Town & Country Corporation

25 Union Street
Chelsea, Massachusetts
U.S.A.
(617) 884-8500
Fax: (617) 889-1473

Public Company
Incorporated: 1955 as Town & Country Jewelry

Manufacturing Corporation
Employees: 2,200
Sales: $250.58 million (1996)
Stock Exchanges: American
SICs: 3911 Jewelry & Precious Metal

Town & Country Corporation is a noted designer, manufacturer, and marketer of fine jewelry. Some of its best known products include scholastic items, such as class rings and trophies; licensed sports commemoratives; and bracelets and charms. From its beginnings in 1955 as a tiny enterprise created by a teenager, Town & Country grew to become one of the nation’s largest jewelry producers, with operations in the United States, the Caribbean, Hong Kong, and Bangkok. Following a period of expansion through acquisition in the late 1980s, when Town & Country purchased jewelry manufacturers Gold Lance Inc. and the L.G. Balfour Company, the company was in the late 1990s selling off such secondary interests, in an attempt to refocus its operations on the fine jewelry business and return to profitability.

Origins and Early History

Company founder C. William Carey, the son of a meatcutter, was 17 years old in 1955, sweeping floors in his uncle’s jewelry store and studying jewelry repair and design at Boston’s North Bennet Street Industrial School. During this time, based on his observations at his uncle’s store, he came up with an idea for a start-up company: a wholesale company selling boys’ silver rings and other jewelry under a unique system, a precursor to modern “just-in-time marketing” that monitored inventory by telephone in order to prevent overstocking. Armed with this idea, enumerated in a looseleaf notebook, and $500 in savings, Carey approached local banks and attempted to get a loan. He eventually persuaded a bank in his home town of Maiden, Massachusetts, to loan him $25,000 in start-up capital, a loan for which his mother had to cosign. With this money in hand, Carey launched the Town & Country Jewelry Manufacturing Corporation and began his four-decade-long leadership of what would become one of the nation’s leading jewelry suppliers and producers.

With profits unabated and a growing number of retailers comprising his clientele, Carey’s operations expanded considerably and sales reached the million-dollar mark by 1960. At that time, because it had become impossible to buy enough inventory from independent manufacturers to fill his needs, Carey purchased a small New York jewelry manufacturing business and opened a factory in a Manhattan loft. This was the first in a series of many acquisitions to be made during Carey’s leadership.

By 1972, sales had jumped to $5 million. Carey decided that it was time for his company to go public. However, the economic recession of the early 1970s would stall Carey’s dreams of a public offering for several years. In the meantime, Carey began to travel to other countries in order to identify likely prospects for acquisition and expansion. He often personally visited international prospects and others within the United States, rather than relying on investment advisors. Moreover, unlike many executives of the time, he preferred friendly acquisitions in which existing management and employees were retained whenever possible. Town & Country’s first international venture was launched in 1973, when the company built a plant in Hong Kong and began sales in Japan and other Pacific Rim countries through its subsidiary Anju Jewelry Ltd.

Rapid Expansion in the 1980s

Carey was travelling in the Caribbean in 1980 when he noticed a high-end retail chain of jewelry stores known as Little Switzerland, which catered to wealthy tourists. Convinced that the growing cruise ship business would make these shops a true gold mine, he went to the home of the chain’s owner and persuaded him to sell him the business. Carey’s instinct proved correct, and within the next ten years sales at Little Switzerland grew from $5 million to $55 million.

In 1985 Town & Country finally went public, and then a rapid series of acquisitions and expansion began. A new subsidiary, Essex International Ltd., was established in 1985 to manufacture jewelry in Bangkok, Thailand, where labor costs were cheaper and the import-export trade was strongly encouraged. In the same year Town & Country purchased Gold Lance Inc. of Houston, thus entering the world of class ring manufacturing. The company then acquired another Texas company, Dallas-based Verilyte Gold, Inc., which added etched-gold jewelry to the Town & Country product line. By 1987 Little Switzerland had grown to a chain of 18 stores throughout the Caribbean (with ten more stores planned in 1996) and had acquired exclusive rights to sell Rolex watches in duty-free ports there.

Town & Country rounded off the 1980s with three major activities. First, it changed its name from Town & Country Jewelry Manufacturing Corporation to Town & Country Corporation in 1988, a change intended to reflect the broader range of the company’s business and to anticipate its future growth. Second, the company acquired Feature Enterprises Inc., the nation’s largest manufacturer of fashion diamond bridal ring sets. Finally, in the same busy year, Town & Country announced the acquisition of the L.G. Balfour Company, a major producer of jewelry and awards for corporations, plus high school, college, and championship sports rings. Just prior to the acquisition, Balfour had been awarded a three-year, $20 million contract with AT&T, said to be the largest corporate recognition program on record. With these acquisitions, financed by sales of $100 million raised through the sale of junk bonds, Town & Country hoped to double its annual sales from the $150 million figure reported for fiscal 1988. Town & Country was named the number one Massachusetts business of 1990 by Boston’s leading newspaper.

However, for the first time Town & Country may have taken on more than it bargained for. In fiscal 1989 the company reported the first earnings drop in its history, and its stock fell sharply after this announcement. CEO Carey attributed this drop to weak sales at the newly-acquired Feature Enterprises and to operational disorganization at Balfour prior to its acquisition. The interest payments alone on its debt had soared to $23 million per year. Town & Country’s management started talking about focusing on making its existing activities more profitable, rather than making further acquisitions.

The 1990s: Resizing the Corporation

At the onset of the 1990s, Town & Country was faced with financial challenges unknown in its earlier years. Carey, still heading the company, launched a strategy of consolidating operations, along with introducing licensed sports and celebrity jewelry products. In 1992, faced with actual losses and not just a drop in earnings, Carey announced consolidation of the Feature, Town & Country, and Verilyte domestic jewelry lines into a single Fine Jewelry Group, located at the company headquarters in Chelsea, Massachusetts.

A great deal of effort was put into marketing new products at the shaky Balfour subsidiary. The corporate awards and recognition program that had initially seemed so promising was terminated. In 1992 Balfour introduced a limited edition “commemorative” class ring and other jewelry based on the hugely popular television series, “Beverly Hills 90210.” In 1994, Balfour also became the official licensee for Indianapolis 500 commemorative items (rings, belt buckles, plaques and desk ornaments) and for the newly-created Brickyard 400 stock car event. A ring honoring Richard Petty, the “King of Stock Car Racing,” was designed as part of this new product line. Other new sports-related products were in the works, including 1996 Olympics commemorative pins and a commemorative flip coin to honor the National Football League’s 75th anniversary.

At that time, Balfour was operating out of an antiquated plant in southeastern Massachusetts, and a modern facility was built nearby to accommodate the anticipated growth in business from licensed sports products. As usual, Carey had attempted to keep the current work force, and he was apologetic for having to build the plant in adjoining North Attleboro, rather than in the original plant’s city of Attleboro.

Unfortunately, circumstances conspired to make the changes at Balfour less than profitable. Although sales at Town & Country rose in the early 1990s, severe losses ($47.3 million) were incurred in fiscal 1993 and only minimal profits were realized ($3.1 million) in fiscal 1994. Moreover, Zale Corporation, for many years Town & Country’s largest customer, filed for bankruptcy reorganization in the early 1990s. Town & Country then began working to reach a final settlement of its claims against Zale’s remaining assets, claims that were not finally resolved until fiscal 1996. While Balfour’s scholastic division continued to be financially solid, sales of the newly-developed sports merchandise were dismal. Carey attributed much of the problem to the unfortunately timed baseball strike and the cancellation of the World Series, which had cooled the public’s interest in licensed sports products.

Company Perspectives:

“The linchpin connecting everything we do is a well-designed, exciting array of fine jewelry to differentiate us from our competition and deliver a reasonable return to the Company. Our mission is to become the industry resource of choice for the product categories we manufacture, offering fine jewelry with broad consumer appeal…. Managing better, using our strengths and resources more intelligently, designing to create demand and, above all, providing superior customer service—these are the fundamentals that we believe will lead Town & Country to profitability.”

Whatever the reason, investors had cause for great concern as Moody’s Investment Service downgraded Town & Country’s rating and projected a negative rating outlook for the company through the late 1990s, based largely on the size of its ongoing interest payments. As fiscal 1996 brought another year of losses ($1.87 million), it became clear that major changes were needed in the company’s operations.

In his company’s 1996 annual report, Carey set out what he saw as Town & Country’s focus and direction through the remainder of the 1990s. The main priority was simply to restore profitability, through improved management, new product development, and innovative marketing. Specific strategies were also laid out: identification of cost control and cost cutting companywide; refocusing Balfour on the class ring business and making the licensed sports products a “pay-as-you-go” operation; introducing new technology in the Gold Lance class ring production process for improved delivery; developing more appealing products in the Fine Jewelry Group; and exploring Far East expansion opportunities. Carey noted that the Fine Jewelry Group was under unusual pressure from its commercial customers, who expected price concessions, more liberal return policies, and additional services such as more marketing sup-port and exclusive product designs. All of these demands, if met, would erode profitability for the Group. He also noted the negative impact of lower-priced imported diamond merchandise and the disappointing post-Christmas sales of the prior year. Nevertheless, he believed that, with the changes being instituted as well as the adoption of a very conservative credit policy, Town & Country could become profitable again.

However, after this report was issued, profits in the first three quarters of fiscal 1997 plummeted, and sales also dropped by more than ten percent from the previous year. Even more drastic changes became inevitable, not necessarily in line with the goals expressed by Carey. In December 1996, Town & Country entered into an agreement to sell its Balfour class ring operations to Commemorative Brands Inc. of Texas for approximately $50 million. A month later, Town & Country founder C. William Carey tendered his resignation as chairman and chief executive officer, after over 41 years as the company’s leader. Two company directors, William Schwabel and Charles Hill, were named as co-chairs of the board; Schwabel, CEO of Schwabel Corporation (a manufacturer of butane personal care appliances and hardware products), was named acting president as well.

The new company management announced that it was planning to concentrate on improving product design and upgrading the performance of manufacturing subcontractors. Focus was placed on the company’s core operation, its fine jewelry business. Within three months after Carey’s departure, the Gold Lance retail class ring business was sold for $11 million to Jostens Inc. of Minneapolis, the currently leading company in that segment of the jewelry market. Town & Country also continued the process of privatizing its Essex International operations in Thailand, after initiating a move out of Bangkok to the province of Chiang Mei in 1996, in order to take advantage of lower labor and operating costs. The possible impact on Town & Country’s Anju Jewelry subsidiary of the return of Hong Kong to Chinese rule in 1997 was a consideration not publicly addressed by the new management.

A major internal reorganization was completed with the assistance of CSC Index, a management consulting firm. Town & Country reconfigured its product development process in order to bring new products to market more quickly. New teams were organized by product type and were made responsible for customer and market development activities. The company also hoped to reduce customer response time by implementing a customer team approach, in which team members would have varying skills designed to meet customer needs. Schwabel described the company’s strategy as “a proven approach to improve customer service and accountability,” in which the company “reduced the decision making cycle by eliminating two layers of management.” He went on to note that “We expect that our response time in dealing with customers will be positively impacted.”