Vadon started the search in the fall of 1998 at Tiffany & Co., where he was shown two nearly identical diamond rings priced at $12,000 and $17,000. “I remember thinking, I can’t tell the difference between them, but I sure hope the recipient can because that’s as much as I spent on my car,” says Vadon. “You have so many questions you want to ask, but you don’t because you are afraid you’ll look like a sucker and the salespeople will take advantage of you.”
After visiting more than a half dozen stores, Vadon says he’d only become more confused. Then he thought of the Internet. “It seemed like the place to get information.”
Vadon didn’t expect it to be the place where he’d get his ring, too. But he found a site run by a small jewelry retailer, Internet Diamond, that offered pages of information on buying diamonds, as well as a range of rings-one of which he bought. Less than a year later, in May 1999, he bought the company itself, renaming it Blue Nile a few months later.
Vadon has since geared the site specifically to men like himself: well-educated, high-wage earners between the ages of 25 to 45 who are tech savvy but need a little guidance when it comes to buying jewelry. “I was the prototypical customer we’re going after now,” says Vadon.
In 1999, when the site was relaunched, the idea of purchasing a $10,000 diamond ring online was inconceivable to most people. Over the past three years, however, consumers have grown increasingly comfortable shopping online for big-ticket items from couches to cars. “It’s becoming more acceptable all the time–there’s just been an explosion of purchasing online in the past few years,” says Diane Warner, who has written more than a dozen best-selling books on weddings and party planning. “When I talk to couples, they are ordering all kinds of things over the Internet.”
That trend has helped online jewelers like Blue Nile do what dozens of other dot-coms could not: turn a profit. The Seattle-based e-retailer just celebrated its first net profitable quarter. And it has reason to be hopeful that the current quarter will be even better. Engagement rings are its top sellers–more than 25,000 couples have already purchased diamond engagement rings from the site. Wedding bands are the next biggest sellers. And sales should grow in the coming months. The period from November and February is traditionally the most popular time of year for prospective grooms to turn their beloved into their betrothed–and the most profitable period for many jewelers. E-tailers have benefited as more men choose to peruse and to purchase engagement rings online instead. “You can just get a better deal,” says Warner.
That’s certainly what Blue Nile and other jewelry retailers advertise. Blue Nile claims it can undercut traditional retailers like Tiffany & Co. and Zales by 20 to 40 percent, since it has lower overhead costs than the brick-and-mortar retailers. Ice.com sells diamond rings for as little as $395 (nearly half the retail value, according to the site).
The sites are also able to offer a bigger selection since they aren’t confined to showrooms. Blue Nile boasts a selection of 11,000 high-quality diamonds and a build-your-own-engagement ring feature. Another profitable online retailer, Goldspeed.com, bills itself as the Internet’s largest discount jeweler. Its site offers more than 800 rings to choose from–everything from custom-made, Celtic-style wedding bands to diamond-encrusted platinum engagement rings.
Goldspeed.com says it had nearly 1,000 percent growth in year-over-year sales last quarter, and founder and CEO Neil Kugelman projects sales of about $5 million or more this year for the privately held retailer. Blue Nile, which is also held privately, is forecasting $70 million in sales revenue for the year.
That’s still a small chunk of the total $1.1 billion consumers are expected to spend this year in online jewelry sales, according to Jupiter Research. But only 8.5 percent of the U.S. online population–defined as those with access to the Internet–buys jewelry online. So there’s plenty of room for growth. “It’s still are relatively small category,” says Juliana Deeks, an associate analyst at Jupiter Research.
Blue Nile’s sales have grown from 1 percent to 1.5 percent of the U.S. engagement-ring market since the beginning of the year. Vadon is hoping to reach $250 million in annual revenues by the year 2007. That’s an ambitious goal. Deeks says most consumers still use the Internet primarily for research but buy offline. Jupiter projects $3.8 billion will be spent this year on jewelry in brick-and-mortar stores as a result of online research.
But some e-tailers, like Kugelman, have found a way to benefit from that. As Tiffany and Zales expand their offerings online, he hopes to expand his online franchise offline. But he’s not dropping the dot-com. Next year, he plans to start opening a chain of jewelry stores nationwide called-what else?–Goldspeed.com.
