales and other financial data for Zale's major competitors.

Internal Issues

r _.., ,-_Pnrl 2006 (July 31), operated 1,456 specialty retail jewelry stores, 81711 _ :...

.,, r T.,; rPrl States.

kiosks, and _/o cart, 10,U ...,

..., ployees.. usuu , U, Canada, and Puerto Rico, employing approximately 16,900 em U.S. facilities by state is shown in Exhibit 3. Its headquarters is approximately 430,000


Competitors-Retail Jewelry Industry Revenue (M)

$3.403.50 $2,439.00 $2,395.20 $251.60 $51.80 $27.30 $9.30 $0.20
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Competitors Retail (Specialty)


Profit Margin (12 mos) 11.20% 3.40% 15.20% 7.90% -4790%

15,652 16,900 8,120 1 113 74 124 32

Market Cap (M) $3,917.00

Signet T al e Tiffany
Blue Nile

$5,780 70 33 $616.80 $1.50 $0.60 $1.90 $9.20


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square feet and is located in Irving, Texas. In Toronto, Canada, Zale has a center for distribution and production operations of 26,280 square feet as well as a 20,000-square-foot distribution and warehousing facility in Irving, Texas.

From an accounting standpoint, 2006 was at best a marginal year for the Zale Company. Debt increased, earnings per share decreased sharply, cost of sales was higher, and liquidity was down. The American Jobs Creation Act or AJCA created a $6.8 million tax break

States Alabama Alaska

Firm's Facilities
Zales 11 6 10 9 58 13 10 51

Gordon's 2 0 9 6

Arkansas California Colorado Connecticut


9 0 33


Hawaii Idaho Illinois

Indiana Iowa

6 4 26
14 10

0 0 4
5 1

Kentucky Louisiana

8 15

0 11

Maine Maryland Massachusetts


2 21 18

0 10 5

Minnesota Mississippi Missouri

Montana Nebraska Nevada New Hampshire

9 7 15
2 4 5

13 2 7
0 1 4 0

New Jersey
New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon

5 20
12 36 20 4 31 1 5

5 1 1 0 0 29 2 continued


15 7

EXHIBIT 3 States

Firm Facilities-continued 's Zales



Rhode Island
South Carolina



South Dakota
Tennessee Texas

17 74

9 62 0 0

Vermont Virginia Washington West Virginia Wisconsin

2 25 16 5 12

8 8
1 0

Total U.S.



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 funds in the United States. Zale incurred a $21.2 million loss on the closing of 32 Bailey Banks and Biddle stores.

Financial perform ance in 2006 and 2007 were lackluster. However, in addressing shareholders, CEO Bu rton stated that Zale had a strong bal ance sheet. Total assets for fiscal year end July 31, 2007, incre ased 10.4 percent compared to fiscal year 2006. The inc rease in as sets was attributed in large pa rt to invento ry . Zale attributed some of its invento ry woes to the d Biddle stores. Zale also maintained that it invests in invenclosing of 32 Bailey B anks an to ry in order to have a domin ant assortment in both diamond solitaires and diamond fashions for the Zale br an d. Analysts suggested that sluggish Zale sales also contributed to invento ry problems. Zale's long-term debt increased signific an tly from $129 million (F )( 2005) to $227 Zale states that its subst an tial long-term debt is the p ri ma ry re as on it has not pant dividends since 1993 an d does not anticipate dividend payments in the foreseeable future. However, Zale did make an effo rt to reward its shareholders by returning $100 million in the form of share buybacks for fiscal year 2006. Zale's conso lidated statement of operations is shown in Exhibit 5.

W Divisions e
Zale divides its finances between three major segments: fine jewelry, kiosk jewelry, and all other. Of these three, fine jewelry and kiosk jewelry account for all but less than 1 percent the numbers, with most of the information in "all other" being insurance proceeds, loose ends, and unallocated funds and liabilities. of

Fine Jewelry
The fine jewelry segment of Zale is made up of (1) Zale North America (Zale Jewelers, Peoples Jewelers, and Mappins Jewelers), (2) Zales Outlet, (3) Gordon's Jewelers, and (4) Bailey Banks and Biddle Fine Jewelers. Zale North America accounted for well over half of the company's 2006 revenue. Zales Jewelers contributed nearly 44 percent of the overall revenues with Peoples and Mappins combining for anther 9 percent. Zales Outlet made up about 7 percent of the firm's 2006 revenues with average sales of $398 per transaction. Gordon's Jewelers accounted for 14 percent of the sales for the entire company and averaged $416 per transaction in 2006. The Bailey Banks and Biddle brand name contributed 13 percent of the company's gross sales, and averaged $1,610 per transaction, but the




Zale Corporation's Balance Sheets

All numbers in thousands

Period Ending Assets Current Assets Cash and Cash Equivalents Short-Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long-Term Investments Property, Plant and Equipment Goodwill Intangible Assets
Accumulated Amortization Other Assets
L ctcttcu L llb ,u am o .U -u j in ,.,

Jul. 31, 2007 Jul. 31, 2006 Jul. 31,


37,643 1,021,164 113,511 1,172,318 304,396 100,740

42,594 903,294 103,356 1,049,244 21.948 283,721 96,339

55,446 853,580 64,042 973,068 23,640 282,033 90,774

--& -


11,316 1,462,568

1 1,385 1,380,900

Total Assets Liabilities Current Liabilities Accounts Payable Short/Current Long-Term Debt Other Current Liabilities Total Current Liabilities Long-Term Debt Other Liabilities Deferred Long-Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity Misc Stocks Options Warrants
Redeemable Preferred Stock


344,957 29,501 374,458 227.306 40,118 69,491 711,373 -

403,129 403,129 202,813 55,377

382,337 382,337 129,800 51,175

661,319 -

563,312 -

Preferred Stock
Common Stock




Retained Earnings
Treasury Stock




Capital Surplus Other Stockholders Equity Total Stockholders Equity Total Liabilities and SE

138.036 45.939 902,573 $ 1,613,946

1 10,105 31,803 801,249 $ 1,462,568

88,970 22,850 817,588 $ 1,380,900





Zale Corporation's Income Statement

Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses

$ 2,437,075 1.194,399 1,242,676 1,070,478 69.071 -

2,438,977 1.215.636

2,383,066 1,157226 1,225,840

1,080,754 61,452 -

988,197 59,840 -

Operating Income or Loss

Income from Continuing Operations

103,127 103,127 18,969 84,158 24,906 59,252

81,135 81,135 11,185 69.950 16,328 53,622

177,803 177,803 7,725 170,078 63.303 106.775

Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest
Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items

Effect Of Accounting Changes

Other Items

Net Income
Preferred Stock And Other Adjustments


t rl FWI



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It co 1t1)

It 1" 774


reports also state that these figures do not include the 32 stores in this line that were clos in 2006. Exclusion of that fact may lead these numbers to be exaggerated.


Kiosk Jewelry
This segment of Zale operates under the brand names Piercing Pagoda, Plumb Gold, Silver Gold Connections, and Peoples 11. These locations are small and sell lower priced products. The group as a whole contributed about 22 percent of the company's revenues and averaged $38 per transaction in 2006. and

All Other
This segment is made up of Zale Indemnity Company, Zale Life Insurance Company, and Jewel Re-Insurance Company. These companies market insurance to Zales credit card holders and issue insurance policies on jewelry and stones. This segment accounted for than 1 percent of the company's 2006 revenues. Sales data by brand is shown in Exhibit 6 and by segments in Exhibit 7. less

/7 ' -

Operations by Brand 2004-2006

2006 Total Revenues (in thousands)
Zales i including Z1_C Direct) tale Outlet Gordon', Bailey Banks & Biddle (a) Peoples t h) Piercing Pagoda Peoples 11 Insurance Revenues/Other $ 1,092,625 1 77.736 339.510 309,311 229,574 268,936 7,683 13,602 $ 2,438,977 $ 1,079.230 166,000 324,854 320,869 198,308 274.296 6,601 1 2,908 $ 2.383,066 $ 1,366,000 1 ,249.000 1 , 11 2,0 (x) 3,474,000 $ 1.070,576 1 37,613 313.881 326,086 174,058 269,660 12,566 $ 2.304,440 S 1.390.000 1.287,000 1 101,(X10 2,848,000

Year Ended July 31 2005


Average Sales Per Location (c)

Zales " tales Outlet Gordon's Bailey Banks & Biddle S 1.383,000 1,360,000


Piercing Pagoda People II
.Source: Zale Corporation,

332,000 82.000
2006 Annual Report, p. 7.

343,000 100,000

1 ,041,000
339,000 -

Zale is primarily pursuing a direct sales strategy, offering products throughout all segments from basic to fine jewelry. This strategy is characterized by a typical business-to-customer (B2C) relationship. However, channels differ depending upon the type of store and design. Online shopping is available at some stores, thus approaching the customer through a different direct channel. The most typical direct marketing tool that Zale utilizes is direct retailing. Direct mail and online shopping make up only a fraction of the total sales. t "ale uses all its different store types to serve the variety of needs of its customers. Kiosks primarily offer moderately priced jewelry to a broad range of customers. Zale Outlets target slightly higher-income females. Gordon's Jewelers is a regional jeweler focusing primarily on customer-driven assortments, whereas Bailey Banks & Biddle Fine
Jewelers offer luxury and designer jewel ry and prestige watches to attract the more affluent c ustonmers. The Zale strategy is composed of three components: -( I ) Regain Market

Share. (2) Improve Gross Margin. and (3) Invest in People .-5

Since the 2006 holiday strategy failed to be profitable, Zale has refocused to emphasize "diamond fashion such as solitaire engagement rings, dominant assortments across bridal and diamond fashion and consistent assortments of moderately priced merchandise across all stores.-6 For the next holiday season, a return to "Zales. the Diamond Store" is planned with an emphasis on the breadth and depth of assortments and additional investment and training in personnel, in an attempt to stimulate store revenues and regain market leadership. Zale believes that it is essential for an industry leader to set new milestones and benchmarks in delivering innovative and creatively designed products. To regain market share. Zale uses economies of scale in purchasing, leasing, advertising. and administrative costs. which is accomplished by utilizing their widely spread network of retailers and distributions centers throughout all 50 states in the United States, and Puerto Rico and Canada.




Segment Data Year Ended July 31 2006 2005 2004 2003 2002
(amounts in thousands, except per share amounts)

Selected Financial Data by Segment

1te%enues Fine Jewelry Kiosk _2_' All Other S 2.149.217 276,619 1 1 $ 2,438,977 S 43.273 5.571 10.927 S 59,771 $ $ 2,089.261 280,897 3,141 8.325 $ 2,383.066 $ 44.410 4.708 10.722 59.840 147,414 29.030 6,824 (5.465) S 2.022,214 269.660 12.908 S2.304,440 $ 41.757 4.199 10.425 S 1.939.454 256.665 1 S 2.212241 S
4().() 1

S 1.900,17 7 27 25 2.566 1 6.1 S2.191.727 5 S -(1.453 5.618 1 2.269 it S


Total Revenues Depreciation & Amortization Expense Fine Jewelry


4.6`3 1 S 55.69x0

All Other

Total Depreciation & Amortization Expense Operating Earnings (Loss) Fine Jewelry Kiosk All Other Unallocated Total Operating Earnings Assets Fine Jewelrv Kiosk All Other Unallocated 3.324 Total Assets Capital Expenditures Fine .lewc1ry Kiosk All Other t a c o l l a ned U Total Capital
5',u-re: Zale Corporation. 2006 Annual Report. p. 7.

S $

56.381 1 25.951 6.603 (9,939)

S 108,082 45.816 20,402 6,443 (53,792) $ 81,135 69.651 $ 1,119,679 124,415 218.049 39,261 $ S 1 1

53.739 ( 1_25.6291 7.894 (6.991) 76.354

1 51.650 S 1 20.315 9.705 (6.205)

S 177,803

26.9_'4 S 1

$ 1,103.142 117,125 35,670 79.213 89.639 $ 1,380,900 $ 59.587 8,650 14,887 S 83.124

$ 1.055,755 111 37.737 $ 124.963

S 1.036.080 ,238 38.217 S 1

S 1.02_2,790 96.485 38.788 37.354 S 1 2 51.489.265 S 41.6 (12 3,644 32 8.913 SY 54.159

$ 1.462.568 S 54.942 7,750 20,026 $ 82,718

$ 1,342,084 $ 42.535 6,038 -V2.2) 15 S 60.788

S 1.294.106 S 27.064

1 5 (.1


In addition. 32 stores of Bailey Banks & Biddle have been closed due to long-term positioning strategy and profitability issues, as well as three repair stores that were tested as a concept. However. in 2007. opening of 58 stores and 10 kiosks was planned as well as
rcl'urhishing or relocating approximately 1 70 stores and kiosks. These actions were expected to improve the company's market share.

Information Systems
In 2005 Zale Corporation began "updating its point-of-sale system in an initiative to provide more efficient checkouts for customers ."7 Zale continued this upgrade into 2006 with the implementation of a planning, merchandising, and allocation system in hopes of achieving supply chain benefits. The new modular system. expected to be fully implemented by 2009, is a different direction from their previously enterprise-wide system.

Zale has outsourced management of its LAN operations and desktop support. WAN management. enterprise server processing operations, client-server systems, and e-business

hosting. to Affiliated Computer Services since 1996. ACS is a Fortune 1000 company spe ciulizing in business processing and information technology services in 47 countries. Zale

renewed its contract with them in 2002. The information collected by Zale Corporation's information systems allows man .reement to monitor, review, and control operations for each store down to each individual transaction. Information such as store activity, transaction amounts, and merchandise sales h\ employee are available to senior management. For site selection, Zale implemented a software package in 2005 designed to aid in real estate decisions.
"c-ri!r Terre

As of May 25. 2005. Zale's e-commerce systems are outsourced to GSI Commerce Inc. assembles and manages e-commerce Web sites as well as customer service and order fulfillment services. The services provided by GSI cover all Zale brands and include Web hosting. site infrastructure development, site administration, order management. and the Web commerce engine."8 The systems were previously operated by an in-house staff of 20 to 30 employees who now focus on the Internet marketing aspects of the site, rather than day-to-day site operations. However, currently only and allow purchase transactions over the Web. Although accounted for only 1 percent of total revenues in 2006. both it and experienced 30 percent growth 2005. The Web site for Zales Jewelers,, is designed as a merchant e-commerce model. This B2C Web site has purchasing features such as an online shopping basket and checkout. Customers can pay for orders with their credit card, Zales card, or Zales gift card. Purchases made on the site are protected by VeriSign Secured services that protect credit card and other confidential information through industry standard secure encryption technology. Customers are also protected by a "Secure Shopping Guarantee" which states that Zale will cover liability up to $50 for fraudulent charges not covered by their bank if the unauthorized credit card use occurred through no fault of their own. One feature lacking from the usual click-and-mortar c-business model is the option for in-store pickup. The site only allows for shoppers to have items delivered directly to the mailing address that the customer specifies. Personalized shopping features included on the site are a "Design Your Own" section. allowing shoppers to create their own style of ring; a "Personalized" section, giving customers the ability to specify engravings on select products; and a "Wedding" section, tocusing on wedding-related products. The site also features a store locator, a "Jewelry 1 01" buyer's guide. and a quick search for locating specific items by keyword or item


The Bailey Banks & Biddle Web site, offers functional content almost identical to zales. corn. The difference between the two sites is mainly the product catalog and the site layout and graphics. The Gordon's Jewelers Web site (, the Zales Outlet Web ), the site ( ). the Peoples Jewelers Web site ( Mappins Jewelers Web site ( ), and the Piercing Pagoda Web site ( ) don't allow online shopping; they provide strictly information. These sites each provide basic features such as a store locator, buyer guide, mailing list. and employment information. One problem that can be found on each of these sites is an (www. unavailable, non-interactive product catalog. The Zale Corporation Web site ialecorp.corn) provides company information and shareholder information such as its annual reports. - s. arch and Development Research and development is limited in scope in the jewelry industry. However, since the early part of the last decade, sales of watches and related products have continued to increase. While the increase of watch sales are partly attributable to the influence of fashion designers who have made watches a status symbol. technology will also play a role in increasing sales with the introduction of watches that have the capability to connect to the Internet. Research and development will play a role in the jewelry industry as consumers demand more technologically advanced products.


Zale desires to regain its once stellar performance in the jewelry retailing industry. Competition from retail giants and other specialty jewelry competitors have made it diffi cult for Zale to recover from its below average performance of the past six years. The lack of consistent leadership, unfocused strategy, and uncertain economy have also contributed to this burden. However, Zale has a new CEO and a new strategy with the goal of improv ing performance by repositioning the Zale brand, clearing out old inventory, strengthening profitability, and gaining market share. Zale is confident that if its strategy succeeds. jt will once again be considered the king of the retail jewelry industry.

The author would like to acknowledge the contributions of Ross Hood, Philipp Kordes. Lonnie Lovell, Philip Mischke, Frank Morphis, Shea Owens, Fred Reyes. and Ana Salcido.

1. 2. Ibid. 3. Ibid. 4. Ibid. 5. Zale Corporation, 2006 Annual Report, p. 4. 6. Zale Corporation, 2006 Annual Report, p. 5. 7. Power, D., "Zale Dips Toe in New Pos.," WWD, 0149-5380, p. 14. Dec. 14, 2005. 8. jsp?newsld=21822038