Timber - Beware of Falling Retailers

Zale Corp. is on its last legs and is but the tip of the zombie retail iceberg. With 1,900 stores and 5-10 employees per store conservatively there are some major unemployment shocks coming down the pike.

Zale Corp. Hires Investment Advisory Firm

Dallas--Long-struggling jewelry chain Zale Corp., which saw double-digit sales declines over the holiday season, has hired an independent investment banking advisory firm to help it determine strategic options.

The company issued a brief statement Tuesday evening announcing that it had hired Peter J. Solomon Co., a New York-based firm that works closely with the retail industry, "to advise the company in identifying and analyzing alternatives to maximize its financial flexibility."

So what will that mean for its future? Industry analyst Ken Gassman said among the likely alternatives for Zale is that it could sell off pieces of its business--news reports have named the Piercing Pagoda and the company's Canadian operations as likely candidates for a sale. It might also form a strategic combination, perhaps with an Indian company, or take the company--which is now publicly traded--private with venture capitalists or with another company that already has a large stake in the jewelry industry.

Gassman said he doesn't think the chain is going to file for bankruptcy at this point in time.

"I'm not seeing a Chapter 11," he said.

Rumors have swirled for weeks about Zale hiring an advisory firm after repeated struggles with its sales performance. Its same-store sales dropped 12 percent in November and December, yet another setback in a critical season for jewelry retailers.

By comparison, competitor Sterling Jewelers, operator of Kay Jewelers and Jared the Galleria of Jewelers, saw same-store holiday sales climb nearly 8 percent.

Almost immediately after the discrepancy between the two rival chains' sales became public, Zale Chief Executive Officer Neal Goldberg and two other top executives resigned: William Acevedo, chief stores officer, and Mary Kwan, chief merchandising officer. Company President Theo Killion is serving in the additional role of interim CEO.

The company's financial footing made headlines again last week when The Wall Street Journal reported that Zale had taken the unusual measure of asking its diamond merchants and other vendors if they would purchase some of its inventory--including goods that they did not manufacture--in exchange for cash and the promise of future orders from Zale. Vendors who spoke to the Journal said they were hesitant to agree to such a deal.

Zale Corp. operates approximately 1,900 retail locations throughout the United States, Canada and Puerto Rico, as well as online.