Merchandising and Purchasing
| US | UK |
Introduction
It is believed that selection, availability, and value for money of merchandise are factors that are critical to success as a speciality retail jeweller. 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. The US division is better able to offer superior value and consistency of merchandise than its competitors, due to its supply chain advantages.
Signet does not hold any material patents, licenses, franchises or concessions, but has a range of trading agreements with suppliers, the most important being in regards to the Leo Diamond and luxury watches. The established trademarks and trade names of the division are essential to maintaining its competitive position in the retail jewellery sector.
| 2007/08 | 2006/07 | 2005/06 | 2004/05 | 2003/04 | |
| Kay | 327 | 317 | 305 | 282 | 257 |
| Regionals | 343 | 332 | 324 | 304 | 281 |
| Jared | 747 | 719 | 697 | 644 | 586 |
2007/08
The average unit selling prices in mall stores and Jared increased by 3.4% and 3.8% respectively The division continued to develop the sales of exclusive merchandise such as the Leo Diamond the Peerless Diamond, and the Hearts Desire range, as well as branded ranges such as Le Vian and Russell Simmons. In generic merchandise the Journey range again performed well, as did white gold jewellery. Sourcing via the rough diamond initiative entered the early stages of roll-out in 2007/08, after a successful two year trial.
Inventory management
Sophisticated inventory management systems for merchandise testing, assortment planning, allocation and replenishment have been developed and implemented. The majority of 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 2007/08, 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. The table below sets out Signet’s US merchandise sales mix as a percentage of sales:
The table below sets out Signet’s US merchandise sales mix as a percentage of sales:
| Percentage of sales | |||
|---|---|---|---|
| 2007/08 % |
2006/07 % |
2005/06 % |
|
| Diamonds and diamond jewellery | 75 | 75 | 74 |
| Gold jewellery | 7 | 7 | 7 |
| Other jewellery | 11 | 11 | 12 |
| Watches | 7 | 7 | 7 |
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, measured return of light, is only available in Jared; and Le Vian, a prestigious fashion jewellery brand with a 500 year history, is now sold in all mall 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.
Other sales
While the design and repair service is less than 10% of sales, it accounts for approximately 30% of transactions and has been identified as an important opportunity to build trust in the division. All Jared stores have a highly visible jewellery workshop, which is open the same hours as the store. As well as meeting the repair requirements of the store in which they are located the workshops also carry out work for the division’s mall brand stores. As a result nearly all customer repairs are carried out by the division’s own staff rather than through sub-contractors, unlike most chain jewellers. The design and repair service has its own field management and training structure.
For over ten years the division has sold a lifetime repair warranty for jewellery. The warranty covers services such as ring sizing, refinishing and polishing, rhodium plating white gold, earring repair, chain soldering and the resetting of diamond and gemstones that arise due to the normal usage of the merchandise. This work is carried out by the division. Warranty sales account for less than 10% of turnover.
Direct sourcing of polished diamonds
It is believed that the US division has a competitive cost and quality advantage as about 45% of 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.
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 manufacture of rough diamonds, was commenced by the Group. It was successfully expanded in 2006/07. This initiative moved to the initial roll-out stage in late 2007/08. Once these rough stones have been cut and polished, 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.
The objectives of this supply chain initiative are to:
- secure additional reliable and consistent supplies of diamonds to support the growth of Signet’s business;
- offer customers superior value and consistency of merchandise quality;
- improve understanding of the polished diamond market; and
- reduce costs.
In 2008/09 it is planned to increase substantially the volume of rough diamonds purchased. The proportion of diamonds sold by the division that are purchased uncut is currently relatively small and the division continues to develop and expand its relationships with its current suppliers of polished diamonds and diamond jewellery.
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.
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 2 February 2008 the US division held approximately $221 million (3 February 2007: $205 million) of merchandise on consignment (see note 13 on page 99).
Suppliers
In 2007/08 the five largest suppliers collectively accounted for approximately 20% (2006/07: 20%) of the US division’s total purchases, with the largest supplier accounting for approximately 7% (2006/07: 9%). The division’s supply chain has become increasingly integrated on a worldwide basis, with diamond cutting and jewellery manufacturing being predominantly carried out in Asia, with little of the division’s merchandise now manufactured in the US.
Introduction
Management believes that the division’s leading position in the UK jewellery sector is an advantage when sourcing merchandise, enabling delivery of better value to the customer. An example of this is its capacity to contract with jewellery manufacturers to assemble products, utilising directly sourced gold and diamonds. In addition, the division has the scale to utilise sophisticated merchandising systems to test, track, forecast and respond to consumer preferences.
The division retails an extensive range of merchandise including gold and silver jewellery, watches, diamond and gemstone set jewellery and gifts. As with other UK speciality retail jewellers, most gold jewellery sold is 9 carat, although sales of 18 carat gold jewellery and platinum have been increasing.
2007/08
The division continued an initiative to increase the differentiation of H.Samuel and Ernest Jones in their respective marketplaces by increasing the range of exclusive merchandise stocked and by the greater use of collections. In addition the presentation of merchandise was improved by the development of new displays and the reduction in product densities through the rationalisation of merchandise ranges. In 2007/08 diamond jewellery accounted for 28% of total Signet UK merchandise mix versus 23% in 2002/03.
Other sales
Repair services account for nearly all the other sales made by the UK division and account for less than 10% of the division’s sales. Third party warranties are also sold with only the commission earned being recognised in sales.
| 2007/08 |
2006/07 |
2002/03 |
|
|---|---|---|---|
| Gold jewellery | 28% | 28% | 29% |
| Watches | 29% | 28% | 28% |
| Diamond jewellery | 28% | 28% | 23% |
| Other jewellery | 8% | 8% | 7% |
| Gifts | 7% | 8% | 13% |
| Average selling price | £68 | £63 | £48 |
Suppliers
Merchandise is purchased from a range of suppliers and manufacturers and economies of scale and buying power continued to be achieved by combining the purchases of H.Samuel and Ernest Jones. In 2007/08 the five largest of these, (four watch and one jewellery supplier), together accounted for approximately 26% of total UK division purchases, with the largest accounting for approximately 7%. Only a small percentage of merchandise is purchased on consignment (see note 13 on page 99).
Direct sourcing
The UK division also employs contract manufacturers for approximately 27% of the diamond merchandise sold, thereby achieving cost savings. Some 20% of the UK business’ gold jewellery is manufactured on a contract basis through a buying office in Vicenza, Italy.
Merchandising
Both H.Samuel and Ernest Jones employ experienced buyers who concentrate on product development, sourcing and supplier management appropriate to their particular needs. Merchandising teams work in conjunction with the buyers and focus on assortment planning, branch grading, repeat orders, inventory levels and margin management. Product category reviews are regularly carried out with a focus on increasing potential gross margin return on investment. Rigorous test marketing procedures are used to trial products, and their subsequent distribution is made strictly against rates of sale.
Each store is assigned a range of merchandise that reflects local buying patterns. Display equipment and layouts are constantly reviewed and updated, and new display formats and units that draw upon the US division’s experience have been implemented.