B l u e N i l e S p a r k l e s – f o r Yo u r C l e o p a t r a
Men: looking for that special gift for your Cleopatra but don’t want to spend a lot of time shopping? Want to give the “Big Rock” without spending a mountain of cash for the engagement experience? Not sure about the future value of diamonds? Then how about pearls, gold, or platinum?
Your answer has arrived: BlueNile offers you an online selection of almost 230,000 diamonds for that special someone. You can buy them cut and polished or put them into settings like rings, bracelets, earrings, necklaces, pendants, watches, and brooches that you choose online. All the diamonds are graded by the 4Cs: carats (size), cut, color, and clarity, and a report for each diamond prepared by the Gemological Institute of America is available online. To make it easier, the carats are translated into milligrams, and one carat is exactly 200 milligrams of mass (if that helps). Just ask her what size she wants, and then look in your wallet.
BlueNile.com started out as RockShop.com in March 1999 in Seattle, Washington. In November 1999, the company launched the Blue Nile brand and changed its name to Blue Nile Inc., opening up its Web site, BlueNile.com, in December 1999. In 2004, it went public. In 2007, Blue Nile sold the biggest item in Internet history, a $1.5 million single diamond of around 10 carats, a size that would cover your finger with a penny-size rock. In 2010, another diamond sold for $500,000.
Back in the early days of e-commerce, no one ever thought that the Internet would be a place where fine jewelry was sold. Typically, gifts of jewelry such as diamonds are associated with a significant emotional event, such as an engagement, marriage, or anniversary. Generally, the event is shared with a significant other and often involves shopping together for the gem. Shopping online hardly matches the emotional impact of walking into Tiffany’s or another established retail store, with clear glass cases filled with brilliantly shining baubles, attended by a small army of sales clerks that make you feel oh so special. Diamonds represent a significant cost, and there is significant uncertainty about their value and pricing. Surveys show that most shoppers believe jewelry is highly overpriced, but they lack the knowledge and information to negotiate a better price or even to judge the quality of what they are buying. Most experts thought that, given the emotional significance and uncertainty involved in purchasing diamonds, few consumers would heighten the built-in anxiety by going to a strange Web site and plunking down
$5,000 or more for a diamond they could not see or touch for several days.
But jewelry and high-fashion retailers are leading the second act of online retailing, bursting on the scene with high-growth rates and spectacular average sales transaction levels. As it turns out, the retail jewelry industry is an ideal candidate for Web sales. Here’s why.
The $69 billion fine jewelry industry in the United States is a byzantine, fragmented collection of about 21,500 specialty jewelry stores and another 100,000-plus that sell jewelry along with other products. Diamond jewelry and loose diamonds together constitute more than 50% of retailers’ sales. To supply this fragmented market, several layers of wholesalers and middlemen intervene, from rough diamond brokers to diamond cutters, diamond wholesalers, jewelry manufacturers, jewelry wholesalers, and finally, regional distributors. Oddly, the source of raw mined diamonds is monopolized by a single company, De Beers, which controls around half of the world market. The fragmented supply and distribution chains add to huge markups based on monopoly-set prices for raw diamonds. Currently, the typical retail store markup for diamonds is between 50% and 100%. Blue Nile’s markup is around 30%.
Blue Nile’s 2014 revenues were $473.5 million, up around 5% from $450 million in 2013. International sales (in more than 40 countries worldwide) grew from $73 million in 2013 to $81 million in 2014. However, net income declined slightly, by 11%, to $9.7 million from $10.9 million in 2013. As Blue Nile continues to grow into new regions, including the lucrative China market, it expects its revenues to hold mostly steady. Through the first quarter of 2015, its net sales and net income grew slightly from 2014 levels.
Blue Nile’s online competitors include Tiffany, Ice, and even Amazon. Together, these companies are transforming the jewelry business. Blue Nile, for instance, has simplified the supply side of diamonds by cutting out several layers of middlemen and instead dealing directly with wholesale diamond owners and jewelry manufacturers.
Blue Nile minimizes its inventory costs and limits its risk of inventory markdowns. On the sell side of distribution, Blue Nile has eliminated the expensive stores, sales clerks, and beautiful, but expensive, glass cases. Instead, Blue Nile offers a Web site at which it can aggregate the demand of thousands of unique visitors for diamonds and present them with a more attractive shopping experience than a typical retail store. The result of rationalizing the supply and distribution chain is much lower markups. For example, Blue Nile will purchase a pair of oval emerald and diamond earrings from a supplier for $850 and charge the consumer $1,020. A traditional retailer would charge the consumer $1,258.
Blue Nile has improved the shopping experience primarily by creating a trust- and knowledge-based environment that reduces consumer anxiety about the value of diamonds. In essence, Blue Nile and the other online retailers give the consumer as much information as a professional gemologist would provide. The Web site contains educational guides to diamonds and diamond grading systems, and each diamond receives an independent quality rating from a nonprofit industry association. There’s a 30-day, money-back, no-questions asked guarantee. The company’s focus is “empowering the customer with information.” And empower they do. The average customer visits the Web site repeatedly over several weeks, views at least 200 pages, and typically calls Blue Nile’s live customer service line at least once. Repeat business accounts for around 25% of revenue.
In 2009, Blue Nile rebuilt its Web site, strengthening its appeal to its mostly male customer base while attempting to draw more women to the site. In 2010, it introduced a mobile Web site and iPhone/iPad app. The iPhone app provides users with a quick way to set specifications for a diamond and see the price as well as a Call button that provides a direct link to the Blue Nile call center for phone orders. In 2013, Blue Nile’s mobile revenues were about $22 million, almost 2.5 times what they were in 2012. In 2014, mobile revenues continued to soar, almost doubling to approximately $42 million. The majority of its mobile revenue is generated from its mobile Web site, accessed via tablet computers. The biggest mobile sale to date: a $300,000 engagement ring! Blue Nile has also dived into social media marketing, with a Facebook page that has over 1.2 million Likes, a YouTube channel with 2.5 million views, a Pinterest page with over 85,000 followers, an Instagram feed with 43,500 followers, and a Twitter feed with over 14,000 followers. Users attracted to an image of jewelry posted on these sites can click links that take them directly to a purchase page for the item.
In 2012, Blue Nile began a shift in its strategy driven by the possibility that online retailers will have to begin collecting Internet sales taxes in most jurisdictions (see the Insight on Business case, Internet Sales Tax Battle, in Chapter 8). The company is moving toward fashion jewelry and higher price points and away from simply offering the lowest prices. Blue Nile has begun offering a proprietary line of high-end jewelry, and has added a design director and a new chief merchant to retool its product offerings. Still, even with additional sales taxes, Blue Nile’s Internet-based distribution methods and lack of overhead from physical stores will allow them to continue to offer competitive prices.
In 2013, Blue Nile announced a partnership with Nordstrom that allows prospective customers to see rings before they buy them online. Rings in the Nordstrom outlets are for display only, but using iPads, Nordstrom jewelry experts can help customers to purchase rings that appeal to them from the Blue Nile site while in the store. As of early 2014, Blue Nile reported that the early response was positive, with a $95,000 purchase representing the largest transaction yet at an in-store display case. Over 90% of visitors to the Nordstrom displays came specifically for Blue Nile products. Buoyed by this success, Blue Nile announced that it would open its first physical store, which it calls a webroom, in 2015 in Long Island, New York. The webroom allows customers to see and try on products before actually purchasing them online. Initial results have been so promising that Blue Nile plans to open three or four physical locations in 2016.
So far, the “Blue Nile” effect of lower margins and Internet efficiency has mainly impacted the small mom-and-pop jewelry stores. Many small retailers have disappeared in the last few years due to rising diamond prices and pressure from larger companies. The big retailers, such as Tiffany, Zales, and others, sell more than Blue Nile, and continue to benefit from consumer interest in diamond engagement and wedding rings. But Blue Nile has grown more in the past three years than its closest online-only jewelry competitors. However, Blue Nile will still have to keep a keen watch on its competitors to keep its edge online.
Q1.Mention the business model used by Blue Nile.com & critically compare the model with Caratlane.com
Q2.Do you think a shift in strategy was the right move by Blue Nile.com,give reasons for your answer.
Q3.What are the strategies you would suggest Blue Nile.com that will help them boost up their sales in E Commerce market