Peoples Jewellers bought Zale with junk bonds — within 4 years both were in bankruptcy

Peoples Jewellers was founded in Toronto in 1919 and grew to become Canada's largest jewelry chain, with stores selling watches and fine jewelry nationwide. By the 1980s the company, led by chairman Irving Gerstein, operated more than 100 stores as a Canadian retail institution.

In 1988, Peoples Jewellers partnered with the Austrian crystal company Swarovski to acquire Zale Corporation, a much larger American jewelry chain with nearly 2,000 stores. The deal was struck at roughly $50 per share — nearly double Zale's market price — and was financed largely through $700 million in junk bonds. The combined entity carried approximately $900 million in debt, with annual interest payments alone exceeding $50 million.

The timing was catastrophic. The 1990–1991 recession hit consumer spending hard, and the Gulf War added economic uncertainty. The US introduced a 10% luxury tax on purchases over $10,000, which covered most diamond jewelry sold at Zale. Sales collapsed: Zale lost $64 million in 1990 and more than $106 million in the first six months of 1991. By the end of 1991, the company could not make a $52 million interest payment.

On January 1, 1992, Zale Corporation filed for Chapter 11 bankruptcy — the largest jewelry retailer bankruptcy in US history at the time. Four hundred stores were closed immediately. When Zale emerged in 1993, its store count had dropped from roughly 2,000 to about 1,300. Irving Gerstein had lost control of the empire he built.