Q and A with Terry Burman
December 01, 2007
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| Terry Burman, CEO of Signet Group, the parent of Sterling Jewelers. |
By Whitney Sielaff
Akron, Ohio—Terry Burman is the chief executive officer of Signet Group, the parent of Sterling Jewelers, which operates more than 1,300 retail jewelry stores, including Kay Jewelers, in the United States.
With $2.65 billion in sales in 2006, its sales volume surpasses that of every other retail jewelry chain in North America. In an exclusive interview at Sterling’s Akron, Ohio, headquarters, Burman explains how the company has thrived in challenging times.
National Jeweler: Is the jewelry business healthy?
Terry Burman: On one hand, it’s very fragmented and seems to be populated by a lot of inefficient operators who aren’t realizing return on capital. But on the other, it’s got a compounded annual growth rate of 6 percent over the past five years. The basic industry should be happy based on that growth rate.
NJ: What are our biggest challenges?
TB: There’s a range of issues. On the social, ethical and environmental sides, there are many challenges the industry needs to address to maintain consumer confidence. Another big challenge is the Internet, not so much in terms of losing market share, but in terms of the transparency it brings to pricing and the acceleration of commodification of our products.
Also, diamond availability, access to consistent supply, is going to become a challenge. Demand is growing faster than supply. And having access to consistent quality is an important part of our selling system. There are other issues like synthetics, potentially, but it depends on how they develop.
NJ: The business is transforming and consolidating. What type of fine-jewelry retailer is going to own market share five years from now? What will the competitive landscape look like?
TB: There are advantages to being big and small. Because of our size, we have better marketing and advertising ability. We can invest more in systems, which give us a competitive advantage. But there’s every reason why an independent jeweler can both deliver a superior customer experience and tailor their operation for exactly the market in which they’re operating, selecting merchandise for exactly that store’s customers.
In the end, it will come down to who executes the basic disciplines best—the people who execute their businesses best and have the best merchandise, marketing and customer service. Those are going to be the types who survive. It’s about executing.
NJ: There seems to be a polarization developing. Luxury has been outperforming the rest of retail in the general market as well as in jewelry. Do you see this in the relative performances of your Kay and Jared operations?
TB: Kay sales are actually very strong as evidenced by their position as the No. 1 jewelry brand in the United States. However, we look at performance over the long-term. These things are cyclical. Sometimes the upper-end is stronger. But you don’t build a business based on cyclical factors. You build a business based on sustainable factors. We developed Jared to get some balance and diversification—on-mall and off-mall, middle market and then a step up from the middle market.
NJ: Compression and realignment of the supply chain is another notable trend. Will retailers increasingly buy offshore, directly from major developing manufacturing centers such as India and China?
TB: Markets act efficiently. They have a way of sorting these things out. The balance might become different than it’s been traditionally. It depends on the products you’re buying, the quantities you’re purchasing and design.
NJ: What is the growth trending for online jewelry sales? What’s its share of the market today, and what should we expect in a year, five years?
TB: We got into e-commerce late. We didn’t think it was a profitable enterprise until a couple of years ago, when we felt there was enough mass there to get a market share. There’s not much out there in terms of pure e-commerce jewelry sellers who have been able to deliver a customer experience that makes their business successful.
In terms of basic merchandise, it will continue to gain share in the short- to medium-term. But it’s a developing issue. It might gain a certain amount of share and then top out.
NJ: Considering the advantages of price, convenience and merchandise selection it can offer, what would hold it back?
TB: It’s very difficult to sell the more fashionable products on the Internet. Jewelry is the opposite of a generic product. Most consumers do want the in-store experience. The consumer values the total experience in the store—the selection, the experience, the interaction.
For us, the Internet is partially a customer-satisfaction issue. Our customers wanted it as an alternative. Shopping has become an integrated process. Now, as people are making a purchase, they can go online and think better about it, having the tools to enable their thinking. It’s part of your offering.
Some consumers, of course, are ready to treat the category as a commodity. But we’ve always had low-cost retailers in the supply chain. There are some consumers who are price buyers only. The biggest impact from the Internet is not going to be in taking market share, but will be pricing transparency and pressure on margins.
NJ: The industry has intensified its focus recently on its level of ethics, including developments such as the Kimberley Process and the Council for Responsible Jewellery Practices (CRJP). Why now? And, to be honest, is the industry for real, or is this more an issue of perception?
TB: It’s not an option for us. We must maintain consumer confidence. If our product loses its cachet, the industry could take decades to recover.
Issues that didn’t receive much national media attention in the past can get a lot of attention today because of the Internet. It’s very dangerous to ignore these issues. When it becomes a crisis, it’s too late.
Consumers may not let you know if they’re disappointed. They’re looking for some sensible practices that assure them we’re addressing the issues. Once they’re reassured, they’re usually satisfied.
The first line of defense are the retail jewelry stores. Knowledge and an ability to talk about the issues are reassuring. If you have untrained salespeople who are uneducated about the issues, you’re transmitting a message to consumers and could be losing customers for the entire category. That becomes a cumulative issue and could lead to our product falling from fashion. Those who view it as not being their job are being irresponsible, not just to the industry, but to themselves.
It’s also our responsibility to improve the supply chain. We can’t do it acting individually. We’ve explored that, and we’re convinced that one company can’t have a meaningful impact on the supply chain on its own.
Organizations are important because through them we can act as an industry to improve the supply chain. Organizations such as the CRJP and the World Diamond Council are important to support because they’re dedicated to improving the supply chain and consumer confidence. That’s the substantive part of being able to represent to consumers that you are doing something.
Finally, we would never represent anything we couldn’t back up. Once the infrastructure is in place for the Kimberley (Process), for instance, you’ve got to be able to guarantee that to your consumers.
NJ: Your U.S. sales passed Zale Corp.’s [in 2005], making Sterling the largest specialty fine-jewelry retailer in the United States. With so many of the traditional chains struggling, what’s driving your success?
TB: I think it’s the business processes we’ve developed, our culture of testing and driving toward continuous improvement in all phases of our business. We have a philosophy of testing before we invest, so we don’t make large mistakes. This gives us the opportunity to invest our human and financial resources in the things we know are going to succeed. Afterward, we continue to constantly test them.
NJ: What specifically is going to drive market share for you going forward?
TB: There’s no one thing that I can single out. You’ve got to have good customer service, good marketing, good value in the merchandise—the right merchandise at the right time and right place—well-trained staff, good logistics, good systems—the tried and true process—and a selection process for good real estate. We’ve got to do everything well, be a well-rounded business. We’ve got to perform in all disciplines.
NJ: You’re increasing sales for diamond jewelry, which increased to a 72 percent share of your total last year. In times when many see this product category as facing significant challenges, what’s driving this increase for you?
TB: We’re going to go where our consumer takes us. In categories where we’re having success, we’re going to expand inventory in style range and depth. And we’ve been having a lot of success with diamonds. Sure there are challenges in the diamond arena. But some of those macro issues will sort themselves out, perhaps through faster consolidation. We haven’t seen any let-up in diamonds.
NJ: You’ve developed and implemented an interesting metric you’ve named the “customer store-experience index.” Can you explain this and its value?
TB: Just as with employees, different departments may have different issues, different stores may have different issues. Since we believe in improving everything we do all the time, we developed a system to measure the customer experience. Once we can measure it, we can drive improvement.