Twinkle, twinkle

It’s the rare product category that lives up to the hype about sales projections that researchers were slinging around back in 1999, before the dot-com investment bubble burst. But interestingly, one of the categories that is exceeding the hyped numbers of three years ago features fine jewelry, just the sort of personal, high-ticket product that’s proven to be a challenging online sell in other categories. Online jewelry sales, expected to reach $1.1 billion this year, are actually doing slightly better than researchers IDC forecast three years ago when they projected sales at $1 billion in 2004.

And against recent trends, some notable winners in this space are pure-plays. A few purely online players have survived and thrived by developing strategies that are highly focused on specific market segments.

Wedding bells drive sales at 3-year-old BlueNile.com, which targets an Internet-savvy yet generally shopping-averse audience: would-be grooms buying diamond engagement rings. BlueNile.com reported its first operating profit in the fourth quarter of 2001, when it earned $1.1 million or 6.5% of quarterly sales, capping a year in which revenues reached $50 million. In May, worldwide traffic at BlueNile reached an all-time high of 761,091 unique visitors, according to comScore Networks Inc., beating out May visitors to the next most-visited jewelry site, Tiffany.com, by 500,000.

Hook him now

BlueNile is focused on providing value and top service to the buyers of engagement rings with an eye toward making the experience as positive as possible, counting on today’s soon-to-be-grooms coming back for anniversaries, birthdays and other gift-giving occasions. It’s a strategy long pursued by offline jewelers, but BlueNile is finding a following among a new generation of grooms comfortable with the Internet.

“We are focused on the male consumer as he enters into one of the most intimidating experiences of his life,” says BlueNile vice president of marketing Sue Bell. “We wrap it into a very accessible experience, with full disclosure of information. There is an immense amount of product information on the site.”

In addition to a value proposition that offers certified diamonds at up to 40% off retail prices, BlueNile.com makes a point of posting testimonials on the site from others who’ve just gone through the purchase process. “We get a lot of comments from customers saying that they like reading the other customers’ comments and that it helped them to make their own decision,” Bell says. The rest of BlueNile’s strategy is extensive customer support via an 800 number. “We try to make it easy for people as opposed to being intimidating,” she says. “Our diamond and jewelry consultants become confidants about the whole process. Some are invited to weddings, some have even been asked about advice on the proposal.” BlueNile is said to be considering retail stores in some U.S. cities.

Ice.com cometh

Three-year-old Ice.com chose another route: It targets the female impulse buyer. With family ties to a long-established Canadian manufacturer of diamond jewelry, Ice’s founders figured that competing with offline jewelers on the sale of diamond rings would be a challenge. Thus Ice.com has put together an online assortment that appeals to women seeking a reward for themselves.

“We knew the Internet was not going to change this market overnight,” says co-founder Sam Gniwisch. “We thought the way to go was to see where people are transacting online now and nudge our way into their daily transactions, rather than trying to reinvent the wheel.” Ice does that with a network of more than 25,000 online affiliates and an assortment largely focused on items of $300 or less; its research shows that the largest segment of impulse buyers will spend from $50 to $250 on a spur-of-the-moment buy. Its prices are generally 30% to 70% below retail.

Ice developed a customer list of more than 170,000 e-mail addresses within its first four months. It launched with the giveaway of a pearl necklace that sold for $50 in retail stores to any shopper willing to pay shipping and handling costs and to provide an e-mail address. With steep discounts negotiated through family connections in the jewelry business—Ice paid about $7 for each pearl and the $4.99 in shipping offset most of the cost to Ice.com of buying and shipping the pearls—the giveaway cost the company only about $2 to $3 per new customer.

The giveaway aimed to tackle the issue of trust, a significant barrier to the purchase of jewelry online and off. “We understand that we may be trying to move people away from the corner jeweler that their family has gone to for generations, so we had to start with a show stopper to bring people in,” Gniwisch says. “Some people have purchased 10 to 12 times in the past year from us. The first purchase was $50, and the most recent $500. Our objective is to overdeliver. We gain trust if we can do that every time.”

Tarnished sites

Online, the jewelry category is littered with the ghosts of once-dazzling prospects that turned into clinkers. Miadora.com went out of business and Ashford.com got gobbled up in industry consolidation when profits didn’t materialize quickly enough and investment dollars dried up. “What you don’t see today is the $10 million in marketing that was behind Miadora and Ashford,” says Jonathan Gaw, research director at IDC.

In fact, Neil Kugelman, CEO of Woodmere, NY-based jewelry retailer Goldspeed.com Inc., believes his company is thriving today precisely because it avoided venture capital money. “Four years ago there were several companies making a bigger splash than we were because they were using all this VC money to do marketing,” Kugelman says. “We never went after VC money and as a result we have been profitable from the start.”

In addition to staying away from venture capital, 4-year-old Goldspeed has placed an emphasis on operating the business by traditional business practices, Kugelman says, including building trust one customer at a time. “We realize we’re not well known, so we have a certain trust factor we have to overcome,” he says. “Many times customers will call and you can just tell by the tone of their voice that they’re ready to place an order. They just need to make sure there’s a company behind the web site.”

Goldspeed operates two call centers, one in New York and the other in New Jersey, and distribution centers in New York, Pennsylvania and California.

Goldspeed’s average ticket is $400, a reflection of its product mix of low prices and custom-made jewelry. It experienced growth of 1,000% from July 2001 to this July, Kugelman says. Customers range from senior citizens who call in orders from web pages that someone has printed out for them to young people employed in the high-tech business, Kugelman says.

And that is further indication that the online channel is becoming a mainstream way to purchase jewelry. “The hype has gone away, but that isn’t to say consumers aren’t interested in buying jewelry online,” IDC’s Gaw says.

Surprise leaders

Yet while pure-plays such as BlueNile.com, Ice.com and Goldspeed.com are success stories, their sales are collectively a drop in the bucket of online jewelry sales.

So who’s driving the rest of the year’s projected $1 billion-plus in jewelry sales online? To paraphrase Yogi Berra, it’s the multi-channel story all over again. Online retailers grounded in established non-web channels and brands are best positioned to get the vast share of the web’s sales of jewelry, as they do in some other produict categories. But the multi-channel retailers who are leading online in terms of volume aren’t necessarily those that are top of mind when it comes to expensive baubles. At top-tier jeweler Tiffany & Co., for example, catalogs have been estimated to deliver 10% of sales; web sales, significantly less.

“Tiffany sells a luxury experience, and it’s very difficult to translate that to the Internet,” Gaw says. “When you go into Tiffany you walk through those huge steel doors onto that plush carpet, and there’s a sales associate there to hold your hand through the process. You’re paying for all of that. And Tiffany online charges about the same as Tiffany offline, so what value am I getting by buying online?”

If there’s any category killer in the online jewelry space today, it’s probably Wal-Mart Stores Inc., which targets a broader audience and wins the title due to its sheer bulk. Though it doesn’t break out sales by either product category or by channel, Wal-Mart is acknowledged within the industry as the largest U.S. retailer of jewelry.

Total U.S. jewelry sales are estimated at $40 billion for 2002 across all channels, and specialty retailers focused largely or exclusively on jewelry sales will account for about half of those sales. Within that specialty group, Zale Corp., by its own reckoning, is the largest player, second in volume only to Wal-Mart.

The double whammy

The rest of the jewelry marketplace is national general retail chains such as J.C. Penney and Sears, Roebuck and Co., department stores and direct merchants including catalogers and TV shopping networks. Collectively, the online arms of all of these concerns will rack up sales that constitute only about 3.5% of total U.S. jewelry sales this year, according to Jupiter Research, keeping it one of the smaller categories in terms of online sales.

Online, the category of jewelry faces the double whammy of being a high-ticket item whose selection depends less on product specs than on subjective judgment, and by shoppers’ inability to try on before they buy. Retailers such as BlueNile.com and Ice.com win with a focus on defined niches, but national multi-channel retailers depend on larger economies of scale, and they can’t afford to define targets as narrowly. To make the most out of their online jewelry offers, they’ve had to get smarter about cross-channel marketing and merchandising.

In jewelry as in other categories, Wal-Mart, for example, no longer measures its web site’s contribution in terms of transactions alone but also in terms of its other key role as a product and line extender. WalMart.com’s overall strategy is to add products and services that build on the Wal-Mart store shopping experience. To do that in the jewelry category, WalMart.com has in the past year expanded both its assortment and informational content online.

“One of the advantages of the Internet is being able to access information easily, so we can provide that depth of information and the customer can make a more informed buying decision. And it also lets us offer product selection above and beyond what you’d find in a Wal-Mart store,” says a Wal-Mart spokeswoman.

While the company won’t disclose numbers, web site jewelry sales are up “significantly” from last year, driven primarily by sales of bridal and personalized jewelry, she adds.

Expanded offerings

In April, Wal-Mart added to its assortment Keepsake Diamonds, a nationally known brand. While the stores carry a selection of Keepsake diamond rings in both white gold and yellow gold settings, the web site offers every ring in both options. Sales in diamonds and other fine jewelry—gold, silver, precious stones and pearls—have gotten a lift on WalMart.com from the online jewelry learning center, a feature added last year, that offers extensive content on care, cleaning, quality criteria and selection. “Based on that, customers may choose to purchase online, or they may choose to go to the store after they’ve done the research online,” the spokeswoman says. “Either way, we are adding value to their shopping experience.”

Sales of so-called personalized jewelry, a new offering within the past year, also have been booming at WalMart.com. Shoppers now have the option of buying class rings on WalMart.com, customizing them according to their high school’s name and with the stone of their choice. Personalization also is the basis of rising sales of family jewelry, in which a mother may order a ring or bracelet, for example, with different stones representing each child. The web makes for easy placement of custom orders.

QVC has sold jewelry on its TV network since 1987, so when QVC.com launched in 1996, the company had plenty of experience in remote sales for the category. QVC doesn’t break out sales by category or by channel, but jewelry is a big seller on its TV channel. Not surprisingly jewelry was one of the first products offered on its web site, where its popularity continues to grow, according to Bob Myers, senior vice president of merchandising at QVC.com.

QVC’s strategy is to use the web channel to expand its TV offering of jewelry. “While we may be able to feature nine rings in an hour in television, we have more than 1,000 rings available online at any given time,” says Myers. QVC.com sees spikes on featured jewelry the same day the items are featured on QVC-TV. “Many QVC.com customers order products related to ones they purchased on the TV channel,” he adds.

QVC also uses the web channel to offer enhanced product descriptions too cumbersome to feature on TV and an online program guide that helps web shoppers who’d been on the fence about a purchase easily call up the previous day’s TV offer.

Corner stores online

About those corner jewelers? Even they are starting to get online, though sites generally still lack the polish of pure-play jewelers or larger multi-channel players. Jnet.com, an offering of the Manufacturing Jewelers and Suppliers of America, a trade group, offers retailer members various levels of service ranging from the opportunity to create an informational web site to a template for an online catalog and transactional ability. About 150 local jewelers ranging from one-person operations to stores with a staff of 10 are using the service, available since late 2000, says Jnet.com director of operations John Davis.

That number is a fraction of the country’s estimated 11,000-plus independent jewelry stores, some of whom have launched web sites on their own . But the beginning of an Internet presence among even the smallest independent retail jewelry operations is proof that although the web may not change this most traditional of marketplaces overnight, it will change it fundamentally over the long term, and even at the local level.

“The goal for the independents is that they see yesterday’s paper order is not going to ensure that they succeed unless they have a web presence that’s comparable to what their store offers,” Davis says. “Today, most of the people running these independent jewelers are the moms and pops who have done it forever. The next generation that’s taking over the business understands that more of tomorrow’s buyers will be looking online, and if they want to stay competitive, they’ll need to have products online that are searchable and competitive with the marketplace in which they operate.”