Rob Bates

Thoughts on Blue Nile
October 26, 2007

There were a number of interesting things about Blue Nile this week …  According to this Forbes piece, the company just sold a $1.5 million piece. (Its chairman at first thought it was a “fraud.”)

I always believed it was a mistake that the big names in this industry sat out the Internet boom – and to some extent, are still doing so – allowing a company from out of nowhere to build a $300 million business basically from scratch.

I know there were concerns that selling on-line would “cheapen” their brands. But consider this: We are seeing a whole generation come up that looks at buying online as a normal, everyday thing, like brushing your teeth. If they thought buying online would cheapen a brand, they wouldn’t be looking there in the first place.

Secondly, plenty of luxury items are available on-line today. Just about every luxury resort or experience can be booked on-line. Not only is the experience not cheapened, it hasn’t made them significantly cheaper.

The Forbes piece also says:

The retail [jewelry] experience just serves to sucker and intimidate the customer, especially men who often feel as out of their depth in a jewelry store as they do inside Victoria's Secret--no wonder three quarters of Blue Nile's Internet ice-buyers are guys.

The one thing bricks-and-mortar retailers have over Blue Nile is the human factor. Yet, here, Forbes is portraying that as a negative. Blue Nile has shown that the industry needs to up the skills of its sales associates. For years, some (not all) jewelers allowed untrained, uneducated $7-an-hour salespeople to fumble their way through sales pitches for $3,000 engagement rings. That may have worked when they were the only game in town, but now, competition is as close as an object on your desktop. Forbes here is spelling out a point people have been making for years: Retail jewelers have to learn how to make the experience more "fun" and less intimidating for shoppers. Otherwise, they won't survive.

Finally, here is a debate on whether to buy Blue Nile stock. I admire Blue Nile, and think it will be a major factor in the market for years to come, but the “bears” make a more compelling argument, at least for now. I thought this was an interesting point:

Speaking of cost differentials, I don't see much difference between this watch from Amazon and this one from Blue Nile. They're both the same model (Kenneth Cole KC2414), but the one from Amazon is 25% cheaper. I understand that people are willing to pay a premium to buy from a name they trust, but Amazon's retailing reputation is at least as strong as Blue Nile's.

Among jewelry stores,Tiffany is about the only one that's able to reliably and consistently charge premium prices. Blue Nile, on the other hand, built its reputation on undercutting the competition. Yet when shopping for my wife's engagement ring a few years ago, I found a much better deal in person at EDB's Diamond Showroom than I did online at Blue Nile.

From everything I’ve heard, Blue Nile’s prices are extremely competitive. But it goes to show, not always. Live by the undercutting, die by the undercutting, I guess.

Posted by Rob Bates on October 26, 2007 | Comments (4)