Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Best E-Commerce Stock for 2007: Blue Nile

The best e-commerce stock for 2007 found life because shortsighted salespeople turned up their noses at Mark Vadon when he showed up dressed in shorts and sandals while shopping for an engagement ring. What these sales folks could not have known was that Vadon, then a Stanford MBA and management consultant at Bain & Company, would use the brush-off as his catalyst to develop online diamond purveyor Blue Nile (Nasdaq: NILE  ) , of which he's the CEO.

Truly disruptive business
Selling engagement rings online would seem a venture doomed to failure. After all, customers (OK, men) have been trained that shopping for the perfect engagement ring is a careful, drawn-out, managed process involving much comparison and consideration. Then again, from what I hear -- my wife told me soon after we met that she never wanted an engagement ring, and I, of course, snapped her up as quickly as possible -- the process is a painful and expensive one, too. What Blue Nile has done is to bring care, comparability, and education in selecting the perfect diamond to their online experience. Moreover, though it's an online venture, the company has considerable help waiting just a mouse click or phone call away. What Blue Nile has done is turn diamond buying into a truly customer-directed experience -- and with lower prices. In retrospect, how couldn't this company have thrived versus the so-called Main Street jeweler? Today, Blue Nile trails only Tiffany (NYSE: TIF  ) and Zale (NYSE: ZLC  ) as buyers of wholesale diamonds.

There's a lot to like about Blue Nile. The company is incredibly capital-light. It operates no stores. It's negotiated long-term supply relationships with its vendors such that it gets favorable pricing. It gets paid up front and then takes one to two months to pay its suppliers, so that it has a negative working-capital cycle. The asset-light, low-working-capital business model allows for aggressive diamond pricing, which can be a formidable and enduring competitive advantage. Blue Nile sells its diamonds at roughly 20% above cost; its bricks and mortar counterparts simply cannot match those margins. Low cost wins. Sorry, ladies -- this applies even to engagement rings. Think of it as getting more bang for your fellow's buck.

Dazzling the customer
Management relentlessly focuses on the customer, in seeking to create the "perfect order." That focus is creating results. Website traffic increased in the most recent reported quarter (Q3 2006), as did the conversion rate of that traffic. Total orders increased 19.4% year over year, and the average order price was $1,884, versus $1,773 last year. The online experience includes a search engine sifting through more than 50,000 stones, as well as an on-time order delivery rate of 99.96%

Last September, at the ThinkEquity Growth Conference in San Francisco, Vadon laid out the difference between the Blue Nile experience and that of the traditional diamond sellers:

Traditional Retail

Blue Nile

Significant Cost

Superior Value

Price Uncertainty

Price Transparency

Lack of Objective Comparison Certifications


Limited Selection

Broad Selection and Customization

High-Pressure Sales

Non-Commissioned Sales

Limited Control


I cannot help thinking that the unyielding single-mindedness on the customer experience stems from Vadon's own encounter back in 1999. I wonder whether those unthinking salespeople knew what change they were unleashing on their industry!

The Foolish bottom line
I think Blue Nile qualifies as your best e-commerce stock for 2007, but let us know what you think in CAPS, our Motley Fool community-intelligence database. Rate Blue Nile as an outperform, or, if you disagree, rate it as an underperform. Make your voice heard. Based on your responses, we'll declare 2007's best e-commerce stock next week.

See all our Foolish candidates for 2007's best e-commerce stock, then add your own ratings in Motley Fool CAPS.

Blue Nile is a recommendation in two Foolish newsletter services -- Motley Fool Hidden Gems and Motley Fool Rule Breakers. Check out either service free for 30 days.

Fool contributor Jim Gillies owns no shares of any company mentioned. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 520544, ~/Articles/ArticleHandler.aspx, 10/27/2016 7:02:21 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:00 PM
NILE $34.42 Down -0.50 -1.43%
Blue Nile CAPS Rating: **
TIF $72.83 Down -0.72 -0.98%
Tiffany and Co. CAPS Rating: **
ZLC.DL $0.00 Down +0.00 +0.00%
Zale Corp CAPS Rating: *