To me, the moral of the story is to be sure you understand what drives your business before making changes.

The overall logic of the Zales strategy is sound, but the execution of that strategy displayed an unbelievable lack of understanding of the things they were doing to move their business and an overzealous implementation of changes.

>”…dropped inexpensive, low-quality jewelry.” Does this mean that they were not available in the store?

>”…eliminated many traditional holiday sales.” This was done at a time when seasonal merchandising has never been more important.

There’s a lot to learn from the Zale’s experience about the importance of a sure-footed approach in implementing a major change strategy.

Competitive repositioning should be the result of careful and fact-based analysis. At the end of the day, the new position should provide a platform from which a unique emotional connection (brand) can be made with the customer by meeting existing or emerging needs in powerful and sustainable ways. Going beyond that, radical repositioning within the market, while sustaining the same banner, requires enormous effort and expense in education. The least successful repositioning occurs when significant change is made, inadequate education is delivered, and the consumer becomes confused. The core customer, who is no longer wanted, quickly sees that the store has changed, and leaves. The desired customer has not been educated, induced to sample, and helped through the acquisition phase. Consequently, sales plummet. Radical repositioning is often necessary and appropriate. Hard to do as a public company, because it looks worse before it gets better. Radical repositioning often takes either significant time, or resources. Time isn’t something Wall Street likes, and resources drain profits. I would only like to try a radical change in a… Read more »

Zales had time to test its new approach before rolling it out nationally. It’s inappropriate to blame investor pressure for management’s decision making process. Retailing’s great advantage compared to many other industries: you can test quickly with low cost. It takes years and 9 figures to develop a new car and test its market appeal. A national retail chain can test a new assortment with new marketing and new price points in an isolated market or two for comparatively very little money, in only a few months. Why bet the company on an inadequately tested strategy when you don’t have to?

This is another example of a retailer reacting on competition fear, also called the Wal-Mart effect, without a real plan. Many think going upscale is an easy answer and it is not. Even Wal-Mart is attempting to go upscale and I predict complete failure for them. Upscale consumers demand more than just price. Mass retailers simply do not have the ability to provide the knowledge and service these consumers demand. What all retailers must understand the world/market is always changing. Most retailers that fail simply ride a once successful strategy far too long. It is always better to make small changes/moves all the time than one great one. Things that don’t work do not kill the company and can be reversed. For more radical changes other retailers set up new stores with new names to test. Then take the best ideas and include them or re-brand the store. There are many ways to execute change, but major change without testing is simply stupid.

I have a theory that I call “Be Cheap, or Be Worth It.” The premise is that there are some consumers who value certain items to the point of wanting to pay top dollar for things. Other items, they will just buy whatever is cheap. This is illustrated all over. We see growth in more expensive, organic grocery stores and low priced leaders, while the middle of the road retailers continue to struggle. High end cars like Porsche and low end cars increase in sales, while middle of the roads struggle. Premium Laundry Detergent brands are showing growth, as are values, while the mid-priced brands struggle to find a position. The key point is knowing how consumers view not only your category, but also your brand. In this case, I believe consumers are polarized, with brand name being a key component. You have your consumers who want to buy nice looking jewelry, that to any non-expert, looks top of the line, but doesn’t stick you with a top of the line price point. Conversely, you… Read more »

This is (another) great example of how a retail company fails to understand innovation in the retail industry. Many companies have fallen significantly behind their customers or lost focus. In a somewhat desperate ploy, the CEO decides to do a radical transformation. The costs and stakes are high, the outcome seldom pleasant.

Retailers need to understand their industry, and understand that constant small innovations keeping their business in line with changing customer expectations and demand are much better overall. Evolution not revolution.

Several retailers currently are doing radical transformations that will cost tens or even hundreds of millions of dollars with no way to generate an appropriate ROI, plus the significant risk of alienating their core customers. Time to change the plan.

Poor Zales. It’s all too easy to sit here, outside, after it’s all over and pinpoint their mistakes. On paper (or screen), their ideas sound good. Why didn’t they work? Too much too soon seems to be the instant reaction. Not enough testing of one idea before launching another. Going for broke with new strategies can result in just that – going broke. It sounds as if much of what they did was panic-driven, never a good time or excuse for making changes and even less for making wholesale changes with little more than instinct to drive them. If the company is trying to stay in business for the long haul then they need to have the patience and guts to take small steps towards identifying and implementing the ways that will help them to keep their heads above water and then grow.

To expand on many of the points above, Best Buy’s CMO has been very vocal in saying that they have embraced “fearless innovation.” To test innovation–and change–they do so on a small scale and reward failure. From their perspective, 60% of new efforts will fail but the 40% that proves successful is golden.

There’s a lot to be learned from this practice, as it sets expectations for all constituents and outlines a plan of action that doesn’t promise a quick solution…just the right one.

Not much to say here that hasn’t been said by someone who probably said it more eloquently than I would have.

Bottom line – it is really tough to change your target customer, especially when you are moving up.

I think it is always easier to maximize the customer base you already have than trying to court a whole new one. Hindsight is 20/20 but might a better approach be to offer things the competition didn’t, perhaps a frequent buyer program, a better atmosphere that would make the mid tier customer feel they had moved up, more luxurious packaging to upgrade their image without drastically affecting their cost structure?

Perhaps more education would help as well, keeping the lower price product to entice the customer into the store, then giving the sales professional the opportunity to either upgrade the purchase and/or add on additional items.

It’s hard to agree with a new business strategy that alienates the core customers. Also, because Zales was an established name with connotations of “inexpensive,” it’s hard to reverse that and immediately attract affluent customers. The fundamentals of the approach were sour from the beginning. Zales deviation from its core competency was costly.

The grocery and CPG industry did pilot studies to identify best practices and then publicized them. Many companies I know test new ideas in a city or region and then role out the successful ideas or modifications of successful ideas. Unless you are VERY sure of the outcome, changing the whole industry is a big gamble.

Zales is in a tough spot, for sure.

One advantage that Zales has is sister divisions that target different customer groups, ranging from inexpensive Piercing Pagoda to upscale Gordon’s and Baily, Banks & Biddle.

A downside to their ’05 strategy is that they risked cannibalizing their upscale divisions. It may have made more sense to test converting Zales stores in better locations to one of their other brands.

I would take a global look at the company and, while maintaining the integrity of the existing brands, look for opportunities to increase overall market share by expanding on what is working company-wide… and trying to fix what isn’t.

Another opportunity may be to closely study the demographics in the individual locations (which vary greatly) and work on programs to better tailor the merchandise selection for local the customer base, a process that most discounters have not perfected.

Of course, any opportunity to cut costs should be explored as well.

It is very difficult to move from mid/low scale to up scale. Why would an upscale shopper go in Zales? If I can afford Bailey, Banks and Biddle and shop there on a regular basis why would I think about going to Zales? The answer is you wouldn’t. For Zales to move some of their business to this shopper they will have to identify the shopper and make them an offer that is too good to turn down. They must create a very positive experience. This might be done by personalizing a product or by offering a BB&B quality product at a Zales price. They might even think of a Zales online highly targeted program that offered special products with a bonus if the customer comes into the store to pick up the product. Training would have to go along with this effort as staff would have to appear to drop every other concern and flock to this customer and deliver a superior experience. It’s tough and saying it ain’t the same as doing it.

In today’s time compressed world of expanding choices there are still a few time tested retail “rules” that still apply. Zales broke a few. Breaking rules can be the right and necessary thing to do, but you need a great strategy and even better execution to carry it off. Even Wal-Mart tested and dropped several concepts (Hypermarket, “dot” drug, Alice’s Arts and Crafts). The question is what will Zales add to their current or old concept that will be the best of both or will they do a full retreat. -“It costs 6-10X more to get a new customer than it does to keep the one you have.” The best specialty mall retailer, Limited, has not only continued to add new retail concepts, like White Barn Candle, but they have added candles and scents to existing formats and increased sales mall wide, “Limited” wide. Gap added Baby Gap, Gap Kids, and Gap Body. They expanded offerings to existing customers, with many new format concepts starting as a store within a store. Finally Gap served the… Read more »