Finance Deals Can't Put a Sparkle On Zale's Grim Situation

Last Updated May 13, 2010 10:32 AM EDT

Managers probably breathed a sigh of relief this week at jeweler Zale (ZLC). The company finally fixed some of its most pressing financial problems, lining up a new $600 million bank credit facility and scoring a backer for offering store charge cards in Canada. But the important problems remain for the 86-year-old brand: steadily shrinking sales, substantial losses, and a stale brand that hasn't changed its image in decades.

Everything about this brand screams "yesterday." Stores still sport plain cream walls with wood-and-glass cases holding pale shouldered-mannikins wearing necklaces. It's a look that hasn't changed since at least the 1950s, and so now seems aimed at a customer who, as the old joke goes, is "average age deceased."

Outside the store, things aren't much better. Flagship brand Zales has 700 North American stores, many of them in distressed malls pocked with empty storefronts and visited by few customers. There's also just too many jewelry stores in each mall -- in my nearest mall, Zale fights for customers with stronger marketers Kay Jewelers ("Every kiss begins with Kay"), Ben Bridge ("The Diamond People"), and Weisfield Jewelers, among others. There aren't going to be enough fine-jewelry buyers visiting malls to support all those stores again for a very long time, if ever, thanks to price undercutters such as Walmart (WMT) and Internet powerhouses such as Blue Nile (NILE).

Retail jewelry is a sector that's been ripe for consolidation for decades, and shoppers' new frugality may finally kick it into gear. Zale retained investment banker Peter J. Solomon Co. in February to look at its financial alternatives. At this point, a new owner with some fresh marketing ideas might be just what's needed to reinvigorate the Zales name. Global giant Signet Group (SIG) already owns a dozen jewelry brands including both Kay and Weisfield, and might offer deeper pockets for the restructuring Zale needs.

Photo via Flickr user sinksanctity

  • Carol Tice

    Carol Tice is a longtime business reporter whose work has appeared in Entrepreneur, The Seattle Times, and Nation's Restaurant News, among others. Online sites she's written for include and Yahoo!Hotjobs. She blogs about the business of writing at Make a Living Writing.