Red Herring: Blue Nile Takes on Tiffany

[pricescope]

Red Herring published interview with Mark Vadon, CEO of Blue Nile.

There are a few interesting bits:

If you look at our core markets, they’re San Francisco, Virginia, and Washington, D.C. Why’s a market like San Francisco or Austin, Texas good for us? Because people are so comfortable with technology. They’re letting it impact their lives.
....

What physical retailers do is mark it up 100 percent. Running a jewelry store is expensive. The basic model is “buy for $1, sell for $2.”

At Blue Nile, gross margins are 22 percent. We buy for $1,000, and sell for $1,300. That’s why we’re scaling to be what we are. We’re offering high-quality products, and we’re offering a lot of information.

At physical stores, you’re selling customers products made up of commodities. There’s so much of a markup, you don’t want to tell them too much. You avoid answering any questions about the product and appeal to the romance of the product.
...

Men aren’t shopping the same way as women. Women want to see how a bracelet feels, where the necklace falls. We’re very focused on men. The need we’re answering is that of the male consumer. The typical consumer is a male between 23 and 34 years old, belongs to a higher income group, and is well-educated. Some 96 percent of our consumers have some college background or more.

Full Interview

 

[valeria101]

... making room for a girlie version?

 

[AGBF]

Date: 12/10/2005 6:10:25 PM
Author:Pricescope
If you look at our core markets, they''re San Francisco, Virginia, and Washington, D.C.

It is interesting that so many Pricescope members (or at least active Pricescope members) also live in the Washington, D.C. area, which includes parts of Maryland and Virginia as well as the city of Washington, D.C. itself!

Deb

 

[Garry H (Cut Nut)]

They are very very small returns on shareholders funds invested 1.5%.
And interewsting that both tiffany and blue nile make about the same return - even though Tiffany''s gross markup is about 60% and BN is 22%.

So one must wonder what the profitability is for the smaller players who are selling on 5-10% margins?

 

[Paul-Antwerp]

Date: 12/11/2005 6:09:51 PM
Author: Garry H (Cut Nut)
They are very very small returns on shareholders funds invested 1.5%.
And interewsting that both tiffany and blue nile make about the same return - even though Tiffany''s gross markup is about 60% and BN is 22%.

So one must wonder what the profitability is for the smaller players who are selling on 5-10% margins?

Total sales projected for Blue Nile (2005) are 205 to 212 million$. Gross margin of 22% gives a gross profit of around 46m$.

Net profit will probably be between 10 and 12m$. Thus, a whopping operating cost between 30 and 35m$.
Garry, you are right, a return for the shareholder of 1.5% is not really a lot.

The amazing part is that they only have an inventory of 8m$, thus most of the sales come from virtual lists.

Live long,

 

[mepearl53]

http://biz.yahoo.com/t/76/5052.html Looks to me that he can''t sell the stock fast enough

 

[gailrmv]

Date: 12/12/2005 4:22:08 PM
Author: mepearl53
http://biz.yahoo.com/t/76/5052.html Looks to me that he can''t sell the stock fast enough

YIKES, no kidding!
Major selling points for Tiffany include the name brand equity and the history, not to mention the in-store experience. Blue Nile just doesn''t have any of those. To me, when a person is going to shop on the internet, they want to find the best price from a reputable dealer. There are several reputable dealers that get cited all the time on this site that can beat BNs prices most of the time... so where do they see their niche really? The only value-add that I see blue nile offering is an easy to navigate website and some nice settings (at least based on the pics).
This is very interesting.

 

[Garry H (Cut Nut)]

Wow!!
He has about $50 million in stock and seems to have sold off about $10-20Million.

Anyone bothered to add it up?

I do not think he is too worried about the 20 year plan.
Only the "where will I ''spend'' the rest of my life?" plan

 

[Paul-Antwerp]

Is it possible to see how much of these stock-sales were buy-backs by the company itself?

 

[valeria101]

Date: 12/12/2005 11:23:08 PM
Author: gailrmv


BN ... so where do they see their niche really? The only value-add that I see blue nile offering is an easy to navigate website and some nice settings (at least based on the pics).

Second Garry on this ... Why would they need one, it was more than enough that they've been the first virtual diamond shop to take off.

I am not sure if Blue Nile was truly the first to sell diamonds online. Were they?

 

[mepearl53]

I''ve got a problem with the way this guy generalizes all B&M stores. I don''t think the media askes the hard questions about business and it''s easy for a defenseless B&M industry, who doesn''t get the media exposure, to sit back and let this guy bash it I, for one, am sick of it. Sure many do not have a clue as to the growing market the internet will provide but to say they are all over priced and mark up their jewelry 100% is a bit off the mark. There are many I know of that are very competitive with the market place and many more will join in as the net grows. I do believe that a web presence will have a lot to do with the future of B&M''s competing in the future for growth. These guys are masters at PR. Every business magazine wants a winner and will print whatever comes out of their PR machine, true or not. To read the Motley Fool business overviews of them one would wonder if we don''t have a bit of stock pumping going on. My big fear if I was on the radar as they have become is Walmart and Cosco.

 

[gailrmv]

Date: 12/13/2005 8:20:21 AM
Author: valeria101

Date: 12/12/2005 11:23:08 PM
Author: gailrmv


BN ... so where do they see their niche really? The only value-add that I see blue nile offering is an easy to navigate website and some nice settings (at least based on the pics).

Second Garry on this ... Why would they need one, it was more than enough that they''ve been the first virtual diamond shop to take off.

I am not sure if Blue Nile was truly the first to sell diamonds online. Were they?

Sorry, I don''t understand your comment? Did you mean to direct this to Garry?

 

[valeria101]

Date: 12/13/2005 11:43:18 AM
Author: gailrmv

Date: 12/13/2005 8:20:21 AM
Author: valeria101

Date: 12/12/2005 11:23:08 PM
Author: gailrmv


BN ... so where do they see their niche really? The only value-add that I see blue nile offering is an easy to navigate website and some nice settings (at least based on the pics).

Second Garry on this ... Why would they need one, it was more than enough that they''ve been the first virtual diamond shop to take off.

I am not sure if Blue Nile was truly the first to sell diamonds online. Were they?

Sorry, I don''t understand your comment? Did you mean to direct this to Garry?

No... sorry for the confusion.

I was only wondering myself about the strong point of BN.

 

[Paul-Antwerp]

For the corporate raiders among us: take-over target?

 

[gailrmv]

Date: 12/13/2005 1:04:22 PM
Author: valeria101

Date: 12/13/2005 11:43:18 AM
Author: gailrmv

Date: 12/13/2005 8:20:21 AM
Author: valeria101

Date: 12/12/2005 11:23:08 PM
Author: gailrmv


BN ... so where do they see their niche really? The only value-add that I see blue nile offering is an easy to navigate website and some nice settings (at least based on the pics).

Second Garry on this ... Why would they need one, it was more than enough that they''ve been the first virtual diamond shop to take off.

I am not sure if Blue Nile was truly the first to sell diamonds online. Were they?

Sorry, I don''t understand your comment? Did you mean to direct this to Garry?

No... sorry for the confusion.

I was only wondering myself about the strong point of BN.

Yes, I am wondering this myself. I suppose with the name brand recognition they probably have a good amount of marketshare of online sales. Does anyone have any interesting articles they can share about marketshare, financials, etc in the diamond and jewelry business? Would love to learn about the industry from a business perspective, not just as a consumer.