Real Estate
KayRegional chains
Jared
| Number of stores | 2006/07(1) | 2005/06 | 2004/05 |
|---|---|---|---|
| Total opened during the year(2) | 104 | 81 | 68 |
| Kay | 58 | 43 | 34 |
| Regional chains | 21 | 20 | 20 |
| Jared | 25 | 18 | 14 |
| Total closed during the year | (17) | (16) | (15) |
| Kay | (7) | (4) | (9) |
| Regional chains | (10) | (11) | (6) |
| Jared | - | (1) | - |
| Total open at the end of the year | 1,308 | 1,221 | 1,156 |
| Kay | 832 | 781 | 742 |
| Regional chains | 341 | 330 | 321 |
| Jared | 135 | 110 | 93 |
| Average retail price of merchandise sold | $368 | $351 | $320 |
| Kay | $317 | $305 | $282 |
| Regional chains | $332 | $324 | $304 |
| Jared | $719 | $697 | $644 |
| Average sales per store in thousands(3) | $2,089 | $1,930 | $1,816 |
| Kay | $1,815 | $1,665 | $1,584 |
| Regional chains | $1,517 | $1,514 | $1,533 |
| Jared | $5,676 | $5,453 | $4,975 |
| Increase in net new store space | 11% | 9% | 8% |
| Percentage increase in like for like sales | 6.2% | 7.1% | 5.9% |
- 53 week year.
- Figures for stores opened during the year are adjusted for the impact of conversions of format between Kay and regional chains.
- Based only upon stores operated for the full financial year.
The vast majority of Signet’s US stores are located in uburban areas. Kay and the regional chains are predominantly located in superior regional and super-regional enclosed malls where they seek sites at busy centre court locations. Around 60% of the stores are so situated. The average mall store contains approximately 1,190 square feet of selling space and 1,480 square feet of total space. The design and appearance of stores is standardised within each chain. The typical capital and working capital investment in the first year of trading to open a mall store is about $1.2 million. In some of the highest traffic malls a “superstore” format is being selectively tested. This format draws on the US division’s experience with Jared and the metropolitan stores by providing increased selling space, better customer service facilities and a wider merchandise assortment, in particular a much greater selection of loose polished diamonds and settings. At 3 February 2007 there were 11 Kay superstores.
The typical Jared store has about 4,900 square feet of selling space and 6,100 square feet of total space. Its size permits significantly expanded product ranges and enhanced customer services, including in-store repair and custom design facilities. A private viewing room is available for customers when required. There are also complimentary refreshments and a children’s play area. In the first year of trading a typical Jared store requires an investment of about $3.9 million, of which 70% is working capital.
Management believes that the US division’s prime real estate portfolio, together with its regular investment in mall store refurbishments and relocations, are competitive advantages that help build store traffic. Increased like for like sales growth is normally achieved for a number of years following such investment. The benefits from mall store refurbishments, which normally occur on a ten year cycle, include an increase in linear footage of display cases, more effective lighting and improved visibility. When relocating a store to a better location in a mall, such as a centre court corner site from an in-line location, an increase in like for like sales is expected for the reasons given above.
In 2006/07 there was a net increase in the US division’s new store selling space of 11%, just above the top end of the target range. In 2007/08 it is planned to open approximately 20-25 Jared stores, 40-50 mall stores, 35-40 off-mall Kay locations, and five Kay stores in outlet centres. Around 15 mall stores are planned for closure. The programme should result in a net increase in new store space at the top end of the 8% – 10% annual growth target in 2007/08, and is discussed in more detail below. Management has identified the potential to almost double US selling space by continuing to focus on existing concepts.
Store numbers
| 3 February 2006/07 |
Planned net openings 2007/08 |
Potential | |
|---|---|---|---|
| Kay: | |||
| Mall | 772 | 25-30 | 850+ |
| Off-mall | 52 | 35-40 | 500+ |
| Outlet centres | 5 | 5 | 50-100 |
| Metropolitan | 3 | - | 30+ |
| Kay total | 832 | 65-75 | 1,430+ |
| Regionals | 341 | 5 | c.700 |
| Jared | 135 | 20-25 | 250+ |
| Total | 1,308 | 90-105 | 2,380+ |
Investment criteria
Both the operational and financial criteria for investment in real estate remain stringent, the financial criteria being a positive net present value over a five year period on a pre tax basis using a 20% discount rate and assuming working capital is released after five years.
Signet may consider selective purchases of chains of mall stores that meet its acquisition criteria regarding location, quality of real estate, customer base and return on investment.
Click here to view a store map showing the locations of the Kay stores
The expansion of Kay as a nationwide chain is an important element of the US division’s growth strategy. With 832 stores in 50 states at 3 February 2007 (28 January 2006: 781 stores), Kay is targeted at the middle income consumer and in 2006/07 had sales of $1,486.7 million (2005/06: $1,290.1 million). Since 2004/05 Kay has been the largest speciality retail jewellery brand in the US, based on sales, and has since increased its leadership position.
The average retail price of merchandise sold in Kay in 2006/07 was $317 (2005/06: $305).
Kay stores have historically been located in covered regional malls and it is believed that in the longer term there is potential to expand the chain to over 1,430 stores, including some 850 stores in such malls (3 February 2007: 772). Since 2002/03 Kay formats have been developed for locations outside traditional malls because management believes these sites present an opportunity to reach new customers who are currently aware of the brand but with no convenient access to a store, or for customers who prefer not to shop in a mall. Such stores will leverage further the strong Kay brand awareness, the marketing support and the central overhead. These formats are detailed below.
Off-mall locations
Kay lifestyle and power strip stores provide an expansion opportunity to take advantage of fast growing retail venues. A lifestyle location is in a suburban open air shopping centre where the retail mix is biased toward fashion and leisure stores and is also likely to have a large number of restaurants and a multi-screen movie theatre. A power strip centre is also a suburban open air shopping complex but the retail mix is predominantly category killer superstores with some smaller speciality units. These types of shopping centre are referred to as “off-mall” locations.
Kay stores in off-mall locations were successfully tested between 2003/04 and 2005/06 with 31 stores having been opened. The roll-out of Kay stores in these open air centres began in 2006/07 with 21 openings and it is planned to open 35–40 in 2007/08. The potential for over 500 suitable locations has been identified in such types of centres. While these Kay stores are expected to have a lower capital expenditure, lower rents and lower sales per store at maturity than that of the Kay chain average, they are anticipated to satisfy the normal return on investment hurdle set by the Group.
Outlet locations
During 2006/07 four Kay stores were opened in outlet malls. These stores provide penetration into the value conscious sector of the market and are located in two types of centres: “Factory outlets” in which 50% or more tenants are manufacturers’ outlets; and “Mixed use” centres, typically with one million square feet of manufacturers’ outlet units, traditional mall stores and large space retailers. The core merchandise is the same as in all other Kay stores, as is the pricing structure, but the range of such outlet locations is supplemented by clearance merchandise rather than fashion product. At 3 February 2007 there were five Kay stores in outlet locations and a further five are planned to be opened in 2007/08.
Metropolitan locations
Kay metropolitan stores allow penetration into high population downtown areas under-served by the division’s typical mall and off-mall stores. These metropolitan markets have a high density of retail, business, entertainment and government establishments with good transit services and high pedestrian footfall. While the performance of the three stores opened to date has been satisfactory, a major constraint to the development of this type of store is availability of real estate that satisfies both operational and financial investment criteria.
These Kay stores are anticipated to have a higher capital expenditure, higher rents and higher sales per store at maturity than that of the Kay chain average. The development of these stores draw on the division’s experience gained from both Kay and Jared.
Click here to view a store map showing the locations of Regional chains
Signet also operates mall stores under a variety of established regional trade names (see Description of property). The leading brands include JB Robinson Jewelers, Marks & Morgan Jewelers and Belden Jewelers. At 3 February 2007 341 regional chain stores operated in 33 states (28 January 2006: 330 stores) and sales for 2006/07 were $501.0 million (2005/06: $484.5 million). Nearly all of these stores are located in malls where there is also a Kay store. The average retail price of merchandise sold in a regional store during 2006/07 was $332 (2005/06: $324).
New regional chain stores are opened if real estate satisfying the division’s investment criteria becomes available in their respective trading areas or in adjacent areas where marketing support can be cost effective. Areas in which the scale to support cost-effective marketing can be built over a reasonable time span are also considered for store openings. Management believes that there is potential to develop a second mall-based brand of sufficient size to take advantage of national television advertising. During 2006/07, 19 stores that had operated under two other regional brand names were converted to the JB Robinson facia in areas in which the expanded trial of local television advertising took place. At 3 February 2007 there were 114 JB Robinson stores. To accelerate the formation of a second national mall brand, acquisitions of small or large regional chains, or a national chain, of speciality jewellery stores that meet the Group’s strict operational and financial criteria are considered.
Click here to view a store map showing the locations of Jared stores
Jared is the leading off-mall destination speciality retail jewellery chain in its sector of the market. Its main competitors are independent operators, with the next largest chain having about 25 stores. Jared is the fourth largest US speciality jewellery retail brand by sales. The first Jared store was opened in 1993.
Jared locations are typically free-standing sites in shopping developments with high visibility and traffic flow, and positioned close to major roads. The retail centres in which Jared stores operate normally contain strong retail co-tenants, including other category killer destination stores such as Borders Books, Best Buy, Home Depot and Bed, Bath & Beyond, as well as some smaller speciality units.
Jared targets an under-served sector at the upper end of the middle market. This customer is more mature and has a higher income than that of Signet’s US mall store customer. An important distinction of a destination store is that the potential customer visits the store with the intention of making a jewellery purchase, whereas in a mall there is a greater possibility that the potential shopper is undecided about the product category in which they will make a purchase.
There were 135 Jared stores at 3 February 2007 (28 January 2006: 110 stores) and sales in 2006/07 were $664.4 million (2005/06: $534.2 million). The average retail price of merchandise sold in Jared stores during 2006/07 was $719 (2005/06: $697), which was more than double that of a Signet US mall store.
In the first five years of trading a Jared store is projected to have a faster rate of like for like sales growth than that of a mall store during the same period. At the end of this period the projected sales level is $5 million to $6 million and the expected operating margin is comparable to that of a mall store at maturity, with a greater return on capital employed. The average sales of the 55 Jared stores that have traded through the five year period forecast in the investment models is $5.6 million in their fifth full year. At 3 February 2007 some 69% of the Jared stores had been open for less than six years. The average sales per Jared store opened for the whole of 2006/07 was $5.7 million (2005/06: $5.5 million). The average sales per store for those locations that have been open for six or more years was $6.8 million in 2006/07.
Since the first Jared store opened, the concept has been continually evaluated, developed and refined. Management believes that compared to its competitors, Jared benefits from leveraging the division’s established infrastructure, access to a pool of experienced store management, and availability of capital required to develop and grow the brand.
In the longer term, the chain has the potential to expand nationwide to over 250 stores, generating annual sales of over $1.5 billion based on the current performance of existing Jared stores.
UK
Store design
A more open format, better suited to the sale of diamonds, fine jewellery and higher priced watches, is being rolled out over the refit cycle. The design draws on the Group’s mall store experience in the US and was developed as part of the programme to increase sales and store productivity by focusing on the outperforming diamond category. It was further refined for H.Samuel during 2005/06 and will also be enhanced for Ernest Jones in 2007/08. In 2006/07 44% of the division’s sales came from stores utilising the more open format.
The design allows greater interaction between sales associates and customers and better presentation of merchandise by the use of low level display counters rather than window displays. The design for mall locations includes display cases on the frontage with the concourse, rather than the traditional window presentation. The open frontages make the store more accessible and inviting to the customer, as well as improved in-store signage. The High Street stores have wide floor-to-ceiling windows that provide views directly into the store.
The use of low level display units, that also serve as service counters for much of the merchandise, allows the sales associate to show an assortment of merchandise to the customer without having to break away to select additional merchandise from the window displays, as in the traditional window based store design. The reformatted stores achieved a rise in both diamond sales and average retail price, reflecting changes in the mix of merchandise sold.
An additional 27 stores (26 H.Samuel and one Ernest Jones), were trading in the new format at 3 February 2007, bringing the total to 255 (217 H.Samuel stores and 38 Ernest Jones stores). Two other H.Samuel stores were also refurbished. In 2007/08 up to 30 refurbishments are planned, with an enhanced design being tested in Ernest Jones.
Details of recent investment in the store portfolio are set out below:
| Number of stores | 2006/07 | 2005/06 | 2004/05 |
|---|---|---|---|
| Store refurbishments and relocations | 28 | 78 | 81 |
| New H.Samuel stores | - | 3 | 2 |
| New Ernest Jones stores | 1 | 5 | 7 |
| Store fixed capital investment | £8m | £22m | £23m |
H.Samuel
H.Samuel, accounting for 14% of Group sales in 2006/07 (2005/06: 15%), offers a range of jewellery, gold, watches and gifts. At 3 February 2007 average selling space was 1,091 square feet per store.
| 2005/06 | 2004/05 | 2003/04 | |
|---|---|---|---|
| Number of stores | |||
| Opened during year | - | 3 | 2 |
| Closed during year | (11) | (15) | (11) |
| Open at end of year | 375 | 386 | 398 |
| Percentage increase/(decrease) in like for like sales | 0.7% | (8.8)% | 1.9% |
| Average retail price of items sold(1) | £42 | £38 | £37 |
| Average sales per store in thousands (exc. VAT)(2) | £695(3) | £681 | £723 |
- Excluding accessories, repairs and warranties.
- Including only stores operated for the full financial year.
- 53 week year.
The average retail price of items sold has increased at a compound annual growth rate of 6.2% over the last five years. This upward trend is expected to continue as the sales mix of diamonds is anticipated to rise and that of gifts to decline as a percentage of sales. Average sales per store have increased at a compound annual growth rate of 0.8% over the same period. In 2006/07 the average retail price increased by 10.5% and the sales per store by 2.1%. H.Samuel will increasingly focus on larger stores where it is better able to offer more specialist customer service, a wider range of jewellery and benefit from a more customer friendly format. The number of H.Samuel stores is therefore likely to decline in smaller markets as leases expire or suitable real estate transactions become available.
Ernest Jones (including Leslie Davis)
Ernest Jones sales accounted for 11% of Group sales in 2006/07 (2005/06: 12%). Where local market size and the availability of suitable watch agencies permit, the Ernest Jones chain follows a two-site strategy, using the trade names Ernest Jones and Leslie Davis.
The principal product categories are diamonds, branded watches and gold jewellery, which are all merchandised and marketed to appeal to the more affluent upper middle market customer. Ernest Jones retails an extensive range of diamond and gold jewellery as well as prestige watches such as Breitling, Cartier, Longines, Omega, Rado, Raymond Weil, Rolex and Tag Heuer. It also sells contemporary fashion watches such as Burberry, DKNY, Emporio Armani, Gucci, Hugo Boss and a range of traditional watches including Accurist, Rotary, Seiko and Tissot.
At 3 February 2007 the chain had average selling space of 864 square feet per store. The average retail price of items sold has increased at a compound annual growth rate of 6.5% over the last five years. Over the same period average sales per store increased at an annual compound growth rate of 3.3% and were the most productive stores in the Group in terms of sales per square foot. In 2006/07 the increase in average retail price was 10.1% and sales per store increased by 1.3%. The number of Ernest Jones stores has increased by 22 over the last five years, and the number of stores is expected to gradually increase, depending on the availability of suitable sites and prestige watch agencies.
| 2006/07 | 2005/06 | 2004/05 | |
|---|---|---|---|
| Number of stores | |||
| Opened during year | 1 | 5 | 7 |
| Closed during year | (2) | (2) | - |
| Open at end of year | 206 | 207 | 204 |
| Percentage (decrease)/increase in like for like sales | 1.7% | (7.6)% | 4.5% |
| Average retail price of items sold(2) | £163 | £148 | £141 |
| Average sales per store in thousands (exc. VAT)(3) | £1,079(4) | £1,065 | £1,150 |
- Including Leslie Davis stores.
- Excluding accessories, repairs and warranties.
- Including only stores operated for the full financial year.
- 53 week year.