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Is Diamond Retailer Blue Nile Having Problems?
...and Diamond "Drop-Shipping", Limited Diamond Information, Higher Prices.
While it is true that Blue Nile (BN) has become the #1 Diamonds and Jewelery Internet website and has become a premier website for the sales of diamond engagement rings and jewelry, the fact is they are not as "untouchable" as they used to be.
When Mark Vadon, CEO of BN started his website some years ago, the concept of selling engagement rings on the Internet was an idea, not a reality. Blue Nile came in at a great time, with a unique and exciting twist on the age old form of selling engagement rings. They were offering engagement rings on the net at lower prices compared to Brick and Mortar Jewelers to guys and gals sick and tired of the "Maul" store experience with inferior merchandise, lack of knowledgeable and patient salespeople, and inaccurate information, all at inflated prices.
Sure, the story of how Vadon was himself disillusioned with this diamond shopping process while looking for his own engagement ring, adds a bit of romance to the Blue Nile story and today passes for the stuff that legends are made of.
However, the fact is, Vadon is a MBA with absolutely no experience or knowledge of diamonds who was able to get a hundreds of millions of Venture Capital money which facilitated Blue Nile becoming #1 on the Internet.
Blue Nile had the entire market share of engagement ring purchases on the Internet all to themselves for quite some time during these initial stages of diamond engagement rings selling on the Internet. Exclusive locked-in contracts with Diamond manufacturers assured them of a steady supply of ready to sell Inventory. Of course, today they continue to sell at a very strong rate, have a great reputation, and continue to thrive.
Aside from some fluff pieces here and there, like this recent article by Forbes, the fact is that Stock watchers are beginning to take note things might not be that "peachy" in Blue Nile country!!
For starters, it is well documented that Blue Nile's top brass over the past two years have been consistently selling their stock shares in the company without even so much as one purchase being made!
When Company Insiders engage in a mass selling of their stock shares over an extended period of time the question becomes Why? Why are they abandoning their stock? What do they really know that their Institutional Investors, Common Investors, and most importantly their Industry Suppliers don't know?
I have a few theories of my own. Today BN is no longer the only game in town as there are Internet diamond vendors who have sprung up in the past several years who offer more competitive prices and add significantly greater value to the purchase process, with the same dedication and attention to customer service.
In this recent blog entry, I pointed out the well known fact that Blue Nile and so many other companies on the Internet engage in the dangerous form of "Drop-Shipping", which is where they act as middlemen and never actually see the diamonds and jewelry they sell before it reaches the customer.
I explain why this is a very dangerous prospect when purchasing a loose diamond or diamond engagement ring sight unseen over the net.
Recently, Deidre Woollard, writing for popular Luxury Blog, Luxist, contributes her own perspective to this to well known fact regarding Blue Nile's method of diamond selling.
Today, there are a select few companies who insist on calling in each and every single loose diamond a customer is contemplating, prior to the sale, for a complete inspection and evaluation.
They will process a tremendous amount of data, information and actual photographs, using the latest available technology which quantifies and qualifies the beauty, brilliancy and cut precision of a loose diamond. They will then forward all of this crucial information to the consumer thereby empowering them to make an educated decision on the diamond of their choice.
Moreover, they will offer these diamonds to the consumer at lower prices compared to the diamonds being sold by Blue Nile via the drop-ship method.
We are noticing that in today's Internet marketplace consumers are becoming more and more savvy with respect to purchasing diamonds online. Certainly, with the proliferation of popular consumer diamond information forums, like Diamond.Info, DiamondTalk, and Pricescope, consumers are becoming educated on the various aspects of a diamonds cut quality, face up appearance, and becoming familiar with the tools and technology used to evaluate a diamond.
They will wind up spending less money while obtaining the crucial information and actual diamond data from the Internet Vendor who does provide this information.
An increasing number of Consumers realize that Blue Nile does not provide this type of information, never see the stones but drop-ships the diamonds they sell. No doubt Blue Nile should continue to remain a force on the Internet to those Consumers who do not know about (or require) this type of diamond data and information.
Stay tuned!
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Comments
Wow well said, everything you wrote is true and to the point.
Moshe
Posted by: diamondsonfifth on October 31, 2007 2:20 PM
Interesting read, well done. Is there something else besides education, price and extended choice that you can think of?
They seem to be doing a good job on quality, price and their site is well executed. I suspect not many are too concerned with the drop-ship method as you mention as long as they get what they want. Do you think the market is evolving into a more niche orientated game perhaps?
Thanks in advance,
Phil.
Posted by: Phil on November 12, 2007 7:54 PM
Phil,
Good question.
Yes, there is one other important factor I did not mention in this write up.
I interviewed several prominent diamond wholesalers here in N.Y.C. for the purposes of this article.
A few of them have existing contracts with Blue Nile and a few of them were approached by Blue Nile and actually turned them down.
The common theme echoed amongst these diamond manufacturers and suppliers is that Blue Nile "can make you and then break you".
One of the dealers compared Blue Nile to Wal-Mart with respect to their ability to financially boost a company and to quash it just as quickly.
When Blue Nile takes on a diamond wholesaler, there is an unspoken dynamic whereby Blue Nile takes charge over all of the variables in the relationship.
To quote one wholesaler; "they tell us when to jump and from how high up".
They have certain expectations in return for their business and will be very selective and specific with respect to the diamonds they sell, payment methods, shipping/returns etc.
They fully expect these companies to "march to their drum"...and many do, becuase it is a good account and they don't wish to risk losing it.
In addition, Blue Nile makes it prohibitively difficult (contractually and otherwise) for a supplier to offer the same merchandise through other diamond stores on the Internet.
Cross them one time or step out of the "line which they have constructed" and they will "drop you like a hot potato".
There are many additional nuances which I do not care to share or add here.
However, suffice to say, many companies were more than willing to march to the BN drum so long as they (BN) were the only game in town on the Internet.
However, in today's marketplace with the proliferation of the many reputable online diamond stores who now compete with BN for market share, these diamond wholesalers find that they now have a choice.
To be sure, Blue Nile still remains "the company to beat" on the Net. However (and as I have decribed above in detail), many of the Internet stores today offer better value and more information than Blue Nile for every diamond they sell.
In addition, more and more savvy consumers are begining to realize the limitations of the Blue Nile "drop-ship" method and appreciate the added value provided by many of these other online vendors.
Thus, more and more wholesalers are making the decision to offer their inventory through several of these online vendors instead of choosing the exclusive option with Blue Nile.
"They would rather throw their horses in with the vendors who provide added value, without being told at the same time how to run their own companies", rather than to deal exclusively with the Blue Nile demands, expectations and business model.
Indeed, these wholesalers are seeing a tremendous amount of success with this approach and wind up selling many diamoinds through many internet dealers. They also enjoy the satisfaction of knowing that they are in control of their own company and do not need to feel "hedged in" and "accountable" to the Blue Nile people.
This is also the reason that many wholesalers now find themselves in the new and unique position of saying "NO THANK YOU" to Blue Nile!
I believe that from the "business side" of the equation, these factors contribute to the insider stock (fire) sales on the part of the BN staff, as well as the overall change in market dynamics.
Regards,
Posted by: Judah Gutwein on November 19, 2007 4:48 PM
Thank you for the great article. As a consumer who's just started to consider making an online diamond purchase, I am very interested in your comment re:
"Today, there are a select few companies who insist on calling in each and every single loose diamond a customer is contemplating, prior to the sale, for a complete inspection and evaluation.
They will process a tremendous amount of data, information and actual photographs, using the latest available technology which quantifies and qualifies the beauty, brilliancy and cut precision of a loose diamond. They will then forward all of this crucial information to the consumer thereby empowering them to make an educated decision on the diamond of their choice.
Moreover, they will offer these diamonds to the consumer at lower prices compared to the diamonds being sold by Blue Nile via the drop-ship method. "
Would you be able to provide me with the names of these companies?
Many thanks!
Posted by: Jeanne on December 13, 2007 3:06 AM