From the New York TImes today.
E-COMMERCE REPORT
New Jewelry Web Site Sends People to Real Store
By BOB TEDESCHI
Published: June 5, 2006
ONLINE jewelers have built a $4 billion business on the idea that
customers don’t really need to see a precious stone before paying
thousands of dollars to own it. Traditional jewelers want to build an
online business too, but with a slight twist. Their motto: Don’t buy
online.
Last week, the Independent Jewelers Organization, a trade group
representing more than 800 small jewelers, introduced
IJODiamonds.com, where consumers can select diamonds and have them
delivered to a local store for a personal inspection before any money
changes hands.
The Independent Jewelers say the initiative is aimed squarely at
BlueNile.com and other online-only diamond dealers that have taken a
significant chunk E280" about 4 percent E280" of their sales in
recent years. Analysts said the new initiative faced an uphill
battle, but that it at least gave small, independent jewelers a
chance to compete against vastly bigger online companies.
“This is about protecting their business, and survival,” said Lauren
Freedman, president of the E-Tailing Group, a Chicago-based
consultancy. “These businesses have been very challenged by the Web,
and this gives them a way to leverage the Web in a way they couldn’t
do on their own.”
IJODiamonds.com sells mostly loose diamonds, which are difficult to
sell for a high profit because the stones are considered a
commodity.
But to cover their larger fixed costs, traditional stores typically
mark up the price of loose diamonds more than online retailers do.
IJODiamonds.com helps local merchants compete more effectively on
price by offering consumers a selection of diamonds not from that
local store, but directly from hundreds of diamond wholesalers. The
wholesalers list the diamonds on the site, and when a customer
selects one, the stone is shipped to a local store so the customer
can examine it before taking it home. If the customer likes it, the
store shares an undisclosed portion of the selling price with the
wholesaler. If not, the customer pays nothing and the stone goes back
to the wholesaler.
The jewelers will not say how much less profit they might make from
the sale of a diamond through IJODiamonds.com than from the sale of
a stone from the store’s own inventory, but the fact that the sale is
completed in person gives them an opportunity to make more money from
the customer in other ways.
For instance, last month, when IJODiamonds.com was testing its site,
Sami Saatchi, the owner of SVS Fine Jewelry in Oceanside, N.Y.,
helped complete the sale of a $9,000, 1.5-carat diamond bought
through the site. Mr. Saatchi said the customer actually ordered
three stones to review.
“We did a custom setting for him, and it was ready to go in a couple
of days,” Mr. Saatchi said. “Altogether, he spent about $11,000, and
that sale would’ve never come had it not been for the site.”
While IJODiamonds.com will ship directly to consumers, it
discourages the practice. The site’s home page advises customers:
“Never consider buying a diamond without seeing it first.”
According to Mary Moses Kinney, who oversees the IJODiamonds.com Web
site for the Independent Jewelers, the numeric classifications that
determine a diamond’s quality and value are reliable, “but there are
idiosyncrasies to the crystal that make the stone respond visually
in a different way than the numbers might suggest.”
Executives at Diamond.com, which the online jeweler Ice.com bought
last month for $9.5 million, do not necessarily disagree. But when a
stone has a flaw that might upset a customer, they say, they either
withdraw that stone from their inventory or tell the customer about
it before the sale is complete.
“You just filter out the things you don’t want to sell,” said Mayer
Gniwisch, Diamond.com’s president.
Diane Irvine, BlueNile.com’s chief financial officer, argues that
buying a diamond in a store can actually be a disadvantage for
customers. “When people go into a store, they feel intimidated
because they don’t feel knowledgeable about the product,” she said.
“Sometimes they feel taken, but they don’t know how.”
Indeed, industry statistics suggest that a small but growing subset
of the jewelry-buying public prefers to buy their jewelry sight
unseen.
According to Forrester Research, people bought $3.4 billion worth of
jewelry online last year and will spend $4 billion this year.
Offline, the growth is but a fraction of that amount.
Ms. Freedman of the E-tailing Group said that there were two
possible drawbacks to the IJODiamonds.com approach. First, with only
around 850 participating retailers in the United States, the
organization does not have enough coverage to satisfy some consumers
who do not want to travel far to look at the diamond they selected.
Second “perhaps more important” is that IJODiamonds.com is competing
with numerous online diamond dealers that are marketing aggressively
on search engines and other sites. Unless the Independent Jewelers
Organization commits significant resources to promoting its site
online, Ms. Freedman said, the site will not attract much attention.
The organization says it is spending $100,000 to market the site’s
debut, but the campaign does not include advertisements on search
engines. Rather, the group plans to rely on retailers to market the
site in their own ads, with the organization providing some in-store
marketing materials.
The lack of a sizable online marketing effort may be just as well,
said Mr. Gniwisch of Diamond.com.
"Some people want the face-to-face approach, some will say ‘I don’t
need it,’ " he said. "But if their customers go online, they’re
going
to say ‘Let’s also go to Diamond.com, Blue Nile, Amazon.’ Once you
send them online, you’re sending them to the wolves."