Unfortunately, his recent departure bears out this prophetic piece of advice; Goldberg lasted barely two years.

 

In the past ten years, Zale has had five different people serve as CEO – Bob DiNicola served two non-successive terms as CEO, so it is arguable that the company has had six people in the top slot over the past decade. That’s way too much leadership turnover.

 

Here’s a list of the Who’s Who of CEOs at Zale Corporation since 1994:

 

*Raff was appointed Chairman in September 2000 and resigned in February 2001.

 

Worse, turnover among the top five officers at Zale Corporation– especially the Chief Financial Officer – has also been well above the industry average.

 

Worst of all, Theo Killion has been named “interim” CEO. He’s been named “captain” of the ship, but the rudder isn’t under his control. Arguably, Killion will be counted among the “departed” CEOs when a “permanent” (can we use that term?) CEO is named. In short, Zale will have had seven or eight CEOs in a little over a decade: that’s unacceptable.

 

Key Executive Performance Benchmark: Holiday Sales

Several years ago, an insider gave us a look at some of the compensation benchmarks that had been established for a prior CEO at Zale. Among those benchmarks was this one:

 

·        “Out-perform the industry average jewelry sales gain during the all-important holiday November-December selling season.”

 

The insider told us that nothing would get a CEO fired faster than to miss this important benchmark goal.

 

Goldberg was appointed as CEO in December 2007. He clearly was not responsible for sales during the 2007 holiday season. That’s one of the things that caused the departure of former CEO Mary Forte. Zale’s holiday same-store sales that year were down 9 percent while specialty jewelers posted a 2 percent decline in sales as Forte left through the back door. We believe there were other factors that also led to Forte’s departure.

 

In 2008, after Goldberg had been on the job for a year, Zale’s same-store sales fell by 19.6 percent for the November-December period, while specialty jewelers posted a 20.7 percent sales decline. That was the holiday period we’d all like to forget. Even industry leader Sterling Jewelers reported that its same-store sales fell by 16.4 percent in that awful two-month period.

 

In the November-December 2009 period, Zale posted a 12 percent decline in same-store sales. While final numbers aren’t in, all indications are that specialty jewelers generated a low single-digit sales gain for the holiday period. Sterling’s same-store sales were up a dramatic 7.6 percent. Thus, Zale fell well below both the industry average and far below its closest competitor.

 

Dismal holiday sales performance in the 2009 holiday selling period was enough to cause the departure of three key top officers: the CEO, Chief Merchandising Officer and Chief Stores Officer.

 

What Went Wrong?

We were betting heavily in favor of Goldberg. He not only laid out a strategic plan for the company – something that some of his predecessors had failed to do – but he articulated a tactical plan that seemed to make sense. Best of all, he seemed to understand retailing.

 

So what went wrong?

 

Goldberg’s strategy during the 2009 holiday selling period was apparently to focus Zale’s promotional message more toward the emotional side of selling jewelry and less on the price and value message. That strategy was probably a year or two too early. In the 2009 holiday period, the consumer was seeking “value” – they waited until the last minute to grab goods that had been heavily discounted. Shoppers reacted favorably to merchants who seemed to offer a “value” message. At the very end of the season, Zale apparently panicked and discounted across the board; that move only added to the confusion in consumers’ minds, in our opinion.

 

Arch-competitor Sterling Jewelers – a company that relies heavily on consumer research – determined that the “value” message would resonate with shoppers, and their sales numbers bear out their success. Sterling stuck with their promotions, which sent a consistent “value” message to their customers.

 

But there is more to Zale’s lack of success: every time a new CEO has come in, they have articulated a new strategy for Zale. Not only are Zale’s employees confused, but shoppers are befuddled. Just who is Zale? Is it the Diamond Store, a timeless strategy that Zale abandoned in the middle of the decade, only to re-embrace under Goldberg, but not with the same zest of prior leaders? What is Zale’s market position?

 

In contrast, Sterling’s tagline, “Every Kiss Begins with Kay” has been a huge hit. It has been around for years, and it seems fresh every time we hear it. Perhaps “love” really is eternal. We are reminded of the tagline of our own home state, Virginia: “Virginia is for Lovers.” After twenty-five years, the tourism agency tried to drop it, only to find out that they had made a terrible mistake: don’t mess with the message of “love.”

 

Goldberg was trying to counter the emotional success of “Every Kiss Begins with Kay,” but was unsuccessful, especially in the post-recession environment of late 2009.

 

Zale’s Board Responsibility

We’ve always felt that Zale’s board has pulled the trigger too quickly when terminating a CEO. On the other hand, most Wall Street money managers and shareholders usually take a knee-jerk reaction to bad numbers, so the board was under immense pressure to do something, especially to placate Wall Street.

 

That “something” was to initiate the departure of Goldberg & Team, of course.

 

We’d like to have been a fly on the wall during the board deliberations about Goldberg’s future. Zale’s eight-member board was split right down the middle between “pre-Goldberg directors” and “Goldberg directors.” As of July 2009, Zale’s board looked like this:

 

 

How did the vote go to oust Goldberg? We’ll never know; most of these votes are taken in an “executive session” during which no records or board minutes are kept.

 

Our own opinion? The board acted too quickly. The huge severance costs related to the top officers – and others who are surely on their way out – are only one issue. While Goldberg’s sales numbers were dismal, he never had a chance. The U.S. market is still in a recessionary mode, and it is difficult to gauge consumer demand trends. At the very least, we’d have given Goldberg another one-to-three years – for a total of three-to-five years to turn the company around.

 

More importantly, Zale’s employees are going to be subject to another new top team with another new strategy, all of which will lead to additional confusion. To use the ship analogy again, some of Zale’s employees are rowing the company to the left; others are rowing to the right. Both think they are correct.

 

Zale has little or no credibility to recruit either sales associates or top management from rival jewelers, unless they were paid a fortune and have a contract that includes an immense severance payout.

 

Most importantly, Zale’s customers are going to be confused once more, as new management articulates another new strategy.

 

Our Advice

Since this is an opinion piece, here’s our advice to Zale’s key stakeholders:

 

Advice to Zale Employees: Keep the faith. Stay focused. It may look bleak… after all, you are on a rudderless ship. But someone will come along who will turn this company around and guide you to a safe harbor. Listen closely to your new leader, whoever he or she may be: you want to be rowing in the same direction.

 

Advice to Zale Board Members: Throw out the Directors’ Manual. Yes, that’s right: the one which says that “patience is not a virtue.” Shred the page that says, “If the company’s holiday sales are below the industry average, fire the CEO.” Zale is a huge company; it will take three-to-five years to fix its problems, and it won’t be easy going. There will be rough patches. Before you hire the next CEO, think about whom you might want an industry veteran? Someone who is innovative and can bring Zale into the 21st century, but perhaps has not had direct jewelry experience? It is going to take a Super human to do the job, and anyone with an ounce of sense and a pound of experience is going to shy away from the job. You’ve made it abundantly clear that your philosophy is “Ready, FIRE, Aim.”

 

Advice to commentators: To those of you who think you can turn Zale around in a few months: you can’t. Worse, you don’t have a clue about its problems or how to fix them. To those of you who think Zale needs an experienced long-time industry veteran: take him, along with your buggy whips, high-button shoes, and slide rules to the land of yesteryear. That was then; this is now. I’d nominate Apple’s Steve Jobs for the job of Zale CEO: he lets his customers handle, play with, fondle computers worth a lot more than most of the jewelry in a typical retailer’s showcase, and his per-store sales are multiples of the typical jewelry store. Oh, sorry, that’s not how your grandfather did it, so it won’t work today. Shame on me for thinking past the 19th century.

 

Advice to Zale Suppliers: No one wants to see Zale flounder, or worse, go bust. It won’t be good for the industry, and it will put a bunch of you out of business. I admit: it is a dilemma… to ship or not to ship. Quit rumor-mongering and sit down with Zale’s financial officers. Work out a deal. I’ve seen it done by other chains over the past couple of years, and it will work. Communicate: it works better than anything else.

 

Finally…

Advice to Zale’s Next CEO: Get your money up front.