Thank you, and, good afternoon, everyone. Welcome to CL King's 22nd Annual Best Ideas Conference, and our fireside chat with the leadership team at Signet Jewelers. We have CEO of the company, Gina Drosos, and CFO, Joan Hilson. So no further ado, welcome, and, just wanna sort of let folks know, I'm gonna go through basically spend some time on the macro environment, 'cause I think it's top of mind for most investors. But really just try to focus mainly on the transformational kind of journey, if you will, since Gina and Joan have been at the company for the last, you know, five-plus years. So let's start, if we can, with where I've been starting with all my companies, today. You know, what's your take on the state of the consumer? Your consumer, not all consumers.
You know, there's seemed to have been a choppy summer in at least some, most, many consumer-facing businesses, and then I guess more stability lately, with in terms of, you know, volume or, you know, traffic at stores or traffic at restaurants. Is that kind of consistent with how you see things?
Yes, and thank you, Andrew, for having us today. We have seen a cautious and choppy consumer, really since the beginning of the year. I think our strategies to combat that have worked well. We've brought significantly more newness into our fashion business. Consumers tend to expect new items not to be discounted, and we've also used our vertical integration to provide a great value. So those two strategies have worked well. But we do see consumers being a bit more cautious in their purchase. One of the big things we've been looking for in our business is, COVID for us hit a couple of years later, because the average amount of time between when a couple meets and gets engaged is three years.
Because of the COVID lockdowns in 2020, we saw engagements in late 2022, all of 2023, and the beginning of 2024 be impacted negatively by that, but now we're seeing that come back. We've seen it come back a little slower than we expected because of this choppy consumer, but just were able to report last week that engagement ring units are now growing, and we're seeing all the signs of that engagement recovery.
So the, Gina, the caution that you're talking about, and that's obviously consistent with what everyone's talking about, how does that manifest itself? So there's a delay, and people... It's like, "Let's get engaged, but wait a while to buy a ring," or I mean, you know, may not have that information handy. But how are you seeing it at your end, you know, as the sales roll up to you?
Yeah. The primary way that it impacts our engagement sales is that couples just take a little bit longer to make the purchase decision. One data point that supports that is that we've seen customers come to our websites 15% more often than last year, and a lot of times that's because they're comparing the options that they have, wanna make sure that they get the exact right style at the best possible value.
Okay, so they're just being fussier shoppers, like, is that what you-
But they're still moving forward to engagement, which is,
That's right
... which is what we've been waiting for and are excited about. It creates a three-year tailwind in our business.
You know, 'cause you brought it up, you know, the newness and the fashion runs kind of counter to that. It's, you know, I wouldn't say it's an impulse buy necessarily, but, you know, if you get something new at close to full markup, you know, that's obviously what people want in your business, and at your stores, and the sales counter, and so on. So that is... Is that happening? I mean, obviously you're offering something interesting, but for the consumer's mind, is it kind of the price point, and they're just kinda, it's like, "Hey, I can afford this, and this is kind of new?" Like, why is their behavior not as value-seeking in that purchase, do you think?
I think consumers in general are value-seeking, so I wouldn't imply otherwise. That's true in the bridal category and in the fashion category. But what we are seeing is that newness has really taken hold. So when they can see something that's innovative, then they're willing to pay full price for that. And remember that a lot of our fashion business is gifting. So for birthdays, for anniversaries, for graduation, for push present, it's not just impulse or self-purchase, which tends to skew to a lower price point. It's the special occasion gifting kinds of things, where people really wanna give someone something special. I will say some of the innovation, just to give some examples of that, we've b rought lab-created diamonds into fashion jewelry. We think that's a great way to tier up that category, and it's been working.
We saw average transaction value up in the kind of mid- to high-single digits on our fashion business in Q2. The other kinds of innovations are things like sculpted gold. So think about that as specially shaped or hollow pieces that provide-
Mm
... a big, chunky look, but don't cost as much as a solid gold piece might, and with gold being at all-time highs, that's a fabulous innovation for customers.
Cool. Excellent. So let's talk about the market you're in, 'cause it's so fragmented, and you're 9% of the market roughly, the biggest player. That's, like, unheard of. You know, so, you know, it's been a market, I guess, where normally there's contraction of the smaller players, which is, you know, Retailing 101. The big guys get big through economies of scale, and the good smaller guys stick around, and the bad ones don't. But I guess that has not occurred for a while because of the COVID boom, you know, helping with disposable income, which, you know, jewelers got a piece of. You know, can you just kind of describe this market? Did I accurately depict it, or is there more going on with, like, some mass merchants are involved?
Or, like, who are you competing with is a good way to put it.
Sure.
Like, these items, I think, you know... Is it, is it these fragmented jewelers, or is it Costco's counter? I mean, I- I'm sure you're gonna say everybody, but how do you view the competitive landscape for y- for Signet Jewelers?
Mm-hmm. So, we are, as you said, we're the world's largest specialty retailer of diamonds. We have the number one brands in the U.S., Canada, in a very strong position also in the U.K. The U.S. is the biggest market in the world, so having the top brands here gives us scale, you know, across the business. We're about three times larger than the next largest jewelry retailer in the U.S. market, and the majority of specialty jewelry is still independent jewelers, more mom-and-pop kind of jewelers. They represent about 60% of the market. When we began our transformation, we had about a 5%-6% market share. Now we have closer to a 9%, so over our transformation, we've grown our market share by, you know, about 50%. But I like to look at that 9% number as being small.
We have a lot of headroom to continue to grow our market share, and I think there are probably two important things on this front. One is, our brand portfolio was not very differentiated in the past, so Kay, Zales, and Jared all looked very much the same and, if anything, competed against each other. We've now differentiated those banners. Jared, for example, we've tiered up into accessible luxury. Since pre-COVID, our average transaction value is up 60%, six zero, in Jared, so we really have tiered that up nicely. We've pulled Kay and Zales apart from a merchandise, a positioning, and a real estate footprint standpoint. So now our banners, also with some acquisitions like Diamonds Direct and Blue Nile, our banner portfolio can appeal to 80% of jewelry customers, even though we're only a 9% share.
We think, we think that headroom is very real and something that we go after. You mentioned an important point, though, Andrew. It used to be pre-COVID that every year we could count on three to 500 doors of independent jewelers closing. With all the stimulus that came to small business, and with the kind of surge of, you know, purchase from the stimulus to customers as well, independent jewelers kind of haven't closed as much as they did historically. But we expect that trend will pick back up again, which is another reason that we can grow our market share.
Now, is that three to five... Is there about 17,000 jewelers, most independent? Is that the right number?
Yeah-
Double check
... about 17,000 doors of independent jewelers with, yes, 3-500 closing per year, pretty consistently pre-COVID.
Is there a strategy where you can buy their customer list? Is that something that can happen? Is that worthwhile to sort of pick up their inventory at cost, help them with the bank, and get their customer list? I've seen that in other fragmented businesses, but I just wondered if that happens here.
We haven't really seen an opportunity so much to buy their customer list, but there are several other opportunities that we have employed. So one is to... You know, jewelry is a very relationship business, and so to hire top-performing jewelry consultants from another jewelry retailer, like an independent jeweler, means they come with a customer list themselves. And I think as we've transformed our culture and been aggressive about making sure that our wage profile is great at the jewelry consultant level, we've been able to attract more of those top writers, so that's certainly one. And then, Joan, you might wanna talk a bit about our B2B services strategy, because that's another way that we've been able to acquire some business from independents, even as they still, you know, continue to sell jewelry.
Sure. We are, through our services business and repair operation, we have one of the largest network of repair services across the country. We can, in the range of five to six million jobs a year is what we can support, and we have brought in-house our watch repair business, and we can service our own watch repairs, but also the repairs of other independent jewelers. And in fact, we are in the B2B area, we have onboarded several new customers of ours, which are other jewelers in the industry, through some tuck-in acquisitions that we made. You may recall, 18 months or so ago, we acquired SJR, a watch repair and jewelry repair facility in Nashville, Tennessee.
We just re-acquired a very small repair facility in Illinois, and what this does is it broadens our network of repair services to, you know, work to service the industry. And it's really working for us quite nicely, both for cutting costs, if you will, from eliminating our need to go outside, and providing a service to external customers, other independents, as well as making our operation much more efficient. And so we are moving into custom as well.
You know, on top of B2B, when we think of custom, Kay Jewelers is expanding its custom operation, and in fact, they're supported by Diamonds Direct New York, which has a terrific custom operation where they can create and turn around a piece in a very short period of time for the customer approval, and we can build for them, and, you know, create the piece that, you know, they didn't see in our case necessarily or online, but we've been able to provide it based on an interpretation of a picture or just from scratch. So services, repair, custom jewelry is an avenue for growth for us, and one that we've, you know, continue to push forward with, our operation to really bring the best service to the industry.
But the repair business is a real big growth driver, right? So is that just internal, or is that gonna be a big offering for other jewelers who, you know, need a place to send their customers to?
That's what B2B is, Andrew. B2B is offering repair services to other-
Oh
... independent jewelers who are trying to service their customers, and we're building that book of business because we have the capacity in our repair network to actually service other independent jewelers so they can service their customers. And it's a win-win because they don't need to bring their on-staff, you know, jewelers and so forth, so it's a cost opportunity for them and a service opportunity for their customer.
Okay.
So just to complete the answer to your-
Sorry.
Oh, sorry, Andrew. Just to complete the answer to your question, so our number one competitor is this 60% of the market-
Mm
... that is 17,000, you know, doors of independent jewelers. We also have the opportunity, and Joan's team has been bringing in-house repairs for department stores who sell jewelry. Yes, Costco and other big box retailers compete, and then smaller, more demi-fine or costume kind of jewelers like, you know, Pandora, Kendra Scott, are part of the category as well. And we compete against those with our most value-oriented banner called Banter by Piercing Pagoda, which operates-
Mm
... typically in kiosks in the mall, and provides not just jewelry at those same relevant price points, but also piercing services. So services is a very holistic part of how we think about our business.
Okay, terrific. I wanna step back to 2017, when you took over the company, late 2017, and since then, you've closed 1,000 stores. You had 3,700 or something like that. So you took down the store base quite a lot, yet sales per square foot went up quite a lot. So, you know that you successfully transferred a lot of business. You said you had created a segmentation strategy, which was part of that. You know, what can you take away from that transformation where, you know, you're closing a lot of the store base that was probably in C and D malls, I would imagine, and yet, the remaining business, its sales productivity really rapidly improved.
You know, are there things that you did there that still have wind in their sails, or is that kind of positive restructuring behind the business?
Joan, you wanna start off on that one? I'm happy to jump in.
Yeah, great. So Andrew, the closing or let's just say the fleet optimization/rationalization-
Mm
... that we went through, starting in, from Gina's, you know, start with the company in 2017, is we did an overall assessment with analytics. We took a white sheet of paper and said: Where do we wanna be? What's the best opportunity for us from a market perspective? But it was a yes and strategy, because as we were closing stores and positioning well within the markets that we wanna play in, we were also investing in e-commerce, in our digital, you know, communication, if you will, with our customers.
So when we think of that as Connected Commerce, omni-channel, however it best resonates with you, it's that was the yes and of those two things together enabled us to not only grow sales per sq ft, it grew, we grew our penetration of e-commerce at the same time from 5%, it's up to 20%, you know, in, you know, most recently. So that's how we've been able to look at the overall market from an end-to-end perspective. Because what we also have studied and learned over this timeframe is that you know, a substantial part of our customer base starts with us online. We have, you know, considered price points that, you know, our customers want to be educated.
They wanna look at the array of products, and the best way for them to do that and understand the cut, the clarity, the Four Cs of a diamond, and maybe they wanna build their own on one of our websites. So they wanna take that and come to the store and show us their what they've, you know, what they've built online. That's those are the bookends of start online, come to store, because 80% of them still come to store. But at the end of the day-
Mm-hmm
... you know, it's over 85%-90%, I believe, start online. And it's those two strategies together is what really delivered the top-line growth from that point in time in our core business. The other, you know, strategy that we believe was very productive for us is the movement of our, you know, a substantial portion of our revenue from lower-performing malls to off-mall. And so, you know, we moved, you know, 20% of sales to e-com. We've moved, I think it's 30%-40% into, you know, off-mall. So it's really been, you know, a concerted effort to place our fleet in the right location within a market, and also provide the right economics for our business.
How did we move within a market is really understanding the consultants in each of the stores. Jewelry consultants develop relationships. They're trusted advisors. Our services help. Really, they're the glue with that trusted relationship. So moving jewelry consultants to new locations from a location that's closed moves the customer with the consultant. I would also tell you that brands within our store are important, and not all of our banners carry the same brand. So ensuring that we move the brand that is most prominent within that market to the new location is also a way that we've been able to garner transference when we close a store. So it's a very specific strategy for us to really make those changes in our business. And it...
You know, over the last five years, you know, with the thousand stores that have been closed, we, from a structural change, cost change, that was roughly, at the onset, 500 basis points related to just closing those stores. It took, at the time, I think it was $150 million, you know, out of our cost base. Now, leverage points change and sales change, but it was structural, and the team really understands the benefit of, as well, of the renovations that we're putting in place as we move stores. So it's a holistic strategy that takes into account market opportunity, end-to-end communication with the customer through e-com and stores, as well as a renovation and lease negotiation to really complete the full economic cycle.
Yeah, I'm glad you asked that, Andrew, 'cause I think a lot of people think about Signet as a mall retailer. And when I came on board, that would've been true. About, you know, 65% of our sales were in mall doors. Now that number's 35%. So everything-
Yeah
... Joan talked about, all the strategies, not only been good, you know, for the bottom line, but I think it's really put us in locations where consumers are more interested in shopping, which has been great for the top line.
One thing on digital that really intrigues me is, you have a, like, a digital storefront by salesperson, and it just strikes me as if you can convert that-
By CEO. I have one myself. That's exactly right. I have sold $70,000 over the last couple of months, which is nothing-
Wow
... compared to our best jewelry consultants. But I did wanna learn the technology myself. Yes, we have. Of the roughly 20,000 jewelry consultants that we have, 10,000 of them are active users of their own digital storefront.
Wow
... that, that means they create their own curated, you know, like, space, and they can text a link. You know, so SMS, they can email a link, they can post it on social media. So it really gives consumers an opportunity to shop in whichever channel is most convenient to them, and it also adds an expertise. Our jewelry consultants are themselves influencers in a lot of ways. They see the new product when it comes in initially, so they can send a link to their clientele saying, "Here are my five favorite of the new items that have come in this month," that kind of thing. So it's really given them a whole new way to connect with their customers inside, not just inside the store, but anytime, anywhere.
Yeah, it's nice and customized. And what about sort of a pull marketing approach, where I go on your website and wanna look... You know, I'm looking at, I don't know, Jared or something, and, is there a way to convert my interest in that to, you know, a person? Does a person... Can you... You know, a lot of people have a virtual somebody pop up, and I guess some people like that, some don't. But, I mean, do you have a... Is there a part of a mechanism to convert that kind of soft lead to, like, "Hey, let's have, you know-... a bunch of people, see if we can get this person to be a, you know, visit someone's virtual website or something, you know?
Mm-hmm.
Virtual store.
Absolutely. Yeah, absolutely. So one of the things we created during COVID that has continued to pay dividends are virtual jewelry consultants. And so we have a whole team of well-trained jewelry consultants who started their career in stores, but now work virtually. So when that, you know, person pops up and you're on our website, it's actually a well-trained jewelry consultant, and they will come on and help. They help to set appointments with either themselves or with a store nearby, depending on what kind of experience you'd like to have. So that's certainly one way that we are trying to attract you when you're browsing on our site. The second is that we've created a highly integrated data platform, where we are bringing our own customer data together with Epsilon data.
And so we can find customers who, you know, look like you and see what they may have searched before. We can send you, you know, now a marketing piece if we've been able to, you know, give you a cookie that we can then follow up on. And so we're doing all of that marketing, personalized and targeted marketing, or orchestration through the CDP, which we're confident is the most advanced in the jewelry industry.
Gina, have you disclosed how much of your final sales have an e-commerce element to it, whether it's something like that or just somebody browsing and then coming in the store? 'Cause I-
Yes, I think that-
... I can't imagine. I mean, I'd be curious to know versus just someone just walking into the store, having never done any e-commerce interaction.
Yeah, it's the numbers Joan just mentioned a few minutes ago. So almost 80% of our customers start their shopping journey online. They're browsing, they're learning, becoming educated, seeing price point, style, all of that. Whereas, still, you know, just over 20% actually transact in store. So e-commerce influence is a much higher number than our actual e-commerce sales.
Okay.
Or website influence.
I mean, you guys have kind of abridged fixing the company and, you know, optimizing it as a 20th-century retailer. Now we're talking about 21st-century retailing. There's kind of two tracks, and you actually have two different kind of internal names for them. But let's talk about traditional growth, whether it's new stores, M&A, omni-channel. Like, you know, you have, you know, obviously some very big midterm revenue growth goals. You know, how are those gonna be driven mainly through store productivity, or do you want to grow the store base again? Or is it, you know, or do you want to get the e-commerce penetration up?
I'm thinking more of, you know, the place where you actually think the trends, if you get to $9-10 billion of sales off of around $7 billion now, trending towards $7 billion.
Right
... you know, where, where will that business be transacted, do you believe, in the future as you grow?
Mm-hmm. I think we have both brick-and-mortar expansion opportunity as well as e-commerce expansion, Andrew. So let me talk a little bit about our accessible luxury strategy. I mentioned that in differentiating Kay, Zales, and Jared, we have significantly tiered up Jared, so that it is much more competitive with independent jewelers. And we've taken that average transaction value up 60% since pre-COVID. We've also acquired two accessible luxury businesses. One is Diamonds Direct, and the other is Blue Nile. So one is more a brick-and-mortar retailer, and one is the largest retailer of you know, pure play of engagement rings online, which is Blue Nile. And with Diamonds Direct, we have definitely a storefront expansion opportunity. When we bought it, it had about 23 doors. We think it could have 50.
We're now up to over 30, having opened five last year, so we're on a path to make that a bigger brick-and-mortar retailer and create the right kind of omni-channel experience for them, and then with Blue Nile, we've had some hiccups in our technical integration of that business. It's an older internet business, and the challenges were a bit bigger than we thought, but as we announced in our Q2 earnings yesterday, we saw a 600 basis point improvement in that business from Q1 to Q2, and we believe that we're making great progress getting all that technology up to speed, and we've taken the approach that, you know, we want to leapfrog Blue Nile and James Allen into the best online experience for buying an engagement ring.
So we're actually excited about where we think that technology will take us. And then on our other businesses, we're continually, under Joan's leadership, assessing real estate opportunities. We've talked a little bit about Kay's hometown strategy. You know, in this hybrid world, post-COVID, there are a lot of engagement-age folks who are choosing to live in a smaller or mid-sized town, maybe a college town, and we believe with Kay, we have the opportunity to be in those markets and be the jeweler of choice. So that's an example of a real estate expansion strategy on our core banners.
... Gotcha. And, same bridge, if you will, on the revenues, but obviously by, and you've laid these out pretty specifically, by, you know, product type or opportunity. I mean, we've been talking about them, but, you know, I think you've sized them out. If I remember correctly, fashion, upscale fashion is about $1 billion, biggest one? And could you just-
Access-
Kind of flesh those out for me?
So we believe growing accessible luxury is a billion-dollar opportunity. The return to engagements is another substantial opportunity, and I mentioned now that we're sort of coming around the engagement COVID and getting to the other side of that. We believe that's a three-year tailwind on our business as we get back to pre-COVID engagement levels. Joan, did you wanna talk about some of the other growth drivers?
Sure. So our services obviously was one, custom was a piece of that, our warranty plans that have a tailwind on top of the, the engagement recovery that Gina mentioned. So that's a, a substantial lever for us. And then I would say the investments that we've made in fashion, in our core banners, as well as the investments in digital and marketing, the personalization, as an example, is another lever that we see as a future growth opportunity for us. And then, I think the other side of that, Andrew, just to close it out, is that, through all of that, we have, you know, restructured our business.
We have taken out costs, a significant amount over the last, you know, $800+ million over the last several years, reinvested in the business, and have made the structural changes in real estate, in our store labor models, and been able to take some money and put that back into marketing. So that's... You know, we were at a 5.2% non-GAAP EBIT rate in, you know, FY 2020, and we're now, as you know, with our most recent guidance, you know, near 9%. So it's those structural changes coupled with the top-line growth levers are what, you know, are really driving our business and give us belief, you know, in our mid to long-term goals.
Yeah, I think we have a few minutes left. I wanna return to, you know, sort of the big worry out there with regard to, you know, lab-grown diamonds. And it's kind of interesting because it seems like, you know, from my point of view, it hasn't really impacted the market in the way that those who were most worried about it might have expected. You know, 'cause usually people hear, "Hey, there's a deflationary big substitute out there," that, that could really cause some changes in the market, but apparently has not too much. So, and I know your strategy is, I believe your strategy, I should say, is to, you know, give the customer what they want, but also to use this as an opportunity to trade them up in a purchase occasion, particularly in the fashion area.
So I'm more interested in the market. Why is the market, especially on the diamond side, hanging in there, where a potential substitute, natural diamonds, whereas a potential substitute hasn't found its equivalent in regard to price? It's still deflated. So, you know, it's interesting. I have my own theories, but I, you know, I'm not in your position.
Yeah, I think, I mean, ever since lab-created diamonds really came into the market in a scaled way in 2019, it's been a story of price decline. And we, we anticipated that, because as more machines have come online, the price has gone down. I think you correctly articulated our strategy, Andrew, which is true for both bridal and fashion. We've wanted to provide customers choice, and we've used lab-created as a way to tier up price points. So, you know, as opposed to someone coming in with a $3,000 budget and buying something for $2,000, 'cause they could get a bigger stone with lab-created, we've traded them up to $3,500 because they can get something even bigger and more beautiful.
The same kind of strategy has been true in fashion, and we've been able to do that through our vertical integration at higher margins in general. So that strategy, we think, has continued legs, because lab-created is still under-penetrated, especially in the fashion part of the business. So we'll see continued opportunity on that front.
Okay, how about just a general idea, maybe 'cause I'm a financial person? If I'm gonna buy something lab-created, and it's gonna go down in value, and gonna buy something natural diamond, it's not gonna go down in value, it just seems incredibly... I mean, unless you really need to have a big, you know, three-carat statement, otherwise, it seems like, you know, just settle for one or two carats and get something that'll maintain its value. That's got to be... I mean, it's a very emotional decision, these rings, but it's also got to be some of- is that playing into it?
It is. I think consumers are more and more educated. They understand now much better than they did even a few years ago, that natural diamonds over time have held their value and lab-created have continued to come down. So I do think that's part of why we're seeing customers come back into choosing natural diamonds, especially for their engagement rings, because it is a special purchase, and so why not have something that will maintain its value and have a legacy value, over time?
Got you. Well, we've reached our allotted time. I really wanna thank everyone, Gina, Joan, and Rob. Really, thanks for coming to our conference and participating with us today, and have a great afternoon.
Thank you, Andrew.
Thank you, Andrew.
Thank you.