Internet company Blue Nile
According to an article in The New York Times, the Independent Jewelers Organization, which comprises 800 small jewelers, is launching a website called IJODiamonds.com to actively discourage customers from buying diamonds online. ("Never consider buying a diamond without seeing it first," the site warns.) IJODiamonds.com allows customers to pick out diamonds for delivery to a local store, encouraging customers to look at the stones before opening up their wallets.
The Times article points out that online jewelers like Blue Nile have snagged about 4% of offline merchants' business. Blue Nile has helped to legitimize the idea that people are willing to buy diamonds sight unseen over the Internet. The increasing market for jewelry online has also led other Internet companies like Amazon.com
Of course, anyone who pays a lot of attention to Blue Nile probably knows that the independent jewelers are among its biggest competitors. In fact, in David Gardner's most recent interview with Blue Nile head Mark Vadon, Vadon said that Blue Nile's biggest competition comes from "all the little local jewelers around the country" -- 29,000 of them, in fact. (Here's a clip from the interview; the discussion is available in full with a 30-day free trial to Motley Fool Rule Breakers.) Vadon also said that he believes they will continue to be Blue Nile's biggest competition for "years to come."
IJODiamonds.com shows the independents are concerned and responding, but it's hard to take this move seriously. The Times article points out one of the new site's biggest flaws: 800 small jewelers hardly represent a critical mass of locations where would-be customers could see the stones.
"When people go into a store," Blue Nile's chief financial officer is quoted as saying in the Times article, "they feel intimidated because they don't feel knowledgeable about the product." Blue Nile has excelled by offering much more than convenience. It carved out competitive advantage not only by pushing quality products, but also encouraging education. A well-informed decision, without fear of the hard sell one might get in a jewelry store, is obviously a winning combination for men or couples making the major purchase that is an engagement ring.
It's understandable that small, bricks-and-mortar jewelers feel the need to do something about online threats, but it seems to me that they're still looking at the issue through yesterday's eyes, ignoring the elements that have made Blue Nile a rapid success story to begin with. Blue Nile has nothing to fear from these guys quite yet.
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Alyce Lomax does not own shares of any of the companies mentioned.