“Signet is a company transformed.” That was the message that CEO Virginia Drosos delivered at Signet Jewelers’ first investor day presentation since pre-pandemic 2019. “Signet’s financial health has gone from being an impediment preventing appropriate investment in the business and talent, to being a significant competitive advantage,” she continued.
Taking her victory lap, she highlighted key accomplishments since the last investor presentation, including:
- Investing $750 million toward growth strategies, largely funded by cost savings.
- Returning $1.4 billion to shareholders through repurchases and dividends.
- Completing two strategic acquisitions – Diamonds Direct and Blue Nile – for nearly $900 million in cash.
- Paying down more than half a billion in debt to achieve healthy two-times EBITDAR, from a highly leveraged four-times EBITDAR level.
- Tripled liquidity from $880 million to $2.6 million.
As impressive as those facts and figures are, they pale compared to the transformation she brought to the company’s 29,000 employees and the customers they serve. With a mission to “enable all people to celebrate life and express love with jewelry,” and a purpose to “inspire love in the world,” it takes more than studying the corporate balance sheet. It requires having a heart for the business and Drosos has a very big heart.
Drosos makes big promises. Her goal is to reach between $9 to $10 billion in revenues from Signet’s current $7.8 billion levels; continue delivering double-digit non-GAAP operating margin in the range of 11 to 12 percent; and grow market share between 11 and 12 percent.
Drosos joined the Signet board as an independent director in the summer of 2012, about the same time she left a 25-year career with Procter & Gamble having risen to group president of global beauty. After a gap year, she became president and CEO of Assurex Health and added another board gig with American Financial Group.
At the time she joined Signet’s board, it operated about 2,000 stores under Kay Jewelers, Jared, H. Samuel, Ernest Jones, and other regional brands. And she was on the board in mid-2014 when Signet acquired its chief competitor Zales Corporation, which also owned Piercing Pagoda. At the time, Signet CEO Michael Barnes oversaw the acquisition, having joined the company in 2010 from Fossil. Coincident with the Zales acquisition, the company also announced the promotion of long-time employee Mark Light to company president and COO. Then, a mere five months after the Zales acquisition, Barnes resigned, and Light was chosen to take his place.
There was trouble in diamond paradise: Since 2008, the company’s performance and employee morale was dragged down by a class-action sexual harassment and discrimination lawsuit against the company that got a full airing in a Washington Post story in 2017. And that led to Light’s resignation.
Drosos seemed tailor-made to pick up the pieces and stepped into the CEO breach in July 2017 after resigning from Assurex. Note: The lawsuit was finally settled in June 2022 with a payment of $175 million to the 68,000 claimants in the class action lawsuit.
Brilliance Plan: Parts One and Two
Drosos inherited quite a mess, but her years at P&G taught her well. She didn’t let putting out the company’s immediate fires distract her from the long-term goal: to unlock the potential of a company nearly twice as large as when she began on the board.
Her first step was to introduce a “Path to Brilliance” transformation plan at the end of its fiscal year in March 2018 with the promise to achieve improved operational and financial performance by fiscal 2020. Its hallmarks included:
- Optimize real estate footprint by repositioning the banners in the portfolio so they stand alone and don’t compete directly with each other. This was especially problematic for Kay and Zales which often sit side-by-side in the same malls and didn’t have distinct brand identities.
- Remake the company culture for greater agility and efficiency through leadership focused on building greater levels of employee engagement throughout the organization.
- Enhance the company’s ecommerce and omnichannel capabilities, which at the time accounted for only about eight percent of revenues, and lean into the company’s data analytics and consumer insight capabilities.
Enter the Pandemic and a New Roadmap
The three-year transformation plan aimed to grow both topline revenue and bottom-line profits. In the meantime, the pandemic hit and Signet’s stores were forced to close triggering challenges unlike any in the company’s history. The Path to Brilliance plan had set Signet up to ride the pandemic wave, and in her fiscal 2021 earnings call she announced an even more ambitious second phase of the plan called “Inspiring Brilliance.”
Its inspirational pillars were focused on four “where to play” strategies:
- Win in big business by continuing to take market share in the highly fragmented jewelry business by leveraging the power across its growing banner of brands, which now included jewelry rental services through Rocksbox, direct-to-consumer diamond jewelry leader Blue Nile and the largely regional diamond jewelry big-box Diamonds Direct chain. Today, Signet’s market share stands at 9.7 percent, up from 6.5 percent in fiscal 2020.
- Expand accessible luxury and value by stretching its dominance in the mid-market jewelry segment up to more accessible luxury, e.g., Jared, Diamonds Direct, and Blue Nile, and broadening its lower mid-tier value offerings, e.g., Banter by Piercing Pagoda.
- Accelerate services, which the company sees as a $1 billion opportunity, up from $600 million in fiscal 2020. This includes expanding its “Vault Rewards” loyalty program, personalization and customization, extended service plans, and jewelry rental. Zales launched the rental service Rocksbox in 28 stores with plans for expansion.
- Lead in digital commerce, which single-handedly got the company through the pandemic shutdown. It strives to continue to lead in digital innovation in the jewelry space through virtual try-on, virtual appointments, chat, and digital storefronts on the front end. It plans to strengthen the back end through AI and machine learning for inventory distribution and flexible fulfillment capabilities.
And the “where to play” strategies are supported by three “how to win” priorities:
- Consumer Inspired: Everything hinges on inspiring the customers to shop Signet stores, no matter the need or budget of the customer. It uses data analytics and psychographic segmentation to distinctly position each banner’s merchandise assortments, store experiences, and marketing to different customer mindsets and purchase drivers. Besides clearly differentiating each banner, its consumer inspiration focus is expected to unlock a $700 million growth opportunity through customized product design within and across banners, which is now an investment priority.
- Connected Commerce: This is the gateway for customers to reach the brand, with some 75 percent of all customers engaging first with one of its banners’ websites and some 20 percent of revenues made online in fiscal 2023. It is also an efficiency driver with sales per hour increasing nearly 50 percent and inventory turnover up nearly 40 percent since fiscal 2020.
- Culture of Innovation and Agility: This is perhaps Drosos’ biggest personal win. Over the last three years, Signet has been named a “Great Place to Work-Certified Company. ”Employees state they are engaged in the company’s purpose and feel they contribute to the company’s mission. Signet has greater employee retention, which pays off because jewelry consultants with two or more years of experience sell twice as much as recently hired consultants with six months or less on the job.
Overcoming Investor Objections
As the only public company with scale in the retail jewelry industry and after having been off the investor stage for nearly three years, Drosos and her executive team have a lot to say about the company’s remarkable transformation journey and vision for the future. Drosos approaches her CEO leadership duties by blending art and science: for example, the company conducted an investor perception study before preparing remarks for investors.
How do you override the industry misperception that Signet is a dated mall retailer? By rebranding Kay and Zales and reducing its fleet’s footprint by 21 percent. These two retailers still live nearby without cannibalizing each other’s sales. Further, 40 percent of its doors and more than half the company sales are made off-mall, and the preponderance of its mall stores are located in A and B malls.
And Drosos adds, “Bridal is intentionally and strategically an over-developed part of our mix with 50 percent of Signet’s merchandise sales in bridal, compared to 20 percent for the jewelry category,” referring to the whole industry.
Financial Path Forward
Drosos makes big promises. Her goal is to reach between $9 to $10 billion in revenues from its current $7.8 billion levels; continue delivering double-digit non-GAAP operating margin in the range of 11 to 12 percent; and grow market share between 11 and 12 percent.
- To accomplish this, the company foresees a $600 million opportunity from engagement tailwinds as they return to more normal levels beginning in the fourth quarter of this year through fiscal 2027. The newly repositioned Kay and Zales will be major beneficiaries of this growth because, instead of competing directly against each other, they attract a differentiated customer with different needs and expectations.
- The company’s accessible luxury offerings (price points between $1,000 and $3,000) and its accessible banners, including Diamonds Direct, James Allen, Blue Nile, and Jared, which already garner 60 percent of sales at price points $2,000 and above, will also benefit from the bridal tailwinds, especially as these customers are less impacted by any economic setback.
- In addition, its two digital pure-play banners, James Allen, and Blue Nile, should achieve $1 billion in sales through back-office integration and scaled growth initiatives.
- The goal for accessible luxury is to increase from 30 percent of revenues in fiscal 2023, or $2.4 billion, to close to $3.5 billion in the coming years. And new services include extended service plans, repairs, loyalty programs, and customized jewelry. It sees an opportunity to add $500 million in the services category to take it to $1.2 billion in revenues.
- The company’s coup de grâce is its connected commerce capability that supports more personalized and targeted marketing. It should add another $450 million to revenues.
This report is not intended to be a love letter to Signet. It is a deep dive into how retail can remain relevant by reinventing itself, taking advantage of unforeseen challenges, and thinking differently. As a nonessential retailer during the pandemic, Drosos has achieved remarkable success. As she says, “We are a transformed company. We plan to grow on the strength of our vision, our differentiated banner portfolio, the flexible operating model we developed, and the distinctive capabilities we continue to grow. We are already having success leveraging these capabilities – but we have more room to grow.”