June 1, 2007, 12:00 AM

PROFILES: The Top 500

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Blue Nile is constantly working to improve customer service. For instance, Vadon still listens to about 10% of all incoming calls to ascertain what customers like and dislike about their shopping experience. “I think it’s very important to stay in touch with the customers,” he says. “That’s how we learn what we can improve.”

Attention to detail and specialization is paying off for Blue Nile-about 50% of all first-time male shoppers become repeat buyers and engagement rings now represent about 70% of Blue Nile’s total sales. Today Blue Nile controls a third of sales among specialized online jewelers, according to the Top 500, but the company also isn’t entirely running away with the market. Other significant online jewelers include Bidz.com Inc. (No. 86), with 2006 web sales of $132 million, followed by Tiffany (No. 98) with $120 million, Ross-Simons (No. 139) with $73 million, Jewelry Television (No. 141) with $70.2 million, Ice.com (No. 182) with $49 million and Zale (No. 189) with $45 -million. The web sales for Tiffany are an Internet Retailer estimate.

The jewelry business is highly fragmented and other online -jewelers are building their own niches. Blue Nile raced ahead in the online jewelry market because of its ability to attract first-time buyers with higher household income. But now the fastest-growing part of the online jewelry segment market is selling to security-conscious and more budget-minded shoppers looking for deals on earrings, pendants, necklaces and bracelets, says Shmuel Gniwisch, CEO of rival Ice.com. “Blue Nile won the race for selling to first-time Internet users who were professionals, such as doctors and lawyers with very good incomes looking for a very specific purchase, but now there are other specific online jewelry segments that customers can also shop,” says Gniwisch. “Blue Nile specializes in engagement rings and I can’t see Blue Nile selling $1 billion of just one category of rings. At some point they are going to hit a sales wall.”

But Blue Nile believes it can achieve the goal of $1 billion in annual web sales by sticking with its current business model and by continuing to niche out the higher end of the online jewelry -market, a strategy that appears to be -working. In the first quarter, Blue Nile’s average orders for jewelry priced at more than $25,000 rose by 69% over the previous year and included seven transactions valued at more than $100,000. “We are just going to keep on doing the same thing better and better,” Vadon says. “We have no intention of growing complacent.”

A mass merchandise retailer has a niche experience
Smaller specialty retailers were the fastest-growing merchants in the 2007 Top 500 Guide, but Costco.com proves that a mass merchandise site can also experience start-up-style growth by focusing on the right niche.

With Costco.com, the online arm of Costco Wholesale Corp., that niche is serving affluent members with annual household income of more than $78,000, including 25% with incomes greater than $100,000. In 2006, Costco.com (No. 21) was the fastest-growing mass merchandise site with 2006 online sales of $880 million, an increase of 65% from web sales of $534 million in 2005. It was also the fastest growing site among the 50 largest and the second fastest growing among the Top 100.

Costco.com carries the same number of SKUs-about 4,000-as a typical Costco -members-only warehouse. But Costco.com differentiates itself from the company’s bricks-and-mortar locations by carrying bigger and more diverse items. Many items are seasonal at a typical Costco warehouse. But not on the web. “Our sites enable us to offer large and bulky merchandise that we are unable to carry in our warehouses year-round, such as furniture, spas, outdoor play sets and patio furniture,” says Costco senior vice president of e-commerce and publishing Ginnie Roeglin. “Most of the items on our sites are not available in our warehouses.”

College grads

About 74% of Costco.com’s customers are college graduates and 90% are homeowners. 50% of customers who shop online also are executive members, who pay a higher annual fee for perks such as annual rewards and lower prices on services such as check printing, auto financing and long-distance phone service.

Costco, which launched its U.S. e-commerce site in 1999 and a Canadian site in 2005, uses its online channel to introduce warehouse products, promote multi-channel offers and place orders for specialty items such as tires. But a big part of Costco.com’s mission is giving members a wide range of consumer brands at warehouse prices. “Members know they will get the same experience whether they are shopping online or in one of the warehouses, but on the web sites they are going to find diversity and services that make it easier to complete a re-order,” Roeglin says. “We derive a large percentage of our business center sales through online orders.”

Over time Costco has upgraded Costco.com with a redesigned home page with a new category and sub-category design, improved search, bigger images and zoom technology. In 2007, Costco.com also is planning a number of new site upgrades, including giving members the ability to ship items to multiple addresses in a single order and to schedule preferred arrival dates on many gift items. “We will continue to develop and refine our search capabilities to make it easier for members to find what they are looking for,” Roeglin says. “We also plan to migrate to a new front-end platform early in 2008.”

More improvements

Along with the planned site improvements, Costco.com is on track to generate online sales of $1.2 billion for its current 2007 fiscal year, an increase of 36.4% over 2006. To achieve that sales target, Costco.com is adding merchandise to categories such as -sporting goods, housewares, baby products and gourmet foods. Costco also is testing an interactive kiosk program that will enable customers to place orders online when they are shopping in a warehouse.

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