Kay's Comeback Strategy: Selling More Diamond Rings Online

(Bloomberg) -- Signet Jewelers Ltd., whose stores are mainstays of U.S. shopping malls, is betting that a shift online can help pull the company out of a sales slump.

After posting another quarter of disappointing results -- sending the shares on their worst rout in four months -- Chief Executive Officer Gina Drosos embarked on a three-year comeback plan that includes a big e-commerce push. The idea is to both grow and shrink the company: She is shuttering hundreds of poor-performing locations and slashing distribution spending, while simultaneously aiming to become the No. 1 jeweler both online and in brick-and-mortar stores.

The company has been “too slow to capture our fair share of the online channel,” Drosos said on a conference call.

Drosos, who took the CEO job last year, has a tough road ahead of her. Comparable sales tumbled 5.2 percent last quarter, a worse performance than Wall Street expected. Foot traffic has declined at many malls, and Signet is often competing with itself. Its three major chains -- Kay, Zales and Jared -- have locations near one another in many of the same shopping centers.

An effort to outsource its credit division -- the business that helps customers finance their diamond rings and bracelets -- also has hurt results. Shoppers looking for wedding jewelry at Kay curbed their spending last quarter because of troubles getting credit, the company said on Wednesday.

‘Brilliance’ Plan

A key part of the turnaround plan, called “Path to Brilliance,” is investing in e-commerce operations. The company wants to get more internet traffic, add new features and make it easier to book appointments online. The goal is to have digital sales represent 15 percent of its business by fiscal 2021, up from 8 percent now.

Investors remain skeptical. The stock fell as much as 14 percent to $41.02 on Wednesday. That follows a 15 percent decline this year through Tuesday’s close, bringing the shares to their lowest point since 2012.

Signet plans to close more than 200 stores by the end of this fiscal year. Since three-quarters of those locations are in malls that have other Signet stores, the hope is that 30 percent of revenue from the shuttered sites will just transfer to the company’s other stores.

It’s also completing a plan to offload its credit business, including an agreement to transfer money it’s owed by nonprime credit-card customers.

“Operational issues have been exacerbated by several changes in the retail environment, which we have been slow to respond to, including declining mall traffic and shifts in customer buying behavior,” Drosos said. “The good news is many of our problems are fixable. We can and we will correct them.”

To contact the reporters on this story: Nick Turner in New York at nturner7@bloomberg.net, Kim Bhasin in New York at kbhasin4@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jonathan Roeder

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