Majors
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Byte-ing back
By Michelle Graff
May 04, 2009
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| M. Geller Ltd.'s online inventory and Bridal Ring Builder platform, shown here, have found their way onto the Web sites of more than 1,000 brick-and-mortar jewelers, as those retailers become more comfortable adjusting to competition in the Internet age. |
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Once upon a time, the name "Blue Nile" constituted two of the foulest four-letter words in any brick-and-mortar jeweler's dictionary. Today, an increasing number of jewelers have crossed enemy lines into cyberspace, creating their own Web sites complete with expanded inventories. The kicker? Over the challenging 2008 holiday season, sales for online-only jewelers were down more than they were for brick-and-mortars. So have Internet jewelers reached their peak?
Over the past year, Michelle Fusaro has noticed a distinct change in behavior among customers visiting her New Milford, Conn., jewelry store.
There has been a welcome decline in the number of customers who enter the store waving printouts from brick-and-mortar nemesis Blue Nile and wondering aloud why the jeweler can't beat Blue Nile on price.
In fact, Fusaro, who runs Bella Jewelers alongside her husband, Peter, says that thinking back on 2008, she cannot recall a single customer referencing online research.
"A couple of years ago, Blue Nile was a dirty word for us, for other jewelers we knew," she says. "Every time people walked in with a piece of paper in their hand, we knew--price comparison."
Susan Eisen, owner of Susan Eisen Fine Jewelry and Watches in El Paso, Texas, says she noticed the same trend in her store around mid year: fewer customers coming in with printouts from Blue Nile.
"It just seems like in the last six months, we haven't had as much of that happen, which of course I'm thrilled to death over," she says.
Indeed, a careful examination of sales figures from 2008 and its abysmal holiday season shows that online jewelry sales struggled as a whole, and Blue Nile, in particular, lost ground to traditional brick-and-mortar retail jewelers.
But this slight slip-up in a shaky economy doesn't mean people aren't looking up diamond prices and researching the Four C's on the Web.
"They're not going on there less," Eisen says of the Internet. "They're just using it more for research than for actual buying."
Retailers still need to be at the ready with access to a vast, virtual inventory of diamonds--available through a growing number of companies such as GemFind and M. Geller Ltd.--and possess infinite knowledge about the stones.
Eisen tells the tale of a recent customer purchase: a 2-carat, Asscher-cut diamond sold to a new-in-town female doctor who came in armed with a pile of Internet research.
Using a combination of RapNet's online diamond inventory and her thorough knowledge of gemology, Eisen was able to snag the sale and simultaneously net her store a customer for life.
Since the purchase, that same Internet-savvy woman has visited the store three times to buy more jewelry.
"It's a challenge," Eisen says of competing with the Internet. "It's a challenge to win someone over that has come in doing all this research. But I think it's possible."
Numbers don't lie
Statistics compiled by industry analyst Ken Gassman support the notion that Blue Nile lost business to brick-and-mortar competitors last year.
According to its quarterly financial report released on Feb. 18, sales for Seattle-based Blue Nile decreased 26.8 percent in the fourth quarter of 2008 (with Gassman adjusting the figures to make the 14-week fiscal quarter 13 weeks long, as in 2007). Overall, Blue Nile was down 8.7 percent for the year compared with 2007.
Preliminary figures from the U.S. Department of Commerce obtained by Gassman show that sales for specialty jewelers--defined as traditional jewelers whose core business is jewelry, excluding stores such as Wal-Mart or Sears--experienced only a 16.2 percent decline during the holiday season.
In addition, an examination of holiday sales shows that while no publicly traded jewelry chains posted outstanding gains, Blue Nile saw fourth-quarter sales drop 23.3 percent, faring worse than Finlay Fine Jewelry (down 20.8 percent), Zale Corp. (down 19.6 percent) and Sterling (down 16.4 percent).
Blue Nile did not respond to a request for comment on its declining sales.
But Gassman says Blue Nile's drop in sales foretells a significant slowdown in the tremendous growth the company has experienced up to this point.
The company simply can't keep posting 50 percent sales gains year after year, he says, noting that the old adage "no tree grows to the sky" applies to Blue Nile just as much as it has to other successful businesses that have leveled off over time.
"We sort of felt like last year that the momentum [for Blue Nile] was slowing," Gassman says.
The ripple effect of this slowdown is being felt in retail businesses such as Michael C. Fina.
A survey of seven sales associates at the upscale Manhattan jewelry store revealed that the store's customers continue to do diamond research online. But, when it comes time to plunk down their hard-earned money, they prefer to do so with a brick-and-mortar retail jewelry store that they feel they can trust.
"I think it is safe to say that anyone coming into any jewelry or engagement ring store has done some sort of research online," says Amanda Lingner, a sales associate at Michael C. Fina. "The truth is, if doing that research and shopping were enough, they wouldn't be coming into the store at all. I have found that customers want something or someone visually tangible to them."
One of Lingner's sales colleagues, Annie Dye, agreed, adding that she's seen fewer customers turning to the Internet for diamonds as time goes by.
"I think they are finally realizing that a fad is a fad," Dye says. "Many Internet companies like Blue Nile will come and go, but a trusted jewelry store and a caring, educated consultant are priceless to the customer."
Not all 'net
Indeed, consumers' desires to shop as a recreational activity and to touch and examine the merchandise itself are among the reasons online shopping--especially online shopping for jewelry--can never completely sideline the brick-and-mortar experience, Gassman says.
He says a certain number of consumers will always opt to buy jewelry in a physical store, and that the number of online jewelry shoppers, estimated to peak at 8 to 10 percent of the population, is nearing its pinnacle.
"Jewelry purchases, in particular, are emotional purchases," Gassman says. "I have great difficulty trying to understand how you can make an emotional purchase online."
Statistics from Reston, Va.-based ComScore Inc. support the notion that selling jewelry online is losing momentum.
Online jewelry sales fell 24 percent during the 2008 holiday season, according to ComScore.
Among brick-and-mortars, only Tiffany and Co.'s U.S. sales (down 35 percent) and Mayors' U.S. sales (down 31 percent) experienced a more significant drop, a comparative analysis by Gassman shows.
In addition, of the 14 e-commerce categories ComScore tracks, eight reported negative growth in spending in 2008, with jewelry and watches among the worst performers.
Online spending on jewelry and watches decreased 12 percent in 2008. The only online sales categories to fare worse were computer software (excluding computer games), which declined 18 percent, and music, movies and video, which fell 23 percent, according to ComScore.
Compare this with a category such as video games, which topped ComScore's statistics at 29 percent growth, or even online sales of apparel and accessories, which increased 4 percent over the previous year.
Among the e-tailers experiencing a drop in sales were Culver City, Calif.-based Bidz.com, a live auction site that expanded its offerings with the April 2008 launch of Buyz.com, an online-only store offering jewelry and watches at fixed prices.
Despite experiencing rapid growth since its launch in 1998, Bidz.com saw sales plummet in the fourth quarter, dropping 44 percent from $63.2 million in 2007 to $35.1 million this past year.
When asked to comment on sales trends, particularly for diamond engagement rings on Buyz.com, company President Leon Kuperman declined, noting that the company is still working on its sales strategy for the site.
Other pure-play Internet retail companies that experienced sales declines in 2008 were Diamond.com and Ice.com, both based in Montreal, Quebec, and owed by the Gniwisch family.
Chief Motivational Officer Pinny Gniwisch says both of the sites suffered a 19 percent drop in sales over Christmas and a 20 percent drop in sales for Valentine's Day.
Gniwisch, however, disagrees with the notion that online retailers are losing ground. He says the faltering economy led to the current online slowdown.
Looking at the metrics for his Web sites, he notes that traffic was down by just 5 percent, but the sales conversion rate dropped 22 percent.
"We had a lot of browsers," he says. "People went on, looked at the jewelry and said, 'You know what? I'm going to get something else.'"
Whiteflash.com Chief Executive Officer Debi Wexler compares browsing for jewelry online to the invention of the airplane. Though people found it ridiculous at first, no one thinks twice about jumping on a plane to travel today.
"We're in that mode where people still haven't changed their paradigm to buying an engagement ring online. Slowly, slowly, generation by generation, the mindset is changing," she says.
Though hesitant to fully disclose sales results for her privately-held, Houston-based company, Wexler says holiday sales surpassed predictions by 20 percent, and year-end sales were up by a "reasonable amount."
"I was surprised because I thought it was going to be flat, given the downturn in the economy," she says. "The economy definitely impacts all businesses, whether it's jewelry or computers."
Opening the virtual vault
Another factor that could be taking a byte out of online sales is the ever-expanding number of companies that give traditional retailers--and their customers--access to the same type of vast, virtual inventory that helped drive Blue Nile's success.
Companies such as Chicago-based M. Geller and Tustin, Calif.-based GemFind continue to evolve and improve upon their products.
And new players are pushing into the virtual inventory arena, too, including companies such as FetchDiamonds.net, an online diamond and jewelry trading network that recently launched MyFetchSite, an application that allows retailers to set up an entire Web site and display live inventory fed from a network of diamond and jewelry suppliers.
Jay Gerber, executive vice president of Chicago-based M. Geller, says retailers are finally becoming more comfortable adapting to the changes that accompanied the Internet age.
"At first, it was difficult for a lot of retailers to absorb because you're talking about a significant business model change," he says.
But, after less than five years on the market, M. Geller's virtual inventory and Bridal Ring Builder platform are on the Web sites of more than 1,000 retailers. The Bridal Ring Builder has been so successful, in fact, that M. Geller has expanded its offerings to include a Diamond Jewelry Builder.
With their superior customer service and improved access to inventory online, Gerber says retailers today can get away with charging 10 to 20 percent more than Internet retailers do. Anything higher, though, and the customer will walk.
"I don't think [retailers] need to give the store away because the services retailers bring to the table are really important," he says, adding that if customers didn't recognize that fact, Blue Nile would have even a greater market share than it already does.
GemFind operates both the industry search site GemFind.net and the consumer search site GemFind.com, which allows shoppers to find stones online and either purchase them on the Internet or from the nearest GemFind partner retail store.
The company recently updated GemFind.net with the addition of the GF Diamond Link online search tool, which uses state-of-the-art technology to help retailers find any diamond among an inventory of more than 50,000 stones.
Gemfind CEO Alex Fetanat says jewelers who adopt a hybrid model--having the storefront with great service but also online access to a vast virtual inventory--will be the ones to best weather the current economic storm.
"If [retailers] don't change the way they do business--they don't have an online presence--they're not going to be able to stay around," Fetanat says. "They won't survive in this market."
Click and ponder
Here are a few tips for brick-and-mortars seeking to better compete with Internet retailers.
1. Know your diamonds and gemstones. Having a strong gemological background will better enable you to explain the difference between the stone a customer sees online and a superior--and slightly higher-priced stone--in your display case.
2. You don't need to give the store away to compete. Customers will pay 10 to 20 percent above the online price--but no more--for personal, in-store service.
3. Don't be in the dark. Find out how much e-tailers are charging and which sites your customers are visiting.
4. Be aggressive. Don't be afraid to take customers into the office and pull up an e-tailer's Web site so that you can explain why your product is better.
5. Understand there's still business to be had. Even if a consumer buys a diamond online, that doesn't mean you can't provide the mounting, an appraisal and the wedding bands.
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Majors
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