In a market that grew only 3 percent last year, specialty jewelry chains are fighting to win business from independent jewelers, a fast-dying breed, and each other. No one jeweler controls more than 6 percent of the $23 billion dollar-a-year market. Most are scaling back expansion plans to refocus on improving comp store sales while closing underperforming stores — bad news for mall landlords. The good news for power centers: Jewelry chains are going where the traffic is, and that means centers with big-box anchors. What's more, power centers generally have only one jeweler tenant, compared with three to five at malls. Three firms are choosing diverging strategies to position themselves for a possible uptick in sales for 2004:

Chicago-based Whitehall, operator of upscale brands Whitehall Co., Lundstrom and Marks Bros., is mainly mall based. Last year it kicked off a campaign to rejuvenate swooning comps, including rolling out the luxury Movado brand watch at all of its stores. Remerchandising, increased sales associate training and a renewed focus on customer service are all planned. Net square footage growth for the year declined to only 2% (19 new stores) from its 16% five-year average. The retailer plans to open a similar amount of new space in 2004.

The prognosis: “For the first time since 1998, the company indicated that new stores opened in the first quarter contributed more than 80% of an average mature store,” says William Blair & Co. analyst Ellen Schlossberg, indicating that the reorganization is making headway.

Whitehall Jewellers Inc.
Stores: 384
Avg. Size: 863 sq. ft.
Comp Sales Growth (Nine months ended Oct. 31): -4.5%
Total Annual Sales: $342.8 million

The second-largest jeweler after Wal-Mart, Dallas-based Zales brands include the moderately priced Zales, Zales Outlet, Gordon's, Peoples and Mappins, plus upscale Bailey Banks & Biddle stores and kiosk-based Piercing Pagoda. The company's size gives it an advantage: large ad budgets and preferred treatment from vendors. With 75 % of its stores in malls, Zale's has seen traffic slow across all regions and brands, though remerchandising and kiosk renovations at Piercing Pagoda spurred an upturn in sales. Look for 56 new stores and 22 closings this year. Pagoda is opening 22 kiosks and closing 30.

The prognosis: Expansion of the power center-based outlet division should help capture some off-mall traffic, says JPMorgan analyst Robert Samuels. Merrill Lynch's Mark Friedman says the bridal business is big again.

Zale Corp.
Stores: 1,447
Avg. Size: 1,809 sq. ft.
Annual Comp Sales Growth (2003): 0.8%
Total Annual Sales: $2.2 billion

Savannah, Ga.-based Friedman's, which includes Friedman's and Crescent stores, spent $9 million to open 40 net new stores in 2003, for a 6% growth in square footage — compared with the industry average of 1% to 2%. Some 66% of stores are in power centers; more than 90 % of those are anchored by Wal-Mart. According to the company, power center stores generate a 43% cash return while regional mall units produce only a 37% return.

The prognosis The chain will likely put the brakes on expansion, since its store productivity is currently 10% to 20% less than competitors Whitehall and Zales, says JMP Securities analyst Michael Napolitana.

Friedman's Inc.
Stores: 681
Avg. Size: sq. ft.: 1,400 sq. ft.
Annual Comp Sales Growth (2003): 4.4%
Total Annual Sales: $436 million