There’s a fascinating article in today’s N.Y. Times about Blue Nile, an online diamond merchant that seems to be smoking its brick-and-mortar competitors. Five years ago, this would have seemed most unlikely. As the article’s author, Gary Rivlin, puts it: “People might be willing to buy a book online, or a CD, and maybe a toaster … but a $3,000 diamond engagement ring?”
And yet “the average diamond ring bought at the Blue Nile site,” Rivlin writes, “costs $5,500, twice the industrywide average of $2,700.”
That is not because Blue Nile is more expensive; it is in fact much cheaper than brick-and-mortar stores, but draws a higher-end customer.
One of the most interesting pieces of this very well-reported article is an example of how the Internet continues to put downward pressure on prices:
It is easy to sympathize with the Main Street jeweler confronting a rival like Blue Nile. It operates no stores, only an office in downtown Seattle and a modest-size warehouse on the outskirts of town, so overhead eats up just 13 percent of its revenues, compared with 30 to 40 percent at a traditional Main Street retailer.
That allows Blue Nile to sell its diamonds at roughly 20 percent over cost and still make money, Mr. Vadon said and analysts confirmed. By comparison, the typical jewelry store sold its rings for 48.7 percent above cost in 2005, though that is down from 51.6 percent in 2002, an annual survey by Jewelers of America found.
As a result, Mr. Gassman, the [jewelry industry] analyst, found in one study that Blue Nile sold rings for 35 percent less than comparable rings at Zales.
and 
. You can also watch it on 
Diamond sales are well-known to be a racket, artificial shortages and price controls by a well-documented cartel.
Diamond sales are well-known to be a racket, artificial shortages and price controls by a well-documented cartel.
I grew up working in a family-owned brick-and-mortar jewelry business, and I recall hearing those same “never online” and “people want a face and a handshake” kind of statements from my bosses. Even as a 17-year old kid, I remember thinking, why not?
Now, many small stores are struggling to compete with the online sellers like BlueNile.
I think the problem is the elephant in the room (similar to the problem of Tivo for advertising companies)… How do you compete with something that makes you totally obsolete? Refusing to change and adapt will see these type establishments go by the wayside.
I grew up working in a family-owned brick-and-mortar jewelry business, and I recall hearing those same “never online” and “people want a face and a handshake” kind of statements from my bosses. Even as a 17-year old kid, I remember thinking, why not?
Now, many small stores are struggling to compete with the online sellers like BlueNile.
I think the problem is the elephant in the room (similar to the problem of Tivo for advertising companies)… How do you compete with something that makes you totally obsolete? Refusing to change and adapt will see these type establishments go by the wayside.
Also, diamonds make complete sense for online sales because there are very specific ratings for the 4 Cs: carat, cut, color, and clarity.
I can go through BlueNile.com and specify that I want a .9-1.0 carat, Ideal cut, E-F color, VVS2 or VS1 diamond and I’m left with a handful of selections in a matter of seconds.
And, as long as I trust their appraisal system (and why wouldn’t I compared to any other stranger?), I know that I’m going to get what I asked for. I’ll likely get it for less than a brick-and-mortar shop and I won’t have to wait for days and/or weeks for the brick-and-mortar shop to get what I want in stock.
And that leads to another issue with brick-and-mortar jewelers. They want to sell you what they’ve got in stock. Sure, they’ll educate you, but in the end I’m sure they want to sell you what they’ve already got. What business person wouldn’t? So, they’re already biased towards what they want to give you versus what you may want.
I’ve bought a diamond twice in my life. Both times were through brick-and-mortar, but they were different experiences. The first time, I got the “diamond education” and ended up selecting a diamond the jeweler had in stock. Either he happened to have the perfect diamond, or he managed to persuade me that what he had was the perfect diamond for me. I’m thinking the latter.
The second time, I went through a family jeweler that I trusted. I told him the specs I was looking for and told him that I trusted him to find that. He did and I was happy. Realistically, if I wasn’t using a family jeweler, I could have done the same thing with a site like BlueNile.
I apologize for the long post, but I really think the diamond industry is in for major change over the coming years. I would liken it to the digital revolution in the photography industry.
The average person no longer needs Kodak and their film and it’s killing them. Why is Kodak no longer the leading name in photography? Because they didn’t embrace digital soon enough.
The people working with diamonds that don’t embrace the internet will quickly be on the outside looking in, in my honest opinion.
Also, diamonds make complete sense for online sales because there are very specific ratings for the 4 Cs: carat, cut, color, and clarity.
I can go through BlueNile.com and specify that I want a .9-1.0 carat, Ideal cut, E-F color, VVS2 or VS1 diamond and I’m left with a handful of selections in a matter of seconds.
And, as long as I trust their appraisal system (and why wouldn’t I compared to any other stranger?), I know that I’m going to get what I asked for. I’ll likely get it for less than a brick-and-mortar shop and I won’t have to wait for days and/or weeks for the brick-and-mortar shop to get what I want in stock.
And that leads to another issue with brick-and-mortar jewelers. They want to sell you what they’ve got in stock. Sure, they’ll educate you, but in the end I’m sure they want to sell you what they’ve already got. What business person wouldn’t? So, they’re already biased towards what they want to give you versus what you may want.
I’ve bought a diamond twice in my life. Both times were through brick-and-mortar, but they were different experiences. The first time, I got the “diamond education” and ended up selecting a diamond the jeweler had in stock. Either he happened to have the perfect diamond, or he managed to persuade me that what he had was the perfect diamond for me. I’m thinking the latter.
The second time, I went through a family jeweler that I trusted. I told him the specs I was looking for and told him that I trusted him to find that. He did and I was happy. Realistically, if I wasn’t using a family jeweler, I could have done the same thing with a site like BlueNile.
I apologize for the long post, but I really think the diamond industry is in for major change over the coming years. I would liken it to the digital revolution in the photography industry.
The average person no longer needs Kodak and their film and it’s killing them. Why is Kodak no longer the leading name in photography? Because they didn’t embrace digital soon enough.
The people working with diamonds that don’t embrace the internet will quickly be on the outside looking in, in my honest opinion.
I’m surprised at that approximately 50% above cost figure. I grew up in a family of jewelers (not fine jewelery like discussed here) and it was well-known to my family that fine jewelery shops had much higher markups (like several hundred percent) based on the known costs of precious metals and stones. The few times my father was asked to custom make jewelery with diamonds, he was able to buy the jewels at wholesale prices for a fraction of what a similar stone would cost at a fine jeweler.
I’m surprised at that approximately 50% above cost figure. I grew up in a family of jewelers (not fine jewelery like discussed here) and it was well-known to my family that fine jewelery shops had much higher markups (like several hundred percent) based on the known costs of precious metals and stones. The few times my father was asked to custom make jewelery with diamonds, he was able to buy the jewels at wholesale prices for a fraction of what a similar stone would cost at a fine jeweler.