IDEX Online Research: Specialty Jewelers Challenges - Online Competition

In the second analysis of this weekly series, IDEX Online Research analyst Ken Gassman examines the challenges online competition poses to Specialty Jewelers in the U.S.

For the first half of the decade, U.S. specialty jewelers have generally enjoyed good business conditions. However, there are some challenges facing the jewelry industry as we move into the second half of the decade.

Source: US Dept of Commerce

Online jewelry sales are a much greater portion of total jewelry sales versus online sales of all retail categories, as the following graph illustrates. This is due to the high sales mix of big-ticket engagement rings and expensive diamonds which are sold online.

Source: US Dept of Commerce

Online jewelry sales could be 6-7 percent of total jewelry industry sales by 2010, as the graph below illustrates.

Source: US Dept of Commerce & JIRI

Blue Nile is the leading online retailer of jewelry, with an estimated 10 percent market share of online jewelry commerce in the U.S. It has been in business only since 1999, but it has posted a profit every year, beginning in 2002.

 

Blue Nile has introduced a new economic operating model to the jewelry industry. Its retail prices are up to 40 percent lower than traditional store-based jewelers are, its inventory turn is dramatically higher, and its profits are substantially greater as a percentage of sales. The company relies on consignment goods, called “memo goods” in the jewelry industry, to support its huge product offering. Because of its highly efficient financial model, the company needs far fewer people and significantly less real estate to generate its sales, as the table at right illustrates.

 

 

Source: JA & Public Companies

 

 

Source: Company reports

Next week: Lack of Pricing Power