What can $324,000 buy you?
How about 672 shares of Google
If you had used that money to buy into Google or Berkshire Hathaway a few years ago, you'd currently be sitting on $874,800 if you'd bought Google or $411,480 for Berkshire.
And you might have been able to get even more for your money. No, not by investing in a different stock. $324,000 could also have bought you a lifetime of love.
A lot for love
Or at least, Blue Nile
I believe that was a seven-carat engagement ring of absolutely incredible quality and it is one of the things I am really excited about in the business. Increasingly, the ultra-high-end kind of price point is $50,000+. Increasingly for us, that is a very active part of the business. Back in Q2, I believe we announced we had seven transactions in the quarter above $100,000, and over time, as the business has established more of a brand name out there, that part of the market for us is very, very active.
We have always had products in that type of price range, and it used to be unusual for us to see a six-figure purchase. Now those are becoming pretty common around here.
So just what does Blue Nile make its money on? Does it sell those bling-bling diamonds to make its profit, or is that from selling a higher volume of lower price points? Here's what Mr. Vadon said on that:
You know, what we typically do as our price points rise, we drop our percentage gross margin. So if you look at a purchase at, say, $100,000 price point, we are only making 8% or 9% gross margin on something like that. We are being as aggressive as possible to make the sale, so we will make more selling $100,000 of small rings as opposed to a single $100,000 ring, but we are really excited to have those types of sales.
We are obviously looking at the dollars of profit we are making on the transaction, and we just love that people walk around with a Blue Nile ring that is that extraordinary and [tell] people where they bought it.
Round and round we go
We're all aware of the cyclical nature of retail companies. But what you might not have realized is just how much some retailers depend on the holidays. For e-commerce companies like Amazon
But for luxury e-commerce companies, it could be even higher. Red Envelope
Mr. Vadon explained that for Blue Nile, the holiday quarter is "by far our biggest quarter. Q4 represents roughly 35%-40% of our revenue for the year, and a lot of it comes in three weeks in December. We will have a single week in December that should represent close to 8%, 9% of our revenue for the year."
That's a pretty large dependence on the holiday season. But historically, Blue Nile's holiday quarter has come through, growing by double digits over the previous year's quarter.
A costly proposal
Obviously, not everyone is buying those $300,000 rings. But what are people buying?
Mr. Vadon explained that the average order for Blue Nile is close to $1,300 or $1,400. But for the company's line of engagement products, it's much higher -- coming close to $6,000 per order.
When Mac asked about how the $6,000 compares to bricks-and-mortar stores where people buy engagement rings, Mr. Vadon gave this surprising answer:
It is more than double the national average, so if you look at who our customers are, we are really focused on the higher end of the market. We are going after Tiffany
(NYSE:TIF)-type customers, much more so than customers who would be shopping in, say, a mall store. On that same transaction, though, those customers are saving probably 30% or 40% from what they would pay in the store, so our average ring is probably going to cost you close to $9,000 in a typical store while it will cost you $5,800 or so from us.
So Blue Nile is doing several things right: It's selling rings that are satisfying consumers, it's even selling very high-end products online (something many skeptics said would never happen), and it's doing both of these better and more profitably than many traditional retailers.
These excellent characteristics of the company are what led both Tom and David Gardner to recommend Blue Nile in two different Motley Fool newsletters -- Motley Fool Hidden Gems and Motley Fool Rule Breakers. The company has contributed to the market-beating returns of both newsletters. If you're interested in learning more about the suite of Motley Fool newsletter services, take a free 30-day trial of any of them today. You can read more on Blue Nile and its competitors, while gaining access to every single buy report.
Blue Nile is a Motley Fool Hidden Gems recommendation and a Motley Fool Rule Breakers recommendation. eBay and Amazon are Motley Fool Stock Advisor picks, while Berkshire Hathaway is an Inside Value selection.
Radio Fool Mac Greer conducted the interview with Blue Nile CEO Mark Vadon. He owns shares of eBay but of no other company mentioned above.