Reeds Jewelers, Inc.
Reeds Jewelers, Inc.
Sales: $99 million (1997)
Stock Exchanges: NASDAQ
SICs: 5944 Retail—Jewelry Stores
Reeds Jewelers, Inc. is the 11th largest retail jewelry chain in the United States. As of November 1997, the company had 101 stores in 13 southeastern and midwestern states. The company’s stores are located primarily in regional malls and operate under the names Reeds Jewelers, Melart Jewelers, and Mills Jewelers. More than half of their sales are from diamonds and precious gems, with the remainder from gold jewelry, semiprecious gems, and brand name watches. The Zimmer family owns the controlling share of Reeds stock.
Building a Family Business, 1946-81
The jewelry business was in the blood of the Zimmer family. Bill Zimmer learned about gold, diamonds, and precious gems from his parents while working in their store in upstate New York. After serving in Europe during World War II, he was stationed in the South before being discharged, and, after getting married, decided he wanted to stay in the region.
In 1946, Bill and his wife, Roberta, bought a small jewelry store in downtown Wilmington, North Carolina, and named it Reeds, the family trade name. During the next 14 years the company expanded as the Zimmers opened stores throughout North and South Carolina and in Florida. At the same time, the Zimmer family was growing. Herbert was born in 1946, Arlene in 1949, Jeffrey in 1957, and Alan in 1959. All four children worked in the business before going to college.
Zimmer was a terrific salesman, and he provided personal service, friendship, and good deals to his customers. He gave his store managers considerable freedom, since that was how he liked to operate. By 1979, the Zimmers controlled two dozen retail outlets, mainly in North and South Carolina. Bill and Roberta ran the original store in Wilmington, and managers or minority partners operated the other 23. The stores offered fine merchandise including diamond rings and jewelry, gold jewelry and chains, watches, and rings containing rubies, sapphires, and emeralds or gemstones such as opals and garnets. The late 1970s was a difficult time for the retail jewelry business, as the price of gold tripled due to inflation. Like most jewelry retailers, Reeds borrowed to buy its merchandise. With interest rates close to 20 percent, about 10 percent of what the company was bringing in was going to pay the carrying costs for their inventory.
Then, in 1979, the Wilmington store was robbed. “They took over $690,000 of numbered inventory, plus about $300,000 worth of merchandise that we had on consignment and were storing for all the stores. We lost over $1.25 million,” Bill Zimmer told Business/North Carolina. And Zimmer did not have any insurance on the stolen merchandise. “I sold an insurance policy, put a mortgage on our home. I had a tough going for about two years, but we survived,” he explained to Business/North Carolina.
Modernization and Acquisitions During the 1980s
Alan Zimmer, the youngest son, came home from college to join the family business in December 1981. He had earned an undergraduate degree in business from the University of Georgia in three years and was working on his M.B.A. at Tulane University. Joining the company as executive vice-president, Alan took charge of merchandising. He completed his master’s through independent study.
Although Alan did not officially become president and CEO for several years, he convinced his father to begin making major operational changes immediately. One of the first things he addressed was the company’s decentralization. Reeds was essentially a collection of 24 independent operators. The store managers did their own buying and merchandising, hired their own staff, set their own credit policies, and made their own deals with customers. Alan Zimmer changed that. He hired professional managers, from other jewelry chains such as Kay Jewelers and Zales, developed a merchandizing staff, and divided the company into five regions, hiring regional managers for each. He centralized the company’s diamond and jewelry buying as well as its advertising printing, saving money from the resulting economies of scale. He also hired James Rouse to be the company’s first full-time financial officer, installed a computer system for inventory control, and began opening new stores. At the time, the jewelry industry was a $13 billion market, with some 32,000 individually-owned stores in the United States.
On February 28, 1982, the end of the company’s fiscal year, Reeds had revenues of $9.3 million and losses of $177,000. The next year, the company was out of the red, making a profit of $15,000 on revenues of $11.2 million. And a year after that, in 1984, profits were up to $418,000 on sales of $12.6 million, as Alan’s changes began to have an effect. That same year, Reeds Jewelry was incorporated in North Carolina, making a number of affiliated corporations into subsidiaries of a single organization. In 1985, Bill became chairman of the Reeds board and Alan was named president and CEO.
By the end of fiscal 1986, sales had more than doubled, to nearly $26 million, with net profit of $1.6 million. During 1986, Alan convinced his father and the other members of the family to take the company public. He stressed the need to avoid problems faced by families when some members are interested in the business and others are not. He also thought he would be able to more easily attract professional management if the company were held publicly. In December, the family sold 17 percent of the company, 600,000 shares, on the NASDAQ market, trading as REED.
Alan took the company’s share of the proceeds, $3.7 million, and began acquiring other jewelry chains. In 1987, Reeds bought Dreyfus Jewelry Company of Memphis for about $6.2 million. That family-owned chain had 19 stores in the Southeast and Midwest, and the acquisition increased Reeds size to a 57-store chain. In 1988, Reeds purchased Gray’s Jewelers, Inc., a five-store chain based in Tulsa, Oklahoma, for approximately $2.1 million.
In 1988, Zimmer and Rouse implemented two other changes, addressing the company’s marketing and credit policies. In both cases, the changes meant altering longtime ways of operating.
As was true for the retail jewelry industry as a whole, Reeds offered its customers easy credit. With the typical customer spending an average of $320 every time he or she visited Reeds, readily available credit generated strong sales. But when bad debt expenses doubled to $2.3 million between fiscal years 1987 and 1988, it was obvious that the policy had to be tightened. Hiring a credit specialist, Reeds established credit standards for the entire company and centralized the credit check process. As a result, where at one time nearly 85 percent of Reeds’ customers bought on credit, by 1989, the figure was just over half, close to the industry average. The company’s wholly owned subsidiary, Reeds Financial Services, Inc., administered all credit extension, collection, and related activities for the company.
And while credit was being tightened, the company ended its practice of offering half-price sales. Such promotions were how the industry historically operated. A store owner would mark an item up 200 percent and then sell it at 50 or 75 percent off. According to Business/North Carolina, “The goal was to get a big enough down payment to cover the cost of the goods and then let monthly payments—fattened with interest at 18 to 21 percent annually—provide the gravy.”
But Zimmer wanted to move the company into a more upscale market, and instead of promoting price “deals,” began concentrating on quality, value, and service. The changes in credit and marketing took a toll on the company’s financial picture in fiscal 1989. While net sales rose six percent to $49.5 million, same-store sales were down over 10 percent, and net earnings were flat. One bright spot was that bad debt expenses fell to $1.9 million. But Zimmer and Rouse saw the change in image as a long-term strategy. While acknowledging that they had to improve their marketing, they stuck with their new direction for the company.
Overcoming Economic Challenges, 1990-95
The recession of the early 1990s was a difficult period for retailers in the jewelry industry, including Reeds. While the company remained profitable, net earnings dropped in fiscal 1990 and 1991. But in 1992, the worst seemed to be over, as company sales grew by nearly six percent to over $53 million and profits by 13 percent.
Even during these leaner times, Zimmer kept expanding the company, opening a few stores each year. The cities he chose for new locations were mid-size and small markets such as Raleigh-Durham, North Carolina, and Huntsville, Alabama, or upscale resort areas like Hilton Head, South Carolina. The selling space in Reeds shops ranged in size from 500 to 2,100 square feet, and averaged about 11,000 square feet. Except for the original Wilmington shop, which it owned, Reeds leased all its stores, with the vast majority being located in enclosed regional malls.
By 1993, as the economy improved, so did the jewelry industry. A record 9.7 million carats of diamonds were imported into the United States that year, worth $4.5 billion. This was an increase in weight of 26 percent from the year before. Some 248 tons of gold was made into gold jewelry, eight percent more than in 1992. Reeds, with 71 stores, was also doing much better, with net sales of $67.3 million for the year ending in February 1994, and earnings up to $3.2 million.
The company specializes in the sale of fine jewelry, and emphasizes “Quality, Value, and Service.”
At about this time, analysts noted that a crack was apparently developing in a long-term seasonal pattern in the jewelry industry. Traditionally, the fourth quarter of the year is the period for the highest sales and earnings, with the Christmas holidays accounting for 41 percent of the industry’s annual sales. Kenneth Gassman, a specialty retailing analyst at Davenport & Co. of Richmond, Virginia, noted in a 1994 Wall Street Journal article that at Reeds, sales in January and February 1994 rose nine percent, after the holidays. In fiscal 1993, 93 percent of Reeds’ earnings had come during the fourth quarter. In fiscal 1994 that had dropped to 71 percent even though the percentage of sales for the quarter remained almost stable. By the end of fiscal 1996, earnings for the first two quarters had increased significantly, and the fourth quarter accounted for only 67 percent of annual earnings. The economy and improved advertising may have contributed to people buying more jewelry throughout the year rather than just at Christmas.
Reeds continued to do well. In fiscal 1995, sales increased 15 percent, to $77.5 million, and earnings passed the $4 million mark. In September 1995, the company moved into the Washington, D.C./Baltimore market with the acquisition of Melart Jewelers, Inc., for $2.2 million.
1996 to the Present
With a strong U.S. dollar and low inflation, the price of gold declined, and in 1996, the demand for gold jewelry set a new record. Yet as that record was being set, Reeds’ sales mix was changing.
The majority of the merchandise sold by the company fell into three categories: diamonds and precious gems, gold jewelry and semi-precious gems, and watches. The gold jewelry was primarily 14 carat, and in fiscal 1993, the gold jewelry and semiprecious gems such as opals, amethysts, and garnets, represented over a quarter (25.9 percent) of Reeds’ sales. By the end of fiscal 1996, that percentage had dropped to just over one-fifth (20.9 percent) of all sales. Watches were also less popular sales items, dropping from 17.6 percent of all sales in fiscal 1993 to 11.9 percent in fiscal 1996. What had become more popular was jewelry with diamonds and precious gems such as rubies, sapphires, and emeralds. Whereas those gems represented 42.6 percent of items sold in Reeds stores in fiscal 1993, by fiscal 1996, they made up more than half the merchandise sold (56.9 percent).
In fiscal years 1996 and 1997, the company’s revenues continued to climb, but for the year ended February 1997, sales in stores that had been open for 12 months were flat and average sales per store decreased by four percent. To correct the situation, Reeds undertook an initiative, the goal of which, according to Alan Zimmer in a company press release, was “to increase the number of career-minded professionals in our sales force and to improve the focus and skills of our sales and management associates.”
In the highly competitive and fragmented retail jewelry business, Alan Zimmer built a sizable regional chain through acquisitions, expansion, and quality service. At the same time he improved the company’s operations, applying more modern business principles. As a result, in 1997, Reeds was the only publicly held retail jewelry chain with stores located entirely in the United States to be profitable for 15 straight years. Looking to the future, Zimmer expected to extend that record.
Reeds Corporate Services, Inc.; Reeds Insurance Services, Ltd.; Reeds Financial Services, Inc.; Reeds Jewelers of North Carolina, Inc.; The Melart Jewelers, Inc.
Donsky, Martin, “The Family Jewels,” Business/North Carolina, 1989.
Marcial, Gene, “The Glitter at Reeds,” BusinessWeek, January 10, 1994, p. 57.
Moukheiber, Zina, “There’s Going to Be One Boss,” Forbes, September 12, 1994, p. 82.
Peers, Alexandra, “Jewelry Market Begins to Recapture Sparkle, Renewing Burnish of Some Stocks in Industry,” Wall Street Journal, April 22, 1994, p. C2.
—Ellen D. Wernick