When Bain Capital—along with Bow Street and Adama Partners—took Blue Nile private in 2017, it had grand plans of reviving the retailer.

“Blue Nile was trapped in a public box,” Bain managing director Ryan Cotton told Axios. “Now we get to make investments with a longer time horizon, get sourcing right, and experiment with some webrooms and other omnichannel efforts.”

All that was tried. Much of it worked. Yet, in the end, Bain’s stewardship of Blue Nile didn’t turn out quite like it hoped. On the plus side, it improved sourcing, recruited many smart and capable executives, expanded internationally, and built a substantial fleet of “highly productive” showrooms. And it remains—after two decades—America’s No. 1 jewelry e-tailer.

On the other hand, Bain and partners bought the site for $500 million, and sold it to Signet for $360 million. The sale occurred two months after it filed for a SPAC (special purpose acquisition company) merger that valued it at $873 million. If market conditions hadn’t changed, it might have pulled that off. But with investors souring on IPOs—and SPACs in particular—Signet’s all-cash deal was apparently too good to resist.

Private equity (PE) has a famously mixed record in retail, as well as in jewelry. PE firms have helped many businesses flourish; it’s in their interest to make them as successful as possible.

Yet, the PE firms’ interests are not always completely aligned with those of the companies they buy. PE buyouts are largely financed with debt, which shrinks the margin for error. The firms often charge large management fees. Most want to exit the investment in a specific time frame, whether the company is fully fixed or not.

Some at Blue Nile praised Bain executives’ smarts, patience, and willingness to learn. Sources say if the SPAC had been consummated, Bain would have continued to support the company. Yet some veterans found the changes jarring.

“Right after the purchase, they brought in a lot of consultants from McKinsey and Redscout,” says one former employee. “It became an environment where you didn’t feel trusted, you almost felt spied on. It caused a lot of good people to leave, and they were the people who made the brand.”

Bain’s purchase was driven by its “investment thesis”: If Blue Nile could improve its sourcing, that saved cash could be put toward marketing and brand awareness.

The change in sourcing meant not just relying on a core group on U.S. vendors, but buying direct from India, and taking a more active role in the process.

Traditionally, Blue Nile saw itself as a platform. Customers would order diamonds, which were then drop-shipped by wholesalers. Blue Nile’s value-add was its brand name and customer service.

Post-Bain, Blue Nile acted more like a traditional jeweler. It became more discerning in its purchases, and had a point of view on design and product. It set up a quality control center in India to cut down on returns. And it negotiated better pricing on mountings and wedding bands, which command higher margins than diamonds.

While the change in sourcing paid off, it’s not clear if the increased marketing did the same. The website received a face-lift, and it ran two TV commercials (one of which I liked). But neither seemed to move the needle.

Blue Nile always had a fuzzy brand identity—though not everyone considered that a problem. One former insider notes that its core customer was a young man who worked in engineering or finance who was less interested in fancy trimmings than getting a good deal.

“People didn’t go to Blue Nile for a branded experience. They wanted a big sparkly diamond, a sign of their success.

“For a lot of buyers, there was a video game element to it. They wanted to win. They would spend hours with the spreadsheets finding the best deal for a diamond.”

Blue Nile’s marketing has since become less price-focused. It now aims to be a “romantic lifestyle” brand that forges an emotional connection with consumers.

It has also placed more emphasis on its brick-and-mortar showrooms. Those numbers swelled from five to 21 during Bain’s tenure, though the pandemic delayed some planned openings. The compact showrooms—which have little to no live inventory—have been remodeled to attract more female buyers. Its prospectus said they consistently boost business in local areas, and envisioned an eventual fleet of 100.

Not everyone agreed with all the changes. From the beginning, Blue Nile targeted consumers who sought accessible luxury without the high price tag. But after Signet purchased James Allen in 2017, Blue Nile began viewing it as more of a threat. One source says it increased its selection of lower-priced product in an effort to compete. In this person’s view, the new offerings “cheapened” the brand. (Others dispute this.)

The site also faced headwinds beyond its control. In 2018, the U.S. Supreme Court ruled that online retailers could be forced to collect sales tax from consumers, gutting one of Blue Nile’s clear advantages over brick-and-mortar jewelers.

But Google was a bigger issue. Early on, search engines were Blue Nile’s best friend. When surfers input diamonds, Blue Nile was among the first sites that popped up. But as Google began devoting more of its search results to ads, Blue Nile suddenly had to pay for the traffic it once got for free. And that wasn’t cheap.

At the same time, Blue Nile, which for years had the jewelry e-tail field mostly to itself, began facing stronger competitors, including James Allen, Brilliant Earth, and aggregator Rare Carat. The COVID-19 pandemic led more local jewelers to sell online—which also hurt Blue Nile’s Google rankings, as its search results tend to favor local retailers. Not only was Blue Nile battling these businesses for market share, but they also raised its customer acquisition costs, since all these sites were fighting for the same small slab of online real estate.

In 2021, Apple capped the amount of data Facebook could glean from iPhone users. This particularly stung Blue Nile, since many of its customers made multiple visits prior to purchasing, and its target buyer was the iPhone demographic.

The company also saw a fair amount of turnover. During Bain’s five-year run, Blue Nile was headed by four CEOs—including one interim who served for seven months. It also had four chief financial officers (including one interim), three chief marketing officers, two chief operating officers, and two chief technical officers. Both the new and departing executives likely received large pay and exit packages, which didn’t help the bottom line.

While Blue Nile eked out consistent (if small) profits while public, it has spent the last few years in the red, according to its prospectus. Signet doesn’t expect it to be accretive for another year.

Blue Nile’s travails say something about our current business climate that goes beyond jewelry. Blue Nile became a decent-sized company in part by taking market share from smaller rivals. It was eventually acquired by one of the world’s largest PE firms (Bain), but got squeezed by the world’s largest ad platform (Google). It has since been bought by one of the world’s largest jewelers (Signet). Today, even “decent-sized” companies have a tough time making it on their own.

For all it’s been through, Blue Nile remains a viable company, one that has weathered numerous storms, from the 2008 financial crisis to COVID-19. There aren’t many dot-coms founded in 1999—the age of AOL and dial-up—that are still in business.

Bain may not have accomplished all it wanted to with Blue Nile. But it kept it alive, improved many things, and found it a new—and likely permanent—home. There’s something to be said for that.

Top: A Blue Nile showroom (photo courtesy of Blue Nile)

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