IDEX Online Research: Forte Post-Mortem: What Went Wrong, and What Went Right?February 09, 06
After three and a half years as president and CEO of Zale Corporation, Zale's board asked Mary Forte to resign. Board chairman Richard C. Marcus said that while the board agreed with Forte’s strategies, the company needed to generate tangible positive results more quickly (Full analysis here: www.idexonline.com/pdf_files/Feb05-ZLC_Forte_Feb_06.pdf).
What went right and what went wrong at Zale? Briefly, our analysis shows the following:
- Zale has three strategic goals: 1) increase market share, where it has been least successful; 2) develop a more efficient sourcing operation, where it has made some modest progress; and 3) improve the customer shopping experience, where results have been mixed.
- Forte is a talented individual. After a successful career in department store retailing, she joined Zale in 1994 and rose to become its CEO.
- Zale is a huge company, and it is difficult to rapidly change course. Zale’s board has historically had a relatively short fuse. Thus, the pressure was on Forte from the very beginning. We believe Forte was ousted on a vote of “no confidence.”
- There’s an old adage among retailers: “Growth is the only evidence of life.” In Zale’s case, its growth was sub-par. New store additions trailed major competitors. Profits were not expanding. Sales gains were very modest, and were below the industry average.
- Zale’s financial results – as measured by key financial ratios – were generally no better than average for the jewelry industry. In some cases they were modestly below average for key indicators of financial health. However, the company did not come in dead last in any financial benchmark rankings.
- The company remains solidly profitable, even if profits aren’t growing. Cash flow is strong. There is no danger of financial distress or bankruptcy.
- Management turmoil, especially at the top, is a continuing problem. Since the departure of Bob DiNicola, who was chairman from 1994 until 2003 (with a brief six-month respite in late 2000 and early 2001), there has been above average turnover among Zale’s leadership. This has taken its toll on employee morale.
- When DiNicola installed his handpicked leadership team of Mary Forte and Sue Gove to run the company in 2003, it was to be shared leadership. Forte was the merchant, with the title of president and CEO, while Gove was the number cruncher, with the title of executive vice president and COO. Forte was named to the board in 2002, while Gove joined the board in 2004.
- The leadership change was no surprise to most jewelry industry vendors. Rumors have been quietly circulated about turmoil at the top – lack of a shared vision, lack of a cohesive team, and so on – for more than a year.
- Even Wall Street had begun to run out of patience, bidding down Zale’s shares 30 percent since mid-2005.
- Zale has not clearly articulated plans for each of its many operating divisions. While Zales Jewelers is its core mass market offering, management is still struggling to find a niche for Gordon’s Jewelers. Bailey Banks & Biddle, the company’s luxury brand, is shrinking its store base, perhaps by as much as 50 percent. Zale’s Outlet, which was to be the vehicle for off-mall expansion, has slowed new store openings. Piercing Pagoda is shifting its market positioning – in part, this is due to its heavy emphasis on the latest fad and fashion -- but results are not clear, yet.
- Forte won’t leave empty handed. The board has apparently agreed to honor her employment contract. If so, she is expected to pocket about $3.6 million in cash plus benefits. Stock options could net her millions more.
- What happens next for Zale? IDEX Research does not have any answers; rather, we have only more questions. Will the next president come from inside or outside? Will this person be a merchant or a number cruncher? What will happen to the current team of brand presidents? And the list goes on.
Click here, or go to www.idexonline.com/pdf_files/Feb05-ZLC_Forte_Feb_06.pdf for full analysis ‘Forte Post-Mortem: What Went Wrong, and What Went Right?’