Jared

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Introduction
Jared is the leading off-mall destination speciality retail jewellery chain in its sector of the market with 154 stores as at 2 February 2008 (3 February 2007: 135), equivalent in space terms to over 600 mall stores. Management believes there is potential for about 300 Jared stores in the US. Since the first Jared store was opened in 1993, it has grown to be the fourth largest US speciality retail jewellery brand by sales. Each Jared is equivalent in size to about four of the division’s mall stores. Its main competitors are independent operators, with the next largest chain operating some 25 stores.

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 a greater intention of making a jewellery purchase, whereas in a mall there is a possibility that the potential shopper is undecided about the product category in which they will ultimately make a purchase.

The average retail price of merchandise sold in Jared stores during 2007/08 was $747 (2006/07: $719), which was more than double that of a Signet US mall store. Jared targets households with an income of between $50,000 and $150,000; these households account for about 50% of US jewellery expenditure.

Jared 5 year sales, $m

2007/08
Jared sales were up by 13.8% to $756.4 million (2006/07: $664.4 million); the portfolio of 154 stores increased by 19 during the year. In 2007/08 Jared entered the New York and Philadelphia markets and it is planned to expand further in both during 2008/09. For Christmas 2007 Jared utilised both national cable and network television advertising for the first time.

Customer service
A key point of differentiation, compared to a typical mall store, is Jared’s superior customer service as due to its larger size, more specialist staff are available. For example there are dedicated personnel for the diamond, timepieces, and gold and other jewellery departments, as well as for the design and repair workshop. In addition every sales associate in the diamond department is required to be a certified diamontologist. As a result, more in depth selling methodologies may be used, such as the ‘white glove’ presentation of timepieces.

Every Jared has an on-site design and repair centre where most repairs are completed within one hour. The centre also mounts loose diamonds in settings and provides a custom design service when required. Each store also has at least one diamond viewing room, a children’s play area and complimentary refreshments.

Investment model
In the first year of trading a typical Jared store requires an investment of about $3.9 million, of which about 75% is working capital. First year sales are projected to be some $3.25 million and to make a contribution on a ‘four wall basis’. In the first five years of trading a Jared store is forecast to have a faster rate of like for like sales growth than that of a mall store over the same period. At the end of this period the planned 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 chain is immature with only 44% of stores having traded for five or more years. In their fifth year of trading the average sales of a Jared store was some $5.6 million which is above the target level set at the time of the original investment. The average sales per store for those Jared locations that have been open for six years or more was $6.4 million in 2007/08 (2006/07: $6.8 million). The average sales per Jared store open for the whole of 2007/08 was $5.3 million (2006/07: $5.7million) reflecting an increased rate of new store openings in recent years and the impact of the 53rd week in 2006/07.

Since the concept was first tested in 1993 it 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 managers, and availability of capital required to develop and grow the brand.

Merchandising
Jared’s merchandise range is about five times the value of one of the US division’s mall stores and includes larger and better quality diamonds, such as the Leo Artisan, the Peerless Diamond and the Hearts Desire ranges. The diamond selection also includes an extensive choice of loose stones in sizes from 1/5 carat to three carats. There is a wide selection of settings into which the chosen stone can be set on-site. In addition each Jared has a virtual diamond vault, linked exclusively to a vendor’s inventory, allowing an item selected by the customer to be delivered to a Jared store, usually within 24 hours.

In 2007/08 watches accounted for about double the merchandise mix in Jared to that of the division as a whole. The range, which continues to be expanded, includes Baume & Mercier, Cartier, Montblanc, Movado, Omega, Rado, Raymond Weil, Rolex, Tag Heuer and Tissot. Each store also has a comprehensive range of gold and coloured stone jewellery.

Marketing
Jared advertises on local radio for most of the year and complements this during key trading periods by advertising on television. The move by Jared to national rather than local television advertising, which began in 2006/07, gives the potential to improve advertising leverage in 2008/09 and beyond. Jared has a higher advertising to sales ratio than the division’s mall stores because it is a destination store and is still at an early stage of development. In 2008/09 national radio advertising will be used for the first time. The advertising is designed to build name recognition and visit intent through an emphasis on selection and service and utilises the tag line “He went to Jared”. A special catalogue featuring luxury watches was produced for Jared. There is also a marketing website for Jared.

Real estate
The typical Jared store has about 4,900 square feet of selling space and 6,100 square feet of total space. 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. It is planned to open 17 Jared stores in 2008/09 and this format continues to account for the majority of the division’s space growth.