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Blue Nile: A Guy's Best Friend


Diamond-buying made less daunting

When Web entrepreneur Jason Calacanis was ready to pop the question to his girlfriend, he turned to his computer. Blue Nile (NILE), the leading diamond jewelry marketer on the Net, helped him bone up on such factors as color, cut, clarity, and carat—the famous Four Cs. Turned off by high-pressure salespeople, he snapped up a three-carat diamond online, spending "tens of thousands of dollars" for it. Recalls Calacanis: "It was the best retail experience I never had."

Calacanis, of course, is used to living life on the Web. He co-founded one of the first blog businesses, Weblogs, which he sold to America Online (TWX)in 2005, and he's now running the Mahalo.com search engine. But Blue Nile's user-friendly site that demystifies diamonds has lured plenty of far less tech-savvy shoppers.

The outfit has racked up big gains. Last year, Blue Nile, which now offers more than 60,000 diamonds on its site, logged a 34% increase in net income, to $17.5 million, while driving up sales 27%, to $319.3 million. Founded in 1999, the Seattle-based company came into its own during the dot-com boom, but managed to sidestep the bust that claimed so many Web fledglings.

Blue Nile capitalizes a man's common fear that jewelry stores will exploit his ignorance. Prospective customers can start by learning about diamonds on the site. Confident buyers can order online; nervous buyers can dial a toll-free number to reach Seattle-based sales reps, who will guide them through a purchase, no matter how big or small. Because the telephone reps don't draw commissions, Blue Nile executives contend, they lack incentive to pressure customers. And, with times tougher, brides may object less to the unromantic idea that their rings were unearthed on the Net.

Blue Nile also deploys its technology to work closely with suppliers. It shares detailed sales data that help cutters serve up the most popular kinds of stones. The company's analytical tools let suppliers slice and assess sales data and pricing information. "What they brought to the table was absolute transparency," says a supplier, who asked for anonymity because he sells gems via Blue Nile at a fraction of what he charges traditional retailers. The supplier's margins are lower, but he is able to turn his inventory two or three times faster through Blue Nile.

With the domestic economy in the doldrums and lovestruck buyers snapping up fewer, or less pricey diamonds, conventional rivals are feeling the pinch. Warns Mark Vadon, Blue Nile's executive chairman and co-founder, "Our industry is going to get pretty rocked."

But that could drive customer traffic to Blue Nile, whose executives figure it will outpace the pack with low expenses and a narrow focus on diamond jewelry. They avoid hawking other luxury items. "I want to be the best in the world at one thing. I don't want to be half-assed at a lot of things," Vadon says.

The company has told investors that this year's sales should increase about 10%, an outlook analysts support. Should men begin to pinch pennies in a downturn, the value of a site like Blue Nile, which allows for easy comparison shopping, goes up, contends Chief Executive Officer Diane Irvine. "This business is all about taking market share," she says. "We look at this type of environment as one of opportunity."

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Greene is BusinessWeek's Seattle bureau chief.

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