Gerald Ratner joined his family jewelry business in 1966. By 1984, he worked his way up to become CEO of the Ratners Group. Under his watch, the company grew from 130 stores to 2,500. This included 1,000 United States locations better known as Kay Jewelers. In a matter of 6 years, Ratner turned it into a multimillion-dollar empire.
In the mid-80s, one couldn’t pass one retail block in London without seeing a Ratner affiliated store on it. The store catered to “working class” individuals by offering lower priced but still “quality” jewelry that they could afford. During this period, Ratner was on the level of a modern day Jeff Bezos or Elon Musk. He constantly had meetings with Margaret Thatcher (the than Prime Minister of the U.K.,) and was a regular at many high society events.
On April 23, 1991, Ratner was invited to be a guest speaker at the Institute of Directors. Over, 6000 business professionals and journalist attended the event. During his speech, he made the following comment:
“We also do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for 4.95 pounds. People say, “How can you sell this for such a low price?”, I say, “because it’s total crap.”
Ratner doubled down on this statement by also adding that one set of earrings they sell was “cheaper than a prawn sandwich from Marks and Spencer’s, but I have to say the sandwich will probably last longer than the earrings”. These statements did not go over well with the audience on hand. The very next day, Ratner appeared on a TV talk show to apologize and explain he was only joking about the “total crap” comments he made the prior day.
Ratner’s statements already did major damage. The media ran headlines with the statement in every newspaper and they were the subject of many news reports. Customers started staying away from the Ratner stores in droves. In a matter of days, the Ratners group’s stock value plummeted by 500 million pounds because of the remarks. Poor sales led to the closure of nearly 300 stores by the company. The corporate board dismissed Ratner from his family owned company in November 1992 over the fallout. The move did little to bring back customers, so the company had to pull the ultimate break in case of an emergency move, change its name. In September 1993, the Ratners Group changed its corporate name to the Signet Group.
The Signet Group is still around today and is the world’s largest retailer of diamond jewelry. Some companies under the Signet Group conglomerate are Jared, H.Samuel/Ernest Jones/Leslie Davis, Blue Nile, Zales, Kay Jewelers and James Allen.
Ratner did what most consumers would want a CEO to do, tell the truth about the products it sells. The problem was the Ratners Group was in a value/illusion market. The consumers thought they were getting a valuable product at a discount price. Common sense should have told them there is no such thing as getting a valuable item at a bargain bin price unless the item was stolen, but as we know, common sense is not common. Ratner’s comments wiped away that illusion of value the consumers thought they were getting and replaced it with the cold hard reality of the “total crap” products they were actually getting.
J. C. Penney and its then CEO Ron Johnson pulled a similar business move in 2011. J. C. Penney’s retail strategy was to provide coupons continuously on items in its stores. Johnson took over, did away with the coupons and just offered the clothes at a permanent discounted rate without sales (they marked the clothes in similar price range as the coupon prices). The grandmothers and grandfathers who bought clothes for their grand kids at J. C. Penney were not happy with this change. Customers were addicted to the coupons, and the perceived value they were getting by buying the clothes on sale at a bargain rate. Sales dropped after the price change, even as low as 32% in the fourth quarter of 2012. The new CEO fired Johnson and reimplemented the coupon strategy, pleasing the grandmother and grandfather consumers again.
What’s the lesson from these stories? Though we like honest CEO’s if you are in the value/illusion market, you can not be as honest as Mr. Ratner was. Consumers in this market place gain happiness from getting a bargain, and if the CEO of the company dashes that illusion by revealing the reality of the actual quality of the product, they will flee in droves. They will go on to the next business who is selling the value/illusion mystique. In short, lie to your customers if you want to keep them as customers. Honesty only works in a religious or a judicial court room setting and even then you may not be getting the truth.
