When I profiled the new Ritani venture last year, its executives recited two facts that I had often heard but never put together before.
The first is that 80 percent of consumers research their jewelry purchase online before buying. The second is that e-sales represent less than 10 percent of the jewelry biz.
So the question is: Why are so many people searching for diamonds on the Web but not buying?
The people at Ritani say it’s because diamonds remain for many consumers a confusing, expensive, and visually oriented purchase; most want to see, touch, and try on the product before they buy. Plus, many grooms-to-be need their hands held through the process: Some 50 percent of Blue Nile’s engagement ring customers call customer service during their purchase—a number that’s pretty standard for any jewelry site. For all the benefits of e-tail—and it clearly has some—brick-and-mortar still holds a few trump cards as well.
All of which may explain Blue Nile’s decision to set up showcases in two Nordstroms (and possibly more). This marks its first offline venture in the United States. It does have storefronts in China—which, cofounder Mark Vadon admitted at an investment conference, as a dot-com lifer, made him squirm a bit.
But Blue Nile is not alone: Another jewelry e-tailer, BaubleBar, just placed items in Anthropologie. Last year, it opened a pop-up store, as did another site, Gemvara. Ritani’s model is entirely built on clicks and bricks, which CEO Brian Watkins called “the Holy Grail of retailing right now.”
We are clearly seeing a trend. There are plenty of consumers willing to buy a ring just by mouse click; Blue Nile rang up $450 million worth of sales in the last year, and rivals James Allen and Brilliant Earth also do significant business. Yet, as e-tailers look for ways to expand, they see these physical presences as a way to “enhance and grow the brand connection experience for customers,” in the words of a Blue Nile job ad. Or as BaubleBar’s director of offline (yes, that’s her title) put it: “Our customers like to try things on, and they like to go shopping with their friends. So this is another way for us to interact with them.”
One possible stumbling block here is sales tax. Until the whole online tax issue is settled—and it is not clear when, and if, that will happen—e-tailers will likely be pretty cautious about where they pitch their tents. Gemvara’s store is located in its home state of Massachusetts; it already collects tax there. Blue Nile’s Nordstrom showcases are in Washington and New York, states where it, too, collects tax. Its spokesman told me that this is just a coincidence; he says that since Blue Nile conducts no actual sales at these showcases, regular revenue rules don’t apply. I’m not so sure. While I’m not a tax attorney—and one is welcome to weigh in—the nine states with nexus laws will likely look very closely at Blue Nile Nordstrom boutiques, especially since the company is hiring people to man them. (A nexus law requires companies with an in-state physical presence to collect applicable taxes from local residents. According to the Sales Tax Institute, a nexus is created if a company maintains a temporary or permanent presence of people—i.e., employees, service people, or independent sales/service agents—or property, i.e., inventory, offices, warehouses—in a state.)
But there is also a flip side to this issue: If a nationwide online sales tax is ever enacted, companies like Blue Nile or Amazon will be free to open physical stores wherever they want. So while sales tax fairness will give brick-and-mortar stores greater pricing parity with e-tailers, it could also net them some pretty cutthroat competitors down the block.
That’s getting ahead of things. Right now, these experiments are in their infancy. But they’re worth watching. One of the retail buzzwords of the last few years has been online-offline convergence. Up until now, that’s mostly meant brick-and-mortar stores establishing themselves on the Internet. But, increasingly in the jewelry space, things are also moving the other way.