June 27, 2011, 2:50 PM

Blue Nile looks beyond the engagement ring

The online jeweler wants to build on the non-engagement ring portion of its business.

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Online jeweler Blue Nile Inc., which posted record sales of $80.2 million during the first quarter, plans to grow its business by offering more moderately priced engagement rings and expanding its product assortment.

Blue Nile’s core business is engagement rings, which represent about 68% of its annual revenue, Vijay Talwar, interim chief financial officer and general manager of international, told analysts last week at the Goldman Sachs Second Annual Dot Commerce Day. Non-engagement business, such as necklaces or bracelets, accounts for the remainder of revenue.

“That’s essentially what our model is based on and how we’ve been able to grow and get to this point,” Talwar says. For Blue Nile, No. 60 in the Internet Retailer Top 500 Guide, the average ticket for engagement rings is about $6,100, he says. That compares with the U.S. average of about $3,200.

But in the industry overall, purchases of engagement rings are on the decline, due in part to the recession and a growing trend of people getting married a little later in life, Talwar says. And many consumers are looking to buy less expensive engagement rings.

“We’re trying to address the average consumer in the U.S., but there’s more and more pressure in terms of discretionary income,” he says. “There’s a lot more that’s happening with that average consumer that is housing-related or employment-related. So many of them are looking for opportunities to say ‘hey, can I buy a ring and spend a little bit less on the overall ring?’”

To meet the demand for lower-cost rings, Blue Nile has begun offering 14-carat gold ring settings, which start at about $200, in addition to the platinum settings it historically sold for about $800, Talwar says.

“If you’re going to spend $2,000 on a ring, the difference is instead of having $1,200 for the diamond, you can spend $1,800 for the diamond,” he says. “The idea is to put more money back for the customer into the purchase of the diamond itself, which is really the true value.”

Blue Nile also is looking to expand the depth and breadth of its non-engagement assortment in an effort to drive repeat business. “Today the non-engagement business is only 32% of our business but we believe it can be 50%,” he says.

The company is spending more on marketing, including public relations and display advertising to boost brand awareness, both in the U.S. and internationally, Talwar says. “We used to spend between 3.5% and 4% of revenue,” he says. “Over the last three quarters, we’re starting to spend more in line with about 5% of revenue.”

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