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BlueNile Vs. "wholesale"


Your rats deserting a sinking ship analogy is correct. The real
problem is that, since the discoveries in South Africa, diamonds have
become a commodity. Simply stated, you and I know that sourcing a
colorless diamond under ten carats is not difficult. 150 plus million
gem carats per year that makes diamond a commodity and with Canada
coming on line production will increase… For years it was in the
cartel’s interest to keep a lid on distribution. You and I were its
distributors. The web has changed all that. Why should wholesalers
sell to retailers when they can reach the public directly. Fact is,
thats the new distribution model. The cartel doesn’t need us anymore
so by the rules of the market, the fittest will survive.

So why depend on diamonds? Color is the answer and has been for
twenty years. I just got back from Burma and I can tell you the
rubies and sapphires will never become a commodity because they are
rare. (read my Burma Journal ) And with rare things
the rules of the game change in a way that favors the hardworking
single minded buyer. Sun Tsu is relevent here. If the enemy is
bigger, evade!

No sense in arguing the point, the market has changed and Blue Nile
will prevail.


For Information and sample chapters from my new book:

        I barely glance at the papers, look at the stone and see
if I agree with the numbers, and then I study the make.  Without
exception I have found something off about a stone that's
underpriced. AND - it is almost never reflected in the cert,
because they are just shoveling stones through, and are also
preoccupied with color/clarity, as is the industry. 

And so, does anyone believe that GIA’s new cut grade system will have
an effect on this? It will be included on future GIA certs. Pro or
con, opinions desired. Thank you.

James in SoFl

Continue from:

Hello Richard and Kevin;

Interesting theories. I know about the Supplier of Choice program,
and everybody knows what the new economy is becoming. More and more
retail is being concentrated among fewer and fewer entities. So, if
De Beers is streamlining it’s distribution to funnel stones towards
it’s biggest customers, namely Wal Mart and the Internet, it would
make sense that the only leverage they’d have with these companies
would be the threat of them going directly to the consumer
themselves. I think GIA, in anticipation of this concentrated market,
sees the issue of cut grades as necessary. It’s the final step in
commodifying diamonds, and they will be the ones paid to provide the
credentials. And I’ve seen some of these certs on Blue Nile’s stones,
and they are mighty generous, in my opinion.

I think that the small retailers are not only being betrayed by De
Beers, they’re also being betrayed by GIA. It was the small retailer
who helped De Beers convince consumers that these tiny little rocks
should cost as much as new cars, and it was the small retailer who
convinced the public that GIA was THE standard in judging how well a
diamond stood up to the expectation that some schmuck should pony up
a couple months salary for one or he would forever seem a

But, there is one big problem to all this. De Beers, the more or
less perfect monopoly, has always tightly controlled supply. It is
inevitable that if they are to supply the quantities that Wal Mart
and the Internet are going to move, the market will have many times
more stones in the supply chain and the price will have to fall
accordingly. Has De Beers become senile? They can resist dropping
their prices to their distributors, but they can’t stipulate the
margins. What could happen is that as the retailers compete, they’ll
cut prices and have to move more product to keep their profits up. If
De Beers thinks they’ll have Wal Mart and Blue Nile dependant on them
in the way that the old site holders were, they’ll be comparing
apples to oranges. A few years down the road, the demand from the
distributors will naturally fall off. And these are diverse venues,
they’ll focus on other products. Even Blue Nile could, overnight,
move their focus to another product. Look at Books to CD’s
in a heartbeat. Check out the book, “The Fifth Discipline” and read
the chapter on “the Beer Game”.

David L. Huffman

Why does everybody beat up on Wal-Mart?

Errrgh…I was trying to resist jumping in here, but I can’t hold
out any longer. As David Barzilay pointed out, Wal-Mart destroys
small retailers (and the small-town culture that they promote)
whenever it moves into a town.

My husband and I often travel to North Dakota in the course of our
insect research, as well as just for fun. (It’s a beautiful place,
regardless of popular misconception.) We had for several years
running made it a point to stop at a little microbrew restaurant in
Dickinson, a relatively large town with a wonderfully old-fashioned
center of small businesses. No place in ND ever seems to be crowded,
but the restaurant was usually lively, and the food was great.

The last time we visited, the town center was deserted. Many of the
shops had closed and stood empty, their windows whitewashed from the
inside. The restaurant was still open for business, but no one was
eating there. The prices were higher, and the food was, well, pretty
bad. They couldn’t even afford to do their own brewing anymore.

What had happened? You guessed it - Wal-mart came to town. A sad
story, being repeated all over the nation.

Jessee Smith
Cincinnati, Ohio

Why does everybody beat up on Wal-Mart? 
    Errrgh...I was trying to resist jumping in here, but I can't
hold out any longer.   As David Barzilay pointed out, Wal-Mart
destroys small retailers (and the small-town culture that they
promote) whenever it moves into a town. 

Thanks, Jessee, for jumping in so I wouldn’t have to! Out here in
the Southwest we’re so rapidly losing our touch with the connections
between people, food, land, commerce and COMMUNITY that it makes my
head spin. Once we lose that, there is no place for things like ART
or CRAFT on a meaningful, community-based level because craftspeople
won’t be able to afford to do it. Nothing will ever convince me that
a large-scale globally driven marketplace is good for anyone but the
CEOs and their lawyers.

   Why does everybody beat up on Wal-Mart? 

As a watchmaker, as well as a bench jeweler, Walmart has created
alot of business for my shop. Walmart came to my city about 12 years
ago, and since then they have damaged literally thousands of watches
during attempted watch battery changes. Hardly a day goes by,
without 1-3 people /day walking into my store with a watch in pieces
in a plastic bag, or the crystal broken, or a tight back off of a
watch, and the customer says they have been to Walmart for a
battery, and this is what they ended up with. Often times, Walmart
sends them to me, and reimburses them for the repair costs, but
usually most of them pay their own. My initial reaction to this
years ago was to attempt to persuade people to understand how bad
Walmart is for America, but I soon realized that I was making no
headway in this mission. Instead, I changed my tactic, using this
opportunity of a new customer in our shop, to razzle dazzle them
with how it feels to get full service from a bonafide professional
who really cares, rather than a minimum wage clerk. The biggest
attack I ever use against Walmart( or any of the big retailers), is
asking the next watch tragedy victim if they would let their kid
sister or brother put a battery in their watch, because thats who
they get at Walmart. While remedying their watch problem, either my
wife or myself take the time to establish a friendly relationship
with them, and before they leave we ALWAYS make sure that we show
them some jewelry piece that I have made- anywhere from a simple
solitaire diamond pendant to my solid 18k gold Monopoly set. We
seldom make any concerted attempt to sell them an item on the spot,
but instead make sure that they are aware that I handmade the item.
And most important of all, we make certain that their visit to our
store became something special, more than just getting a damaged
watch repaired. More special than another trip to their local
Walmart Chinese Labor Union shop. How we handle Walmart, has made
them my best advertising tool. I don’t badmouth them to the public,
and they keep sending customers to my door. I havent spent a single
dime on advertising in 10 years, and we have been literally buried
in business ever since. In addition to the damaged watch customers ,
Walmart continues to sell crap grade “fine” jewelry that needs
plenty of repair work, which creates my next opportunity. When
people receive jewelry as a gift, their emotional/sentimental
connection to the item is seldom swayed by who sold the item, and
they will gladly pay to repair, restore, remount in an attempt to
save the emotional value. So don’t let Wally World, Blue Nile, or
any other supposed discounter intimidate you, simply capitalize on
their negatives.

Ed in Kokomo

   Errrgh...I was trying to resist jumping in here, but I can't
hold out any longer.   As David Barzilay pointed out, Wal-Mart
destroys small retailers (and the small-town culture that they
promote) whenever it moves into a town. 

Taos, New Mexico is also an example. When Walmart moved in 10+ years
ago, there were over 400 small businesses in town. Today, there are
roughly two hundred. Yet Walmart boasts of actually BRINGING jobs
into small towns. They employ people, sure, at near minimum wage,
and in the process displace far more independent businesses which
were likely providing an actual living to their proprietors and

In addition-

Walmart is notorious for using the “we bring revenue” and “we bring
jobs” arguments to con city councils into giving them 20 year tax
abatements. Those uncollected taxes are taxes that don’t repair
roads, build schools, pay firemen, etc.

Of each dollar spent at a Walmart, roughly ten cents stays in the
community, the rest goes elsewhere. Of each dollar spent at a local,
independent business, an average of roughly fifty cents stays in the
community, where it will be spent again, and taxed, and will keep
the community going.

Pay for workers abroad- much of what Walmart sells is made in China.
Minimum wage in China is 31 cents per hour, and many of Walmart’s
suppliers actually pay less.

Human rights abroad- Much of what Walmart sells is produced in
third-world sweatshops, under unsafe conditions, with unpaid
overtime, child labor, etc.

Pay for workers in the US- Walmart pays little, and offers virtually
nothing for benefits to its hourly employees. Although there is a
health plan, employees must wait two years to be eligible, and then
pay more into it than they can afford. To compensate, Walmart had
(they may have discontinued after it hit the media) a program
whereby they provided assistance to their employees with accessing
food stamps and Medicaid, so your tax dollars subsidize their
atrocious employment practices.

Child labor in the US- Walmart has been cited in at least three
states for violating child labor laws. Serious violations, as in one
example where an underage employee was injured while operating a
chainsaw. Interestingly enough, The US Dept of labor fined Walmart
$135,000 the amount of money they bring in every 18 seconds, and in
addition agreed that in the future they would give Walmart 15 days
advance notice before investigating any wage and hour violations.

Environment- Walmart has been fined numerous times for gross
violations of environmental regulations.

I am sure I have unintentionally omitted at least some major issue.
Go here-

for a more detailed picture.

Lee Einer
Dos Manos Jewelry

A couple of comments on business practices. Big, big business is
now a way of life. I watched an interview (discussion) on PBS with
the man who’s the head of Harvard’s MBA program. He wasn’t talking
about our sort of business, by that I mean smallish. He said in
business there are two things “price point or differentiation”.

There have numerous comments on Orchid about copyrights etc, and
people saying “you should sue”. If we are “artists” we’re
supposedly the avant garde. We’re supposed to be ahead of the crowd
not looking back to protect our “arses”. Where does this lawyer
stuff fit in. And some of these people are talking price point.

We can not beat foreign competition on price point or for that
matter competition from larger enterprizes in the US. What we must
do to survive is to differientiate ourselves; by our imaginative
designs, our innovative technique, and perhaps by seeing things
differently than others and perhaps by more attentive, personal

I lived in the San Francisco area for a couple of decades and
watched the “boutiqization” of Mill Valley. When I moved there MV
had a shoe store, a real hardware store, a family owned stationery
store, etc. No more, some of the store owners sold out because they
got offers they couldn’t refuse. They went for the big bucks.

I decided I would do what I could to support my local business
people. I would buy my office supplies downtown. The owner had a
cash register that printed out blank receipts. I mentioned to him
that I needed receipts for my tax records. He gave me a look. I
continued to shop there in spite of that encounter hoping that
eventually he would fix the register. He didn’t. I stopped
shopping there.

I won’t go into his mental state; but this was a very simple thing,
perhaps as simple as changing the tape. And this was a person who
bemoaned the changes in the business community.

Perhaps if small businesses responded to the Wal-Martization by
providing service they could survive.

The complement to the stationery store story is a hardware store in
Santa Fe called “Big Joe’s”. Big Joe’s was in business when I first
lived in Santa Fe. They are still here. If you walk into Big
Joe’s at the very least one person will approach you and ask if they
can help.

And they can, the people are knowledgeable and helpful. I haven’t
seen that at Home Depot or Wal-Mart. Big Joe’s has differentiated
themselves and I’m willing to pay a little more at Big Joe’s. And
"Big Joe’s Has survived in the face of Wal-Mart and Home Depot.

As for corporate greed Wal-Mart can go to a supplier and say we will
buy from you if you give us your product at such and such price.
The supplier agrees. putting all his eggs in one basket, and goes
for it. This supplier does have alternatives.

Wal-Mart does not pocket obscene amounts of money via this method.
They pass the savings on to their customers. Wal-Mart operates at a
2% profit margin. These basic facts ( profit margins) I recall from
"Frontline" on PBS.

There seems to be a lot of nostaglia for a smaller more intimate
America and comments made on the basis of this half remembered past.

 We can  not beat foreign competition on price point or for that
matter competition from larger enterprizes in the US.  What we 
must do to survive is to differientiate ourselves;  by  our
imaginative designs, our innovative technique, and  perhaps by
seeing things differently than others and perhaps  by more
attentive, personal service.  

I find this response by Kevin Kelly ironic because, as I originally
said when he accused of me of attacking Wal-Mart: “The basic gist
of it [an article I had read] was to not fight the 800 pound
gorilla (Wal-Mart). The key to success is to carve one’s own niche
out - - diamonds are now officially in the territory of the 800
pound Internet gorilla.”

To what degree and in what manner we choose to carve out our own
niche is up to the individual. Blue Nile’s pricing indicates that
diamond mark-ups will not be part of the niche. On another topic,
there was an article about Yurman where he relates that he was
given advice by (I believe) the editor of Vogue to make his pieces
with better stones. Hence, his new trend - - so even when one has
an established niche, it always deserves on-going evaluation.

On a side note, I was pleased to read how well Ed in Kokomo is doing
and how balanced his perspective was.

Hi again, Kevin,

Having criticized you for your comments about calling oneself an
artist, I am pleased to find myself in a position to sincerely thank
you for your comments about the economy and Wal-mart. You did a good
job (IMO) of touching on the complexity of the situation. It is far
easier to vilify Walmart than to try to understand the patterns that
they are part of. (Not claiming that I do!)


   And they can, the people are knowledgeable and helpful. I
haven't seen that at Home Depot or Wal-Mart.  Big Joe's has
differentiated themselves and I'm willing to pay a little more at
Big Joe's. And "Big Joe's Has survived in the face of Wal-Mart and
Home Depot. 

I live in a small city in southern Colorado. The population of the
entire county is less than 40,000. I was on the City COuncil from
1991 through 1999 and went through the process of trying to preserve
and protect the downtown area. We had a “regular” Wal-Mart until
the late 1990’s at which time the company built a Super Wal-Mart -
there was much opposition to it but there was no legal way the City
COiuncil could have prevented it. The store was built and the
downtown businesses have been diein off ever sinc.

At about hte time the store was built here, I attended a number of
meetings of an organization of 21 countines from souther Colorada -
this covered a very large area. During one of the meetings, the
representatives from each of the twons and cities were asked to give
a report on what was happening in their communities. At least 90%
got up and opened with “Wal-Mart is building a Super Wal-Mart”.

Wal-Mart is not the only company that targets the small communities.
In hte last year, Home Depot purchaed land less than 1/4 mile from
the best ACE hardware store in the area and is building a Home Depot
center. I am sure this will kill the Ace store ( and probably the
other hardware store in town. We had a True-Value until the
announcement of the Home Depot project - it just completed closing
down (It will become Walgreens- which will probably hurt the small
Drug Store down the street). It is a never ending cycle.

Glenn Vaughn

    Home Depot purchaed land less than 1/4 mile from the best ACE
hardware store in the area and is building a Home Depot center. 

I think the idea of ‘super sizing’ is hitting many areas of the
retail business community.

Just recently, the Ace in our neighborhood entered a 'super sizing’
operation. The shelves went from about 6 ft high to 8 ft. The
selection of different types of items increased, but the selection
range within a given item decreased. Stuff that used to be stocked is
no longer stocked. The quality of the staff has decreased as well.
The new staff can’t even tell you where the merchandise is located,
let alone suggest alternatives.

My trips to the hardware store have gone from weekly to less than
monthly. However my orders to an out of state supplier has increased
correspondingly. It won’t be long & customer service will be know as
’customer disservice’.


On the subject of the big chains putting the little guys out of
business…I am beginning to see signs of a revival of smaller
shops here and there: the hardware store that sells screws or nails
by piece or weight rather than by the carton (who needs 500 tenpenny
nails when a dozen or so will do?)…or the small deli-grocery that
you can run into for a carton of milk without having to walk miles
through a supermarket to get to the milk section and wait a year on
the checkout line…and the compounding pharmacy that can
actually mix special prescriptions that you can’t get in these big
drugstores…I hate the big office supply stores where you have to
buy paper clips by the thousand and paper by the ream. The
impersonality and the indifference of the salespeople to their
merchandise and their customers is really depressing. I eagerly
await the return of the neighborhood store where they know their
merchandise and they know their customers and they provide good


As a watchmaker, as well as a bench jeweler, Walmart has created
alot of business for my shop. 

I must echo what Ed wrote. I also have received lots of work because
of Wal-Mart. Even though my store is 7 miles (out in the country)
from Wal-Mart, I continually get customers who are sent by Wal-Mart
for jewelry repairs and watch batteries. I periodically give the
Wal-Mart jewelry department a stack of my cards and they are only too
happy to be able to send their customers to someone they know will do
a quality job. I always ask watch battery customers (all of them,
not just those from Wal-Mart) if they would like to wait while I
change the batteries. Most do, and while they are waiting they not
only get a chance to see my store and buy a few things, but they get
to see quality, professional work being done on their own beloved
possession. I clean every watch back before opening it; use the
appropriate tools to open the case; remove and test the old battery;
test the new battery; clean and lubricate, or replace and lubricate
the back gasket; properly close the case (with a case press if
necessary); clean and polish the entire watch and band; and set the
correct time (and day/date if present). The customer can watch this
because I do watch repairs at a table right in the showroom.
Naturally, I do jewelry repair in a separate studio, but my
customers can see my dedication and professionalism as I work on
watches. They can extend that to realizing that I must be just as
dedicated and professional in the jewelry repair process which they
do not see.

Now, with all that said, I must agree with the majority of
responders on this forum: Wal-Mart spells death for the local
community. I happen to be fortunate in that I offer services that
Wal-Mart can’t. That is good for me, but the overall impact of big
boxes is catastrophic. As I have mentioned before, I operate a
Christian general store–selling almost everything but groceries and
gasoline–and Wal-Mart cuts deeply into my sales of books, Bibles,
music, gifts, etc. I have sadly witnessed the demise of many small
businesses in our community. Although our community in the
demographic sense is growing, our community in togetherness sense is

Del Pearson of Designs of Eagle Creek in Beautiful South Texas,
where the countryside is still covered with wildflowers in spite of
the big boxes.

Hi All;

Well, I did manage to beat Blue Nile out on the 1.25 carat diamond
sale I was posting about. Here’s the story, as it might be
informative for some on how to compete with situations like this.

First, the customer got a book on diamond buying and learned just
enough about diamonds to be dangerous. My usual sources couldn’t
come up with anything for me along the lines of what he wanted, which
was VS1, E color. In 1.25-1.3 carat range and above, this kind of
clarity and color gets picked off pretty early, so there’s not a lot
on the market and what’s there isn’t going cheap. I found I could
match BN’s price, but after collecting 8.25% sales tax, I’d be
turning a $10,000 stone for around $200 profit. I guess it’s money,
right? But it’s insulting. Meanwhile, he gets a GIA certed stone
from Blue Nile, sends it to me for review, since I’m still going to
make the platinum mounting, which will pay me for my time. BN sells
him a VS1, F color, Ideal Cut, for $10,255. When I see it, in my
opinion it’s a VS2, G color. And in that carat size, the ideal cut
looks a little lumpy. This cert is very generous to Blue Nile’s
diamond, and I’m beginning to lose respect for GIA. Fortunately,
Nile has a returen policy, so there’s a chance I can do better.

I go deep into the “favor bank” with my connections and come up with
a 1.27 carat, VS2, E color, but it’s a very stringent VS2-E, and if
that BN stone is a VS1, then this one should be, since it’s cleaner,
and at E color, it’s noticeably whiter even to the untrained eye.
Problem is, the pedigree isn’t really as good. It’s got a 60% table
and medium blue florescence. Problem? Not in reality. 60% table is
better looking, in my opinion, in a larger stone, and the
fluorescence, believe it or not, is so slight it actually flatters
the stone somewhat even in strong daylight. Under a black light, I’m
having to point out to my guys which one’s fluorescing. But here’s
the plain fact of it all. The stone I have is cleaner, prettier,
whiter, all around better looking, but going by the cert alone, it’s
not as good. But I can sell it for $1,000 less than Blue Nile and
still put $1,000 in my pocket, and more money later for the mounting.
But I can only accomplish this because he’s now gone back home to
Indiana and I don’t have to collect that taxes. But now I’m selling
a diamond long distance. I have carefully built this customer’s
trust in me, and he should trust me too, because now I’m working hard
for him. This guy has an MBA from Perdue, so he’s the epitome of the
savvy shopper. He’s caught between some idea of an "investment"
value for the stone while needing to make sure his fianc=E9e has
something really beautiful (I know, some of you don’t think diamonds
are beautiful). I have to show him that, while I respect his
research and desire his input in this buying experience, I want to
bring him my experience with the overall aesthetics of diamonds.
He’s going to really wow his fianc=E9e with this diamond, I’m happy, m=
supplier is happy. And I know I’ve done right by my customer.
Luckily, he’s in another state, so there’s no sales tax, or I’d only
make half as much and he’d only get a slightly better deal.

Moral of the story; there are certs and there are certs, and while
they’re becoming more important to the online shopper they should be
more irrelevant to those of us who sell diamonds. Do you folks see
why GIA is now all for it’s “cut grade” whereas a while back they
were being much more honest about the fact that it’s more a marketing
tool? But then, the other “criteria” are just marketing tools too,
aren’t they? One doesn’t see the absurdity of this system until one
looks at other colored stones and considers the relevance of such
ideas. I don’t really need a cert to sell a stone, but I think only
an idiot would buy anything significant online without one, and even
then, they better know what they’re looking at, cut grade or
otherwise. I remember scoffing at some guy who was running workshops
on “Romancing the Stone” but that’s about what it is. Still, I think
most retailers are going to lose on this. Before I succumb to
another rant, I’ve just got one thing to say . . . If you make your
"art" a “commodity” whether it’s diamond cutting or PMC creations,
you are going to get run over eventually. That’s the nature of
capitalism. If the product is uniform, then the guy who’s able to
concentrate capital comes out the winner because he can buy more, buy
cheaper, whether it’s materials or labor, and he can sell for less
by selling more. Meanwhile, I think we all need to ponder this
concept of “trust”. You don’t want to play on the customer’s
distrust and fears, but you want to use that energy to keep them
interested in becoming a truly educated consumer and to get them
involved in the buying experience. Of course, it won’t work if
integrity isn’t in the formula.

David L. Huffman

 I think we all need to ponder this concept of "trust".  You don't
want to play on the customer's distrust and fears, but you want to
use that energy to keep them interested in becoming a truly
educated consumer and to get them involved in the buying
experience.  Of course, it won't work if integrity isn't in the


“Trust” is an extremely important factor in our business. Last year
a long time client called and asked me to find him a 3 carat oval, D

  • SI1 with a GIA cert. This was in March or early April. A diamond
    with this combination of properties is pretty rare, at least in my
    searches. Fortunately, this client had total “trust” in me and stuck
    with me for the seven months that it took to locate a stone. It
    takes years to build this kind of trust but it is worth the
    investment in time and energy. I think that often people are not
    willing to take the time to build this trust.


Joel Schwalb Studio


Ugh, Fluorescence is a bad thing? I have a 1.00ct princess cut with
’faint’ fluorescence. Oh well, it still has better sparkle & life
than a lot of the ‘better’ ones we were shown of the same size.

Dawn in metro Austin, Texas