September/October 2003 • Style: The Alchemy of Beauty • Selling: Living the Online Dream • Sources: Sparkle in Peace • Fall Show Guide Exhibitor Lists and Floorplans • Books: Tahitian Pearl • News & Updates • In This Issue

By Derek Moscato

Internet jewelers that survived the dot-com shakedown are finally getting to the good part.

The Internet used to be perceived as a source of infinite customers and profits for the jewelry retail business — at least in the early days. But perception eventually gave way to reality. Times changed, thanks to the dot-com meltdown that ravaged stock portfolios and put retail and e-commerce Web sites into proper perspective.

As it turned out, online retailers — jewelers or not — were not going to rake in easy millions from hawking goods online. At least not at the very beginnings of e-commerce. But where retailers could be successful online was by using the medium for targeting niche markets, selling specialized products, or complementing offline sales strategies. Heady profit and customer expectations weren't such a pipe dream after all.

The early days for the jewelry industry online proved to be tough going. Many sites struggled, finding that consumers were simply not ready to trust them with a big-ticket purchase.

14K white gold ring with blue topaz and diamonds. Photo courtesy Jewelry.com

But thanks to a mix of consolidation, tempered growth, and reasonable expectations, the jewelry retail business now finds itself on steady footing online.

The result is that those successful on the Internet front have been able to transform the medium into a different kind of venue for selling jewelry.

"What is for sure today is that the competencies required to manage an online business are different from an offline business," says Fred Mouawad of online retailer Mondera. "The technology, marketing, presentation, customer service, and even merchandising are different online. It is a matter of focus."

For those able to manage online businesses well, rewards abound. According to Virginia-based industry watcher comScore Networks, online jewelry and watch sales rose 45 percent during the 2002 holiday season to $216 million, making it the fifth fastest-growing category for the period tracked, between November 1 and December 20.

Success stories abound.

Take Tiffany & Co. Earlier this year, the high-end jewelry retailer announced solid sales and earnings growth in its just-completed fourth quarter. The company's overall direct-marketing sales, which includes e-commerce, catalog, and business sales, increased 13 percent in the fourth quarter to $69.3 million.

E-commerce sales alone grew more than 50 percent in the quarter, company officials said on a conference call with investors and analysts. Such sales have now surpassed Tiffany's catalog sales.

"The economy may be gloomy, but Tiffany continues to glitter," raved a report from Wall Street publication TheStreet.com. "Tiffany's sales growth in the quarter was driven by strong sales in its Internet business."

14K yellow gold ring with peridot and diamond accents; photo courtesy Jewelry.com.

In April, online jeweler Blue Nile posted its third consecutive quarterly net profit. The Seattle-based outfit's first-quarter revenues increased 112 percent, reporting sales of $25 million for the three-month period ending March 31.

And Mondera, according to company officials, is about to enter its fourth consecutive quarter of profitability, and is on target to achieve a profit for the calendar year of 2003. Revenues this year are expected to increase by at least 40 percent.

"The bridal market is the core market for Mondera," says Mouawad. "Mondera does 80 percent of its business with engagement rings and wedding bands." He adds that a whopping 50 percent of jewelry sales made on the site are by men buying gifts.

Diamonds are the huge draw online — and the catalyst for Internet growth. Blue Nile, for example, was founded during the late 1990s when CEO Mark Vadon saw the need for an easier, less-confusing way to make jewelry purchases online, especially for men buying engagement rings.

Other gemstones are also gaining momentum online, as consumers become more and more comfortable with e-commerce.

According to Mouawad, sapphire jewelry is a popular seller, with an average price point of $370 (compared to an average ticket price for the retailer of $1,500). Other colored stones attracting consumer attention at Mondera include ruby and amethyst.

According to Kristian Chronister, vice-president of retail facilitator Jewelry.com, blue stones in white metal are perennial bestsellers on the colored gem front, with sapphires, blue topaz, and even blue-tone stones like tanzanite all doing well consistently. Chronister is also seeing "continued strength with some pink tones — pink tourmaline with pearl always is popular — and in multi-colored items."

At online retailer ICE.com, it's not the confused male buyer that takes center stage, nor the wedding and engagement ring market. Rather, it's the fashion-geared female looking for cutting-edge jewelry.

"We have a unique style of advertising and design. Our jewelry is fun and stylish," says Pinny Gniwisch, vice-president of marketing at ICE.com. "Our colored line of jewelry is vast and varied. We look for pieces that appeal to the young and hip women who are looking for some jewelry to liven up an outfit."

According to Gniwisch, "women on the run" and "first-time buyers that are interested in getting value for their money" make up the target market for the online retailer.

Yellow gold ring with citrine and diamonds; 14K white gold ring with blue topaz and diamonds. Photo courtesy Jewelry.com.

Catering to the fashion-oriented market isn't a new phenomenon, mind you. Department stores with an online presence, such as Nordstrom and Neiman Marcus, have employed a similar strategy. But ICE.com has established itself as unique in combining fashion with value in a "pure play" Internet setting. Not surprisingly, colored stones play a more prominent role for the e-tailer.

Tools of the Trade
What makes the online experience so gratifying for consumers and retailers alike is the unique user experience the digital environment offers. Buyers can browse through an unlimited product lineup online, and usually within a fraction of the time normal for the offline environment. They can also pinpoint the kind of product they want based on price point, type, color, or occasion.

One site, Jewelry.com, has gone so far as to set itself up entirely as a meta-search engine for online jewelry retailing. "We allow the user to view the inventory of multiple online retailers through one search, find what they want, and then buy it from one of those retailers," says Chronister. "We facilitate jewelry purchases, but don't transact them."

According to Chronister, the site takes its cues from its retailers and manufacturers about what to list online based on what's selling well and what new products have strong support behind them. And like Blue Nile, Jewelry.com takes a special interest in the market of men who are often intimidated and confused in making a jewelry purchase.

User-friendly interfaces and consumer tools aside, another vital aspect to the online jewelry trade is maintaining a reputation for top-notch customer service. ICE.com, which lays claim to high customer performance marks from industry watchers BizRate.com and Gomez, has parlayed a satisfied customer base into an additional selling upside.

Yellow gold ring with amethyst center stone and diamond accents.

"This is how we build trust with our customers," according to company founder Sam Gniwisch. "Maintaining trust with our customers is the key to our success."

The Bigger Picture
Of course, success for online jewelry retailers depends to an extent on the overall online retail climate. Individuals who have purchased books, travel, or electronics online are more likely to be trusting of jewelry sellers.

And the big picture is certainly looking good. The first quarter of 2003 produced online shopping sales of $12.8 billion, representing a 27 percent increase over the same period in 2002, according to research firm BizRate.com. The increase came at a time when the U.S.-led war with Iraq had some retail industry watchers jittery over the fallout with American consumers.

"With the economy stuck in second gear, consumers are flocking to the Internet to reap price savings and stretch their dollars further," says Bizrate president Chuck Davis. "Online shopping is thriving both in war and peacetime conditions."

10K yellow gold ring with rubies and diamonds. Photo courtesy Jewelry.com.

For online jewelry retailers, that translates into an ideal setting for market growth, and an opportunity to introduce new products — including a wider variety of colored stones — into the mix. It's also a time to re-evaluate the online medium during a new era of profitability for e-commerce outfits, including jewelry.

"The companies that focus online and build the required competence to sell well online will stand to gain the most," says Mondera's Mouawad. "Online consumers are some of the most discerning and diligent in their research. They will gravitate toward the best companies."

Meanwhile, profits and innovation have replaced reckless growth as the foundation for the new industry. "Mondera has effectively shifted from a philosophy of growing fast at any cost to growing steadily and profitably," says Mouawad.

For all successful online companies, it's a retail philosophy grounded in volatile dot-com history and sound business acumen.