September 3, 2002, 12:00 AM

Twinkle, twinkle

It’s not often that online sales in a category exceed the wild projections of a few years ago. But that’s exactly what’s happening in the jewelry category.

It’s the rare product category that lives up to the hype about sales projections that researchers were slinging around back in 1999, before the dot-com investment bubble burst. But interestingly, one of the categories that is exceeding the hyped numbers of three years ago features fine jewelry, just the sort of personal, high-ticket product that’s proven to be a challenging online sell in other categories. Online jewelry sales, expected to reach $1.1 billion this year, are actually doing slightly better than researchers IDC forecast three years ago when they projected sales at $1 billion in 2004.

And against recent trends, some notable winners in this space are pure-plays. A few purely online players have survived and thrived by developing strategies that are highly focused on specific market segments.

Wedding bells drive sales at 3-year-old BlueNile.com, which targets an Internet-savvy yet generally shopping-averse audience: would-be grooms buying diamond engagement rings. BlueNile.com reported its first operating profit in the fourth quarter of 2001, when it earned $1.1 million or 6.5% of quarterly sales, capping a year in which revenues reached $50 million. In May, worldwide traffic at BlueNile reached an all-time high of 761,091 unique visitors, according to comScore Networks Inc., beating out May visitors to the next most-visited jewelry site, Tiffany.com, by 500,000.

Hook him now

BlueNile is focused on providing value and top service to the buyers of engagement rings with an eye toward making the experience as positive as possible, counting on today’s soon-to-be-grooms coming back for anniversaries, birthdays and other gift-giving occasions. It’s a strategy long pursued by offline jewelers, but BlueNile is finding a following among a new generation of grooms comfortable with the Internet.

“We are focused on the male consumer as he enters into one of the most intimidating experiences of his life,” says BlueNile vice president of marketing Sue Bell. “We wrap it into a very accessible experience, with full disclosure of information. There is an immense amount of product information on the site.”

In addition to a value proposition that offers certified diamonds at up to 40% off retail prices, BlueNile.com makes a point of posting testimonials on the site from others who’ve just gone through the purchase process. “We get a lot of comments from customers saying that they like reading the other customers’ comments and that it helped them to make their own decision,” Bell says. The rest of BlueNile’s strategy is extensive customer support via an 800 number. “We try to make it easy for people as opposed to being intimidating,” she says. “Our diamond and jewelry consultants become confidants about the whole process. Some are invited to weddings, some have even been asked about advice on the proposal.” BlueNile is said to be considering retail stores in some U.S. cities.

Ice.com cometh

Three-year-old Ice.com chose another route: It targets the female impulse buyer. With family ties to a long-established Canadian manufacturer of diamond jewelry, Ice’s founders figured that competing with offline jewelers on the sale of diamond rings would be a challenge. Thus Ice.com has put together an online assortment that appeals to women seeking a reward for themselves.

“We knew the Internet was not going to change this market overnight,” says co-founder Sam Gniwisch. “We thought the way to go was to see where people are transacting online now and nudge our way into their daily transactions, rather than trying to reinvent the wheel.” Ice does that with a network of more than 25,000 online affiliates and an assortment largely focused on items of $300 or less; its research shows that the largest segment of impulse buyers will spend from $50 to $250 on a spur-of-the-moment buy. Its prices are generally 30% to 70% below retail.

Ice developed a customer list of more than 170,000 e-mail addresses within its first four months. It launched with the giveaway of a pearl necklace that sold for $50 in retail stores to any shopper willing to pay shipping and handling costs and to provide an e-mail address. With steep discounts negotiated through family connections in the jewelry business-Ice paid about $7 for each pearl and the $4.99 in shipping offset most of the cost to Ice.com of buying and shipping the pearls-the giveaway cost the company only about $2 to $3 per new customer.

The giveaway aimed to tackle the issue of trust, a significant barrier to the purchase of jewelry online and off. “We understand that we may be trying to move people away from the corner jeweler that their family has gone to for generations, so we had to start with a show stopper to bring people in,” Gniwisch says. “Some people have purchased 10 to 12 times in the past year from us. The first purchase was $50, and the most recent $500. Our objective is to overdeliver. We gain trust if we can do that every time.”

Tarnished sites

Online, the jewelry category is littered with the ghosts of once-dazzling prospects that turned into clinkers. Miadora.com went out of business and Ashford.com got gobbled up in industry consolidation when profits didn’t materialize quickly enough and investment dollars dried up. “What you don’t see today is the $10 million in marketing that was behind Miadora and Ashford,” says Jonathan Gaw, research director at IDC.

In fact, Neil Kugelman, CEO of Woodmere, NY-based jewelry retailer Goldspeed.com Inc., believes his company is thriving today precisely because it avoided venture capital money. “Four years ago there were several companies making a bigger splash than we were because they were using all this VC money to do marketing,” Kugelman says. “We never went after VC money and as a result we have been profitable from the start.”

In addition to staying away from venture capital, 4-year-old Goldspeed has placed an emphasis on operating the business by traditional business practices, Kugelman says, including building trust one customer at a time. “We realize we’re not well known, so we have a certain trust factor we have to overcome,” he says. “Many times customers will call and you can just tell by the tone of their voice that they’re ready to place an order. They just need to make sure there’s a company behind the web site.”

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