UK operating review
Brand reviews
H.Samuel
Introduction
H.Samuel accounted for 14% of Group sales in 2007/08 (2006/07: 14%), and is the largest speciality retail jewellery brand in the UK with a 6.5% share of the total jewellery market. It serves the core middle market and its customers typically have a household income of between £15,000 and £40,000. The brand has nearly 150 years of jewellery heritage. It sells a broad range of gold and silver jewellery, an increasing proportion of diamond merchandise and a wide selection of watches, including Accurist, Citizen, DKNY, Fossil, Rotary, Seiko and Sekonda. It also sells an increasingly focused range of gifts and collectables such as Nao and Swarovski.
H.Samuel had 359 stores at 2 February 2008 (3 February 2007: 375) and is represented in nearly all large and most medium sized shopping centres with the focus increasingly being on larger centres. An e-commerce capability was added to hsamuel.co.uk in September 2005 and it is the most visited UK speciality jewellery website (source: Hitwise).
2007/08
H.Samuel sales were £256.7 million (2006/07: £260.8 million). The average retail price of merchandise sold in H.Samuel during 2007/08 was £44 (2006/07: £42) and the average retail price of items sold has increased at a compound annual growth rate of 6.2% over the last five years. The sales per store increased to £722,000 (2006/07: £695,000 on a 53 week basis) and have increased at a compound annual growth rate of 1.3% over the last five years.
H.Samuel 5 year sales, £m
H.Samuel store data
| 2007/08 | 2006/07 | 2002/03 | |
|---|---|---|---|
| Number of stores: | |||
| Opened during year | 1 | – | 4 |
| Closed during year | (17) | (11) | (8) |
| Open at end of year | 359 | 375 | 418 |
| Percentage increase in like for like sales | 1.3% | 0.7% | 2.6% |
| Average sales per store in thousands (exc. VAT)(1) | £722 | £695(2) | £677 |
(1)Including only stores operated for the full financial year.
(2)53 week year.
During 2007/08, television advertising, using the theme “H.Samuel helps you say it better”, was successfully developed. An H.Samuel store credit card was tested and launched. Staff training remained a priority and about 40% of H.Samuel staff have an externally recognised jewellery industry qualification.
Customer service
Customer service is an increasingly key point of differentiation for H.Samuel. Historically the brand’s customers self selected merchandise from window displays and primarily required a ‘cash and wrap’ service. Sales associates in H.Samuel now need an increased level of product knowledge and selling skills as a growing proportion of sales are of products, such as diamond jewellery that require much higher levels of customer service. Therefore a priority in recent years has been to improve the training process within the UK division (see here).
Merchandising
In 2007/08 diamond jewellery accounted for 22% of H.Samuel’s merchandise mix, up from 16% in 2002/03. This helped increase the average unit selling price to £44 from £33 over that period. Within the diamond category the average selling price increased to £201 (2002/03: £179). Since 2002/03, sales of gift and other items have declined to 12% of the total from 19% (see table below).
Merchandising initiatives to further increase the differentiation of H.Samuel stores and to reinforce the brand perception as a speciality jeweller continued, for example the launch of the Julien Macdonald range and the development of exclusive merchandise such as the Forever Diamond range. Key volume items were again used to drive footfall. These items take advantage of H.Samuel’s buying scale and offer consumers an attractive price while achieving a satisfactory gross margin and are promoted in marketing and point of sales material. As in 2006/07 a more targeted approach to promotional activity was beneficial during 2007/08.
H.Samuel merchandise mix
(excluding repairs, warranty and other miscellaneous sales)
| 2007/08 | 2006/07 | 2002/03 | |
|---|---|---|---|
| Gold jewellery | 31% | 31% | 32% |
| Watches | 25% | 24% | 24% |
| Diamond jewellery | 22% | 21% | 16% |
| Other jewellery | 10% | 10% | 9% |
| Gifts and other | 12% | 14% | 19% |
| Average selling price | £44 | £42 | £33 |
Marketing
Over Christmas H.Samuel used the “H.Samuel helps you say it better” television advertising supplemented by advertising in national newspapers and catalogue distributions. For the remainder of the year a series of themed catalogues displayed in stores, mailed directly to targeted customers and distributed in newspapers were the primary form of marketing. During 2007/08 co-ordination of the
different forms of marketing and promotion was improved. The H.Samuel website has been transactional since 2005 and its performance has been encouraging, although its sales are relatively small in the context of the division as a whole.
Store design
The H.Samuel store portfolio is nearing the end of a radical refit that started seven years ago. Previous to that, stores were designed for a shopper who made a choice from a window display. The changed format is designed to facilitate the sale of merchandise with a higher average selling price, particularly diamonds, and therefore allows an increased focus on customer service and greater convenience in presenting merchandise to customers. The clear internal layout by department enhances the ability to provide appropriately trained specialist staff in each area.
The format uses low level displays, which act as service counters for jewellery, particularly diamond ranges; wall display cases are used predominantly for watches, gifts and lower value jewellery items. The refitted stores are also much more open and inviting. While the design was based on the Group’s US experience, it was adapted to H.Samuel’s merchandising and customer requirements.
Further evolutionary changes to the design have been made during the refit programme. These include improved presentation of jewellery, particularly in wall showcases; more clearly displayed branded merchandise such as watches; and more effective use of in-store signage.
Real estate
H.Samuel has a seven year store refurbishment cycle. In 2007/08 16 refits or resites were completed (2006/07: 28 including two in the traditional format). At 2 February 2008 234 stores, accounting for just over 70% of sales, traded in the more customer oriented store design.
Some 23 refits and resites are planned in 2008/09. The conversion programme to a more customer oriented format for H.Samuel is anticipated to be completed in 2009/10. Thereafter, the cost of store refurbishment is expected to reduce significantly as structural work, such as the move away from window based displays, will be much lower.
H.Samuel is increasingly focused on bigger stores, in larger shopping destinations, where it is better able to offer more specialist customer service, a wider range of jewellery and benefit from the more customer oriented format. This reflects the changing shopping patterns of customers. The number of H.Samuel stores in smaller markets is therefore likely to decline as leases expire or suitable real estate transactions become available. Over the last five years there has been a reduction of 59 stores.