Blue Nile Valentine in NY Times
The Sunday New York Times this week had a major feature on leading online jewelry retailer Blue Nile, When Buying Jewelry Starts With a Mouse, which contains some interesting cocktail party factoids (just in time for 24-Karat Club weekend!) One assertion: “Blue Nile ranks behind only Tiffany & Company in diamond ring sales, according to industry analysts. Experts also believe that probably only Tiffany’s and the Zale Corporation….bought more diamonds from wholesalers than Blue Nile last year.” Well, not sure where Sterling fits in here, since they are now bigger than Zale, but undeniably Blue Nile is very successful at selling diamonds (less so for other jewelry, which makes up a significant portion of the sales at other large jewelry retailers.) The article gives an estimate that Blue Nile bought $170 million in diamonds last year. Judging from quotes in the story the source for these assertions is probably Ken Gassman, industry analyst. Blue Nile’s CFO, Diane Irvine, says that the retailer sells a ring costing from $20,000 to $40,000 nearly every day and that this December more than a dozen rings over $50,000 sold. (Another cool factoid: rings above $50,000 are delivered to the consumer by armored car.) Much of the article discusses retailer efforts to pressure suppliers not to sell to Blue Nile. According to the article, Blue Nile’s overhead is just 13 percent of its revenues, allowing the retailer to sell diamonds at 20 percent over cost and still make money. Retailers quoted in the story, Mark Moeller, Gary Gordon, Jerry Robbins, and Zale treasurer David Sternblitz, admit that Blue Nile has dampened profitability and sells diamonds cheaper than brick-and-mortar stores but say that buyers can’t see the diamonds, compare them side-by-side or receive the service they would get in a store. Gassman, who says that Blue Nile is 35 percent less than Zales, delivers the final blow, discussing retailers who can’t or won’t match Blue Nile’s prices: “Their attitude is “Our prices are higher but we provide you services, and we’ll hold your hand, and we’ll wrap it up all pretty and such.” Will that work? the story asks. “I think it’s relevant that we have seen an acceleration in the closure of specialty jewelers in recent months,” Gassman replied.
Jewellers sometimes “enable” customers to purchase diamonds online by providing after-sales service to those who opt for the online purchase. Online vendors know that a majority of diamond sales are one way-meaning that once the client has the loose stone, they aren’t all that likely to send it back to the seller for service, setting, cleaning, etc. So, they wind up on our doorsteps, seeking real service, the kind they should have paid for originally. If we serve them, we are perpetuating the problems we face.