Are there too many jewelry stores in America? A case study of Signet Jewelers
What do a mattress and a diamond ring have in common? You don't buy one very often, and if you do, you try to make it last for as long as possible.
And if a couple aren't together that much on the former, it might be time that they ditch the latter. But, we digress.
Signet Jewelers ($NYSE:SIG) sells the latter; it is the owner of brands such as Jared's ("He went to Jared's!"), Kay ("Every kiss begins with Kay."), and Zales ("Zales. The Diamond Store" yeah, this one isn't as good). Recently, it laid off an unspecified number of people as part of a "strategic growth plan."
Outside of Piercing Pagoda — it's safe to assume nobody will buy a diamond ring there, as it is a specialty store — there are 4,089 jewelry stores within Signet Jewelers' portfolio. The majority of them are in the United States, with 3,281 total stores compared to 483 in the U.K., 311 in Canada, and just 14 in Ireland.
On the surface, it seems rational to have that many brick-and-mortar locations in those countries, given that there are hundreds of millions of people that, at some point or another, need to get some sort of bling. But on a micro scale, it seems that Signet may be suffering from a fate that Mattress Firm ($NASDAQ:MFRM) had: a long lasting product sold in too many stores.
From a population density perspective, there appears to be one store for as little as 17,000 people in some core-based statistical areas. This includes areas of the Susquehanna Valley in Pennsylvania, Upstate New York, and Effingham, Illinois.
In terms of store proximity, Signet's fate is eerily similar, if not worse, than that of Mattress Firm. Compared to 42.6% of Mattress Firm stores that are within a one mile radius of each other, 65.8% of Signet stores have a sister store within a one mile radius. In other words, a mall may have both a Jared and a Kay jewelry store, which, to the average customer, is still a matter of choice between "two different jewelry stores."
The problem here, however, is that the market for diamond rings is getting smaller, as many love to blame younger generations for opting out of pricey engagement rings. Given that the average engagement ring costs about $6,300 in America, the average millennial saddled with $42,000 in debt may see that pricey ring as unnecessary cost, which means a Jared, Kay, or Zales isn't seeing that soon-to-be-fiance come through the door.
With that in mind, it's no wonder why Signet is planning to close up to 150 stores this year. Of course, the next question is what markets it will pull out of entirely or reduce its portfolio, but we'll need to see some more trend lines to make better judgement calls on where it will shrink its oversized footprint.