US Merchandising & Purchasing
It is believed that selection, availability, and value for money of merchandise are all factors that are critical to retail success. In the US business, the range of merchandise offered and the high level of stock availability are supported centrally by extensive and continuous research and testing. Best-selling products are identified and their rapid replenishment ensured through analysis of sales by stock keeping unit. This approach enables the division to deliver a focused assortment of merchandise to maximise sales, minimise the need for discounting and accelerate inventory turn. Further the US division is better able to offer superior value and consistency of merchandise than its competitors due to its direct sourcing capability.
Inventory management
Sophisticated inventory management systems for merchandise testing, assortment planning, allocation and replenishment have been developed and implemented. Approximately 75% of the merchandise is common to all US division mall stores, with the remainder allocated to reflect demand in individual stores. It is believed that the merchandising and inventory management systems, as well as improvements in the productivity of the centralised distribution centre, have allowed the division to achieve inventory turns at least comparable to those of competitors, even though it has a significantly less mature store base and undertakes more direct sourcing of merchandise.
Merchandise mix
In 2006/07, the bridal category accounted for about 45% of merchandise sold and its participation in the sales mix has grown steadily over the past five years.
Programmes have been developed in conjunction with certain vendors for the provision of branded jewellery merchandise. For example, the Leo Diamond range is sold exclusively by Signet in the US and the UK; the “Peerless Diamond”, an Ideal Cut diamond with a superior return of light, exclusive to the Group, has been rolled out to all Jared locations; and “Le Vian”, a prestigious fashion jewellery brand with a 500 year history, is now sold in all Kay and Jared stores. Management believes that the US division’s merchandising process, market share and relationship with suppliers, position the business as an ideal partner to develop branded initiatives.
The table below sets out Signet’s US merchandise sales mix as a percentage of sales:
| Percentage of sales | |||
|---|---|---|---|
| 2006/07 % |
2005/06 % |
2004/05 % |
|
| Diamonds and diamond jewellery | 72 | 71 | 70 |
| Gold jewellery | 7 | 7 | 7 |
| Gemstone jewellery | 9 | 9 | 10 |
| Watches | 7 | 7 | 7 |
| Repairs | 5 | 6 | 6 |
Direct sourcing of polished diamonds
It is believed that the US division has a competitive cost and quality advantage as diamond merchandise sold is sourced through contract manufacturing; Signet purchases loose polished diamonds on the world markets and outsources the casting, assembly and finishing operations to third parties. By using this approach the cost of merchandise is reduced and the resulting advantage is largely used to provide superior value to the consumer which helps to increase market share. Contract manufacturing is generally utilised on basic items with proven non-volatile historical sales patterns that represent a lower risk of over or under-purchasing.
Contract manufacturing accounted for some 48% of diamond merchandise sold in 2006/07. In prior years it had been about 55%. The lower level in 2006/07 reflects the strength of the newly introduced “Circle” and “Journey” ranges. It is anticipated that the proportion of contract manufacturing will increase from the 2006/07 level in future.
The contract manufacturing strategy also allows the buyers to gain a detailed understanding of the manufacturing cost structure and improves the prospects of negotiating better pricing for the supply of finished products.
Rough diamond initiative
In 2005/06 a multi-year trial, involving the purchase and contract polishing of rough diamonds, was commenced. In 2006/07 it was expanded. This trial is still at an early stage and the US division continues to purchase about 50% of the diamonds it sells as polished loose diamonds. In 2007/08 it is planned that the capability to purchase rough diamonds will be taken to the next stage of development. Once these stones have been cut and polished on a contract basis, they enter the US division’s supply chain in a similar way to other polished loose diamonds. Stones not suited to the Group’s merchandise selection are sold to third parties. In 2007/08 it is planned to increase further the volume of rough diamonds purchased.
The objectives of this supply chain initiative are to:
- secure additional reliable and consistent supplies of diamonds to support the growth of Signet’s US business;
- offer customers superior value and consistency of merchandise quality;
- improve understanding of the polished diamond market; and
- reduce costs.
Sourcing of complete merchandise
Certain merchandise is purchased complete as a finished product where the complexity of the product is great or the merchandise is considered likely to have a less predictable sales pattern. This strategy provides the opportunity to reserve stock held by vendors and to make supplier returns or exchanges, thereby reducing the risk of over or under-purchasing.
Direct sourcing of complete merchandise from overseas accounts for about 7% of merchandise in 2006/07 and consideration is being given to increasing this proportion.
Merchandise held on consignment
Merchandise held on consignment is used to enhance product selection and test new designs. This minimises exposure to changes in fashion trends and obsolescence and provides the flexibility to return non-performing merchandise. At 3 February 2007 the US division held approximately $205 million (28 January 2006: $174 million) of merchandise on consignment (see note 13).
Suppliers
In 2006/07 the five largest suppliers collectively accounted for approximately 20% (2005/06: 22%) of the total US division’s purchases, with the largest supplier accounting for approximately 9% (2005/06: 10%).