If You Can't Beat Them, Try Again With Their Weapons

Many diamond jewelry retailers suffered from low traffic, stunted sales and reduced turnover this summer. With all that time on their hands, hopefully they took the opportunity to think in earnest about the upcoming holiday season and how to prepare for it. Since all these retailers are hoping for the same thing – good consumer demand – there is a good chance they also shared a common concern (especially independent jewelers): how much harm online retailers will inflict on them as they keep eating away at their business.

Tradeshows are a great opportunity to meet and talk with members of the industry and to hear many views about issues close to the trade's heart. This week at International Jewellery London (IJL), a fair geared primarily to British independent retailers and designers, I had a chance to sit down with a jeweler who does things differently from many others.

First, he has a line of his own diamond jewelry designs that really stands out, the embodiment of “differentiation.” Then, he takes the sting out of the online competition by pricing the diamonds set in his jewelry at Blue Nile prices.

He figured out that Blue Niles' markup is about 15 percent so he lowered his 29 percent markup to 15 percent and saw his sales double. This means that although his earnings from diamonds were eventually the same, his sales of mountings – his main product and point of differentiation – doubled and he earned much more.

Inadvertently, this innovative jeweler discovered the first rule of diamond trading – it's a game of volume.

Blue Nile figured out this rule a long time ago. Loose diamond wholesalers’ margins are typically 3-7 percent. To make a decent living, wholesalers must sell very large quantities of diamonds. To compete with physical stores, Blue Nile focused the game on price and succeeded because of the large volume of goods it sells.

This jeweler's success story got me thinking about all those issues that frustrate store retailers about the online business and their secret hope that e-tailers will simply disappear. That is not going to happen. E-tailing is only going to grow and retailers to survive will need to find ways to adapt. To do so, retailers need to study what gives Blue Nile and other e-tailers an advantage and either adopt these advantages or figure out how to counter them. Service, differentiation, price, volume and marketing are just some of the points to consider.

Change is constant. Onliners will change and retailers will need to change too. Constantly. Those that do will be on their way to profitable holiday seasons.

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