August 9th, 2007

Buying expensive diamonds online

Wall Street JournalThere is a new article in The Wall Street Journal about buying diamonds online. People are willing to spend more and more money online. To the point that De Beers now has an online store.

Buying a $10 paperback from Amazon or a 99-cent new release from iTunes is now commonplace. But has online shopping matured to the point where people don’t blink at dropping a $20,000 half-carat diamond into an online shopping basket and proceeding to checkout?

De Beers Diamond Jewellers, Inc. is banking that the answer is yes. And given the success of online-only jeweler Blue Nile, they might be right.

How will this affect the items for sale?

De Beers SA premiered its Web site in June. Featuring 190 different pieces (of which 90 are for sale online), the site’s prices start at $500 and cap out at a $24,500, 1.5 carat engagement ring. In September, the online offerings will expand to 140 pieces with price points up to $50,000. But for De Beers’s six-figure jewelry, buyers are directed to the company’s smattering of luxury boutiques across the globe.

How about traditional retailers?

Companies such as Blue Nile Inc. — which has a market share of more than 30%, according to Internet Retailer, a trade publication that tracks online sales — have successfully tapped into the Web-savvy diamond buyer. But until De Beers unlocked their virtual doors, most upscale jewelry companies resisted the online shopping cart. Luxe brands like Harry Winston, Van Cleef & Arpels and Cartier have Internet sites detailing their collections, but don’t give visitors the option to buy online. Instead, they stress in-store customer support and a tactile experience of jewels.

How about stock?

Blue Nile relies on consignment goods, it requires few employees and less real estate than its brick-and-mortar counterparts, which allows Blue Nile to offer its stones at up to 40% off, according a report by Jewelry Research Institute president Ken Gassman. Blue Nile’s steep discount attracts customers who might otherwise spend $10,000 somewhere else. Last year, the cost of the average ring purchased at Blue Nile was $5,600, versus a national average of $3,200 for rings purchased in-store.

So by selling on consignment, Blue Nile manages to have an average sale price of almost double brick and mortar stores. Impressive.

What of competition?

Tiffany & Co.’s site offers an online catalog, but despite a detailed engagement ring section, engagement rings can’t be purchased online. Even so, Tiffany is the third highest-selling Internet jeweler, with $120 million in online sales in 2006, according to Internet Retailer. (Second place went to Bidz.com, which rang up $132 million in Web revenue.) Tiffany declined to comment.

That doesn’t make sense. How do they not sell online and still manage online sales?

Even with high-end retailers holding back, $600,000 diamonds can be purchased at Amazon.com.

Amazon’s jewelry store launched in 2004, and recently bulked up its offerings to include high-end items like six-figure loose diamonds, an Amazon spokesperson said. The retailer reported that jewelry sales more than doubled during fourth quarter 2006, and confirmed the recent sale of a $90,000 canary yellow diamond earring set. Jewelry is held by wholesalers instead of being warehoused alongside Amazon’s books — and most jewelry pieces qualify for free shipping.

Even with high-resolution photos, virtual diamonds don’t yet translate the visceral reaction of seeing light bounce off a faceted stone in person, which is why luxury jewelers like Harry Winston stress the opportunities of the in-store visit.

“We look to give our clients a unique, one-on-one experience in our salons when they want to make a Harry Winston purchase, which cannot be replicated online,” Harry Winston spokesman Carson Glover said.

A Google employee buys a ring.

Rishi Chandra, a 28-year-old product manager at Google, said he had “no information whatsoever” about diamonds when he made the decision to propose to his then-girlfriend, Monica Deshpande. But because he was about to buy something that is “a little rock and [yet] costs that much money,” he spent several weeks digging into the minutiae of diamond ratings. Despite all his research, Mr. Chandra felt that cut was the one aspect he didn’t have a handle on by only relying on online details. He visited local jewelers in San Francisco and Palo Alto, including Tiffany, to gauge how cut affected stones.

“I was actually more confident with some of the information I was getting on the Web than even looking at” stones in person, Mr. Chandra said. “One of the challenges is that when you look at a diamond in a store, the lighting is all set up so that it’s very bright for you. They are trying to emphasize the brightness of the diamond.” He eventually purchased a ring at Blue Nile; he and Ms. Deshpande were married in July 2006.

Mr. Chandra was pleased with the experience of buying a diamond online and said he would have returned to the Internet for wedding bands, but his then-fiancée insisted on a more traditional route. “When we were buying the wedding bands, she was actually very adamant that we had go see it,” he said. “She wanted to try it on.”






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