What Signet’s Blue Nile Acquisition Could Mean for the Jewelry Industry

EditorsAug 23, 2022

What Signet’s Blue Nile Acquisition Could Mean for the Jewelry Industry

Here’s why one analyst called it the best deal Signet has done in decades as well as thoughts on the company “getting too big.”

An 18-karat white gold band set with 1.25 carats of round and pear-shaped diamonds from the Monique Lhuillier “Bliss” collection at Signet-owned banner Kay Jewelers. With the help of industry experts, Associate Editor Lenore Fedow breaks down the retailer’s recently announced plans to acquire Blue Nile.
My favorite journalism professor in college once told me, “Your opinion is not news,” and I’ve kept that tidbit with me, reminding myself of this fact whenever I feel a strong opinion bubbling up, threatening to sway my coverage.

But here at National Jeweler I’ve been given an opinion column, so I guess the joke is on my professor.

I’m going to examine Signet Jewelers’ plan to acquire Blue Nile and what it could mean for the jewelry industry. Alongside my two cents, I’ve included the opinions of industry analysts and veterans.

Let’s dive into it, one topic at a time.

Growing via acquisition is a go-to move in Signet’s playbook.

Signet announced an agreement to acquire Blue Nile for $360 million in cash last week, marking the latest in a laundry list of recent acquisitions.

In April 2021, the jewelry giant announced plans to acquire jewelry subscription service Rocksbox for an undisclosed amount.

In October 2021, Signet said it would buy Diamonds Direct, the Charlotte, North Carolina-based retailer that operates 22 freestanding stores in 13 states.

The company also purchased e-tailer James Allen in 2017 and Zale Corp. in 2014 for $1.4 billion.

Given its history, another acquisition wasn’t all that surprising to me, but the acquisition of Blue Nile wasn’t something I saw coming.

Analyst Paul Zimnisky also was caught off guard.

“I was actually quite taken by surprise, as in the weeks prior Blue Nile agreed to merge with a ‘blank check’ company and go public again,” he said.

A “blank check” company, also known as a shell company or a special purpose acquisition company (SPAC), is a company created to raise capital for the sole purpose of acquiring or merging with another company.

Blue Nile has been around since 1999 and initially went public in 2004 but was taken private in 2017 when Bain Capital Private Equity and Bow Street LLC acquired it in a $500 million deal.

This June, the company announced it was ready to go public again via a merger with SPAC Mudrick Capital Acquisition Corporation II.

The timing was off.

“I thought they were late to the party with the timing of that deal given that the SPAC bubble had popped, but [Blue Nile] did file a Form 8-K [with the SEC], and it seemed as if they were serious about consummating the deal,” said Zimnisky.

When Zimnisky says the SPAC bubble burst, he’s referring to a recent lack of investor interest in these types of deals, to put it simply. A Form 8-K is a form filed by a public company with the U.S. Securities and Exchange Commission to notify investors about an important event.

The SPAC deal was valued at $683 million, so why would Blue Nile, two months later, agree to a deal with Signet nearly half that size?

“The Signet deal is at a lower valuation, so it appears [Blue Nile] did have difficulty getting the original deal done after all, given the market conditions,” said Zimnisky.

It’s also worth noting that private equity, like Bain Capital, is notorious for flipping companies for profit rather than holding onto them and helping them grow.

If this SPAC deal wasn’t going to happen, I’m not surprised Blue Nile was sold off to the highest bidder.

Signet is strategic in its acquisitions.

It may seem like Signet is buying up everything in sight, but there appears to be a method to the madness.

Its “Inspiring Brilliance” growth plan outlined a few goals, including growing services revenue, expanding its luxury and value segments, bolstering digital commerce, and better utilizing its data.

Its acquisition of Rocksbox, for instance, was a surefire way to grow its services category, at a time when renting jewelry has been gaining popularity.

Now, Signet wants to grow its e-commerce market share, a market Blue Nile knows well.

The online category was Signet’s saving grace in many ways at the height of the COVID-19 pandemic, as it poured resources into its Buy Online Pick Up In Store service and virtual appointments.

It only makes sense to grow that segment further with the help of another online-savvy subsidiary to complement James Allen and remove another competitor from the field.

Signet also is looking to expand its bridal offerings and Blue Nile knows the market, offering a wide array of bridal jewelry including customizable engagement rings and a genderless collection from fashion designer Zac Posen.

Blue Nile has something else Signet wants—younger customers who have more money.

“Blue Nile brings an attractive customer demographic that is younger, more affluent, and ethnically diverse, which will broaden our customer acquisition funnel,” Signet said in announcing the acquisition.

The retailer wants to grow its “Accessible Luxury” portfolio, which, right now, includes Jared, James Allen, and Diamonds Direct.

Once the acquisition is finalized, Signet said Blue Nile will sit on the top tier of that portfolio.

Fears of over-consolidation may be unwarranted, but that doesn’t mean the industry isn’t feeling it.

When I saw the news that Signet had plans to acquire Blue Nile, I thought, “Wow, Signet is just buying everything, huh?”

That sentiment was echoed in the comments section when National Jeweler shared the news on Facebook.

I also read a LinkedIn post by Rapaport Senior Analyst and News Editor Avi Krawitz, who lamented Signet may be “getting too big for the jewelry market’s good.”

“This development just doesn’t sit well with the rest of the trade,” Krawitz wrote. “The industry needs more brands and companies competing in the retail space, not one dominant force that can squeeze suppliers further, as Signet is becoming.”

On a related note, National Jeweler Editor-in-Chief Michelle Graff and I were talking the other day about how there seemingly aren’t as many antitrust crusaders as there used to be, allowing behemoths like Facebook and Disney to keep buying up competition and expanding.

Or maybe they’re still there, and just losing out to big-money interests.

Zimnisky, however, doesn’t see Signet’s proposed acquisition of Blue Nile as an antitrust issue, noting that “this industry is still very fragmented.”

Signet’s U.S. market share is in the low double digits percentage-wise, he said, and even less on a global scale.

David Bonaparte, CEO of Jewelers of America, stands at the head of one of the largest and oldest trade organizations of independent jewelers in the U.S. (Full disclosure: JA owns National Jeweler, though the two organizations act independently of each other.)

Whatever is concerning independent jewelers is on his radar, but “I don’t think there should be concerns of over-consolidation,” he said, also noting Signet’s low market share.

“The independent jeweler still holds a strong majority,” he said. “While this acquisition is newsworthy, the bulk of the trends and support for the jewelry industry comes from the independent Main Street jewelers who engage with important organizations that help grow and protect the industry.”

Signet has a leg up on independent jewelers in the e-commerce space.

Independent jewelers hold a larger market share than Signet but Zimnisky warns Signet’s growing e-commerce presence is something to keep an eye on.

“Looking at diamond and jewelry e-commerce in particular, here Signet has a much larger share given that they already own James Allen and have considerably grown Kay and Zales’ online presence in recent years,” he said.

Signet knows it has the upper hand in the e-commerce space and buying Blue Nile could give it an even bigger advantage.

During an investors event last April, Signet forecasted it could take hold of around 10 percent of the U.S. jewelry market in the near future, noting the industry is fragmented and independent jewelers struggle to compete with its online capabilities.

At the time, CEO Virginia Drosos estimated independent jewelers held around 65 percent of market share while Signet had about 6 percent.

“In a category as fragmented as jewelry, a double-digit market share is a strong leadership presence and enabler of future growth,” she said. “We also have a unique ability to connect our physical and virtual footprints in ways it’s difficult for competitors to match.”

Fast-forward a year and Signet has reached that goal, with a current market share of 10 percent, according to its first-quarter results.

Brace yourself for another possible acquisition.

Signet has not stated there is a new acquisition in the works, but I wouldn’t be surprised if there was another around the corner.

During the same investors event last year, the company announced a goal of growing its annual sales to $9 billion.

Signet didn’t give a timeline for reaching this goal but said it planned to get there by bolstering its e-commerce offerings and expanding its services.

The company did just that, and in its most recent full-year results, Signet’s annual sales totaled $7.8 billion, up 50 percent year-over-year.

 “[Signet] got this Blue Nile deal right. I think this is the best deal it has done over the last decade.” — Paul Zimnisky 

Its recent acquisitions are moving it closer and closer to the $9 billion mark, so another one may catapult it past that.

Zimnisky said: “It seems as if it’s taking an inorganic as well as organic approach to [reaching that goal]. So that could certainly mean that other acquisitions are on the table, especially given its current capital position.”

Signet ended its most recent quarter with $928 million in cash.

The only thing that may stand in its way is a rocky rest of the year. The company recently lowered its second quarter and full-year guidance, citing “heightened pressure on consumers' discretionary spending and increased macroeconomic headwinds.”

Zimnisky has been following Signet’s journey for a long time and reflected on its struggles and successes.

“Eight years ago, or so, the company’s balance sheet reminded me of a sub-prime bank given the amount of lower-quality consumer credit on the books,” he recalled.

Signet outsourced its credit portfolio in July 2018 and was ordered to pay $11 million in fines over its in-store credit cards in January 2019, so that headache has been alleviated.

“Around that time, it acquired Zales, which seemed too much to digest,” he added.

The years to follow were challenging, he said, with its stock trading down from a high of $150 per share to below $10 per share.

It was during that period Signet bought James Allen, just before states began to tax online purchases. The acquisition was later written off, he added.

“The company has since come a long way and is much better positioned in my opinion,” he said.

Signet then purchased Diamonds Direct at the very top of the pandemic bubble.

“All of that said, I think [Signet] got this Blue Nile deal right. The price seems right. I think this is the best deal it has done over the last decade,” said Zimnisky.

JA’s Bonaparte described the deal as “a smart move for Signet to further diversify its market share.”

 Related stories will be right here … 

As competition heats up, jewelers must continue to adapt.

I write a “What’s Next” series that looks at what major jewelry companies like Signet or Pandora have in the works.

While it’s helpful for independent jewelers to know what the big dogs are up to, I’d take this time to turn your attention to your own businesses.

You’ve heard industry talking heads, myself included, tell you again and again survival requires adaptability, and those who can’t evolve are doomed to fail.

I’ve attended industry panels as an observer, speaker, and moderator, and, no matter the topic, what I hear all too often is resistance to change.

Whether it’s a talk on e-commerce, social media marketing, or, heaven help us, lab-grown diamonds, there is so much pushback.

“What if it doesn’t work? I don’t do any of these things and my business is fine,” they say.

Talk like that worries me, because I know what we stand to lose if these businesses fail.

In my time with National Jeweler, I’ve met and interviewed many independent jewelers and I admire the wealth of knowledge they possess, the commitment to their local community, and the joy they share in celebrating milestones with their customers.

There’s a place for giants like Signet, but the heart of the industry lies with independent jewelers. You have to be open to change.

As a non-business owner, I admit there are intricacies I don’t understand, and I know not every company has a Signet-sized budget to try out new things.

It may seem bold of me to preach to you about your business, but I’m speaking as someone in their late 20s, a key demographic for jewelers, who stands on the other side of the counter, be it physical or virtual.

In the year 2022, there are some things that are non-negotiable and need to be factored into your budget.

If you want to stay competitive, invest in your online presence, both your e-commerce website and social media.

The jewelry industry is an old-school business in a lot of ways, but you can hold onto those values while still embracing new methods of improving your bottom line.

There are many free, or affordable, resources available to you if you’re looking for ways to better your business.

Since I hate to share a problem without offering a solution, here are some I’d recommend.

Jewelers of America offers a slew of resources on its website, as well as an educational webinar series.

National Jeweler has its own webinar series, titled “My Next Question.” The other editors and I cover all aspects of the industry, from style trends to technology, and it’s free to register.

We also have columnists who share their expertise on social media, sales, public relations, and more.

If you need marketing help, check out the free Joy Joya podcast hosted by Laryssa Wirstiuk, or, for a fee, you can join jewelry marketing expert Liz Kantner’s Stay Gold Collective.

For technology know-how, visit Technology Therapy Group’s website. President Jennifer Shaheen is a constant presence at industry conferences.

For retail-related insight, DeAnna McIntosh of Retailing Evolved and Nicole Leinbach Reyhle of Retail Minded are great resources.

Make use of the many industry organizations offering guidance and educational resources, including the Plumb Club, Jewelers Vigilance Committee, Black in Jewelry Coalition, and Women’s Jewelry Association.

There are many people out there rooting for the independent jeweler’s success, myself included, and I’m excited to see what’s in store for those who step up their game.

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