The Internet's Impact on the Jewelry Retailer

By Mark Schneider, president, Mark Schneider Design -- JCK Online, 10/10/2007 2:00:00 AM

The Internet has given buyers the ability to purchase diamonds without setting foot in a jewelry store or consulting a jeweler. It has given entrepreneurs the opportunity to sell a product consumers believe is overpriced and difficult to understand. Sellers have used the Internet to market diamonds in the purest form with little overhead and sometimes no inventory costs. This allows them to sell diamonds for less than a brick-and-mortar jeweler. Most consumers shop price and convenience and believe jewelry stores work on high profit margins. Internet sellers have put pressure on jewelers to lower prices or lose an important percentage of their business. Net profits have been reduced, and gross sales lowered. Accordingly, jewelers will purchase fewer diamonds for stock and rely more on memorandum. Diamond suppliers will charge more for memo diamonds, further eroding the retail jeweler's profit margins.

Consider how Toys “R” Us and Wal-Mart changed the way toys were sold. Toys “R” Us had beautiful stores with well-trained, knowledgeable employees. With its strong purchasing power and large advertising budget, the company put independent toy stores out of business. The toy market changed again when Wal-Mart offered cheaper prices than Toys “R” Us. Consumers became unwilling to pay higher prices for the same goods, despite the customer service offered at Toys “R” Us. The same pattern is developing for diamond retailers.

The jewelry industry has helped diamonds become a commodity by emphasizing the value of a diamond certificate over the importance of the jewelry professional. Consumers believe that if the diamond has a certificate they don't need the assistance of the professional jeweler. For some buyers, diamond purchases are becoming like Wal-Mart shopping, where the lowest prices earn the sale over quality and service. Many consumers are uninterested in the service and quality offered at a retail store. Shopping habits are changing, and low price points are often winning.

Jewelers need to examine their businesses in the context of the competition presented by the Internet. They must adapt and find ways to reinvent themselves to give people a reason to shop in their stores. They should find a niche that makes them indispensable, whether it's providing appraisals, focusing on design, creating and promoting a unique brand, or carrying a product no other jeweler in the area is selling. The jeweler needs to develop a value for his brand so customers will be willing to pay a fair price for jewelry that is special and unique.