| July 30
July 30 Diamond rings on display at Nordstrom's
flagship Seattle store are not for sale. Shoppers can try them
on, inspect the gems' quality up close, but to buy them requires
a visit to Blue Nile's website.
The arrangement is a departure of sorts for Blue Nile Inc
, the company that pioneered the sale of jewelry online
at steep discounts. It is the first time the company has turned
to brick and mortar in its 15-year history, showcasing products
in two Nordstrom stores.
To be sure, the move is not a dramatic shift - it is an
extended test to attract new customers to its site. But it comes
at a time when most national chains have established Web
identities, eroding some of Blue Nile's allure and leaving it
without the benefits of a chain of physical stores.
"Now everyone is online," said Morningstar analyst Paul
Swinand, shortly after dropping coverage of Blue Nile in June
because his clients lacked interest. "What they do is less
LACK OF NAME RECOGNITION
Analysts believe the company may have a place in the more
crowded field, especially thanks to rapidly growing sales in
China. But they say it must spend more to build its brand in the
United States and more effectively compete with big national
jewelry chains and the likes of Amazon.com.
"People recognize Kay Jewelers. People recognize Jared more
than they recognize Blue Nile," said Stephens Inc analyst Rick
Patel, referring to two of the biggest U.S. brands. "That's not
a very easy situation to tackle."
Blue Nile, which reports results next week, lets shoppers
research diamonds and customize jewelry online. Prices are 20
percent to 40 percent below diamonds sold in stores thanks to
low overhead costs.
Yet Blue Nile's stock has dropped more than 44 percent this
year, in part because of increasing competition from Signet
Jewelers Ltd, the parent of Kay, Jared and other brands.
By contrast, Signet stock has risen about 32 percent, buoyed by
an agreement in February to buy Zale Corp.
E-commerce has become increasingly important, accounting for
6.2 percent of total U.S. retail sales last quarter.
Blue Nile is confident it can grab a piece of the action,
especially among web-savvy shoppers who are coming of age.
According to a survey of 14,000 brides and grooms by
TheKnot.com, Blue Nile sold far more engagement rings than even
There is plenty of room for growth in the highly fragmented
industry, as no single jeweler controlled more than a 6 percent
share of U.S. sales in 2012, according to Euromonitor
International's most recent data. The U.S. jewelry business has
rebounded to $59.1 billion since the recession, and Euromonitor
estimates it will grow another 14 percent by 2018.
Higher diamond costs were the main factor behind the stock's
slide this year, Blue Nile Chief Financial Officer David Binder
said. Other retailers keep large inventories of diamonds,
shielding them from wholesale price increases.
Yet Blue Nile cut its prices in 2012 and gradually increased
its marketing budget, reaching $450 million in sales last year.
But Signet's e-commerce sales grew more than twice as fast to
Blue Nile's net income last year was $10.9 million, a
fraction of Signet's $368 million.
Blue Nile's Nordstrom presence - it is active in Seattle
since late November 2013 and at the department store's Garden
City, New York, location since February - could help it address
what some analysts say is a lack of visibility compared with
brick and mortar retailers.
The company won't say yet how much new traffic the showcases
have generated, but CEO Harvey Kanter has said he's encouraged
by the results.
Still, Patel says the initiative is not enough to compete
with Signet's television ads.
Binder defends Blue Nile's approach, saying Google and
Facebook ads target prospective buyers more effectively than TV
Even if the U.S. market proves to be a tough slog, Blue Nile
has room to expand aggressively in China, analysts say. The
company recently opened a second office in Shanghai and started
hiring more Chinese-speaking sales representatives.
"We think that over time, the brand builds with incremental
sales, incremental customers, and with referral," Binder said,
noting that the company was only founded in 1999. "We'll get
(Reporting By Jeffrey Dastin; Editing by Frank McGurty and Nick