Why Michael Hill chose US over UK

By ADRIAN CHANG - BusinessDay.co.nz | Monday, 10 November 2008

The explanation for Michael Hill International's surprise expansion into the United States was revealed at the company's annual meeting.

The jewellery retailer purchased 17 stores in Illinois and Missouri in October, when US chain Whitehall Jewelers Holdings went into liquidation.  Chairman Michael Hill had previously spoken of the company next pushing into Britain, following its successful forays into Australia and Canada.

But at yesterday's annual meeting in Auckland, Michael Hill International chief executive Mike Parsell explained that he and chief financial officer Phil Taylor had travelled to England to undertake due diligence on a small jewellery chain outside Manchester.

Parsell said they considered the chain "a pretty exciting opportunity" but were put off because of a number of small issues, mostly around the supply chain.

"In the UK they still have this practice which dates back hundreds of years where every piece of fine jewellery over one gram of gold has to be hallmarked," Parsell explained. 

"That means every piece we exported or sent to our UK stores would have had to be diverted to a hallmarking office, assayed and stamped, which is not ideal for our model at this point."

Instead, when one of Michael Hill International's suppliers told Parsell of Whitehall's liquidation, he got involved and this subsequently allowed Michael Hill International to purchase the 17 stores and stock for just $7 million.

Parsell said Michael Hill moved early for strategic reasons.

"We went early because we saw an opportunity to leverage the situation and get a small cluster of stores that were well positioned," he added.