Harvey Kanter, the chairman, CEO, and president of Blue Nile, spoke to JCK last week, after first meeting prior to his appearance at a panel at the JCK show in Las Vegas in May. Here, he talks about his company’s plans for more brick-and-mortar stores, the shopping habits of millennials, and his company’s J. Crew aesthetic.
JCK: Many jewelers who have gone into branding sell diamonds based on cut. Blue Nile has specifically hooked up with designers. Any reason?
Harvey Kanter: We have a strong orientation as a specialty retailer to bring a specific design aesthetic to the market that we think provides choice and selection for our core customer. Our core customer is just slightly north of a 30-year-old millennial. We are trying to curate a collection of designers that represents different aesthetics for more choice. It’s not about slapping on a name. It’s about creating unique choice and selection.
JCK: You have talked about the Blue Nile aesthetic. How would you term that, and how does that play into those brands?
Kanter: The millennial customer is younger, slightly more modern. You could call [their taste] updated classic. If you think about the three core designers: Monique [Lhuillier] is lacy, frilly, and more feminine, a little more traditional but updated. Zac [Posen] is more modern, certainly younger. Colin [Cowie] is in the middle, having an element of modernity but a traditional element. Our customer is not that forward, [meaning] trendy and fashionable, to the point of cutting edge.
JCK: So your customers are not that trendy.
Kanter: We feel that our customer’s aesthetic fits really well with the J. Crew design aesthetic, if that’s a good reference point.
JCK: Does that surprise you, given you have younger consumers?
Kanter: If you think about the core value of marriage—and people hopefully [committing to] 50 years of marriage—you don’t want to have the most cutting-edge fashion on your finger because you are going to have it for the next 50 years. Those values are as traditional for the millennial as for the baby boomer.
JCK: Blue Nile is known for targeting male consumers. How do you pivot to attracting female buyers?
Kanter: Sixty percent of our revenue is driven by engagement rings, and they are traditionally bought by men. But 60 percent of our traffic is a female customer. So there’s a crossover.
As you may know, about one-third of engagement rings are bought by males with no influence from the female. For the other 60 percent, the female is heavily influencing the purchase, or actually shopping with the male. She’s an important part of the process. I don’t think there is as bright a line as you are trying to [infer] concerning our consumer base.
JCK: Do you think that Blue Nile has to change its consumer perception to sell fashion jewelry?
Kanter: No disrespect to you, but you may or may not appreciate that Blue Nile is one of the largest online nonengagement retailers in the world. As big or as small as we are, we are one of the largest. We will ebb and flow, but our intent is to grow the nonengagement side of the business. Strategically, we believe designers are bringing a unique collection and greater choice to the millennial customer. We believe it will continue to grow.
JCK: You opened your first store, or webroom, in Garden City, N.Y., last month. Can you explain the reasoning?
Kanter: In 2014, we tested display cases of bridal jewelry in two Nordstorm stores. We were testing the hypothesis that there might be a segment of customers that want to see, touch, and feel product, and that by giving them more choices to shop—not just on a PC or tablet or phone, but now in stores—the advantage of the online environment might be furthered.
On average, about 90 percent of visitors specifically came for Blue Nile, versus being random customers to the Nordstom store. They had great purchase intent. That is a powerful statistic for us.
JCK: Why do you think that 90 percent went to the store, as opposed to just buying online?
Kanter: They gave us a mix of reasons. Some wanted to try [items] on. Some just wanted to interact with the product. Some wanted to talk to someone live. Some weren’t comfortable buying online.
The Blue Nile webroom
JCK: Many e-tailers, when they open a physical store, have tried to reinvent the retail experience. How is the webroom different?
Kanter: The webroom is a display of the products we sell. You can’t take them with [you]. It has all the advantages of online, like our online prices. Our sales associates are non-commissioned, just like in our call center, which is atypical of the retail environment. We have about 400 styles. The majority is engagement, but we also have wedding bands and a very small selection of fashion jewelry.
One thing that is interesting about the experience: When the customer comes in, the first thing they can venture into is a fixture where they don’t even have to interact with a sales associate. We have 18 different rings on the fixture, which are tethered, and they can put the rings on, play with them, and have fun, and just have an incredible experience in an open-sell environment, which is atypical of a jewelry store.
In the event that they want to interact with us, they can sit down at what we call our version of the Apple Genius Bar. We have an iPad and settings they can try on. We talk about all the elements of diamond jewelry and browse the 240,000 stones on our website. We can help educate about the Four C’s, and all the different elements of a diamond.
They can purchase in the store [via the iPad], or they can go home and think about it and purchase at home. At Nordstrom, a great deal of the customers went home and within the week purchased. But we saw an increase in conversion and revenue, which propelled us to open a freestanding store. Interestingly enough, in the New York store, we are seeing a greater number of customers buying in the store in real time.
The store itself is pretty powerful. We have a digital wall with a social media element that’s in real time so you can post on Facebook, and it will flash upon the wall. We have a video about Blue Nile that tells the story of our history. It’s a powerful interactive experiential concept, which is important for millennial customers.
JCK: Do you plan more webrooms?
Kanter: We have said publicly we wouldn’t be testing one store if we didn’t have a vision of having more than one. But honestly, it’s an experiment. We’ll learn as we go. That is what we did with Nordstrom and that is what we are doing with this store. I don’t have a vision of what store count looks like.
JCK: Blue Nile often talks about how it doesn’t have the same costs as traditional retailers. Now that you have a retail store, will that change?
Kanter: On the contrary, we are incredibly efficient in the footprint versus the massive overhead of traditional stores. The store is less than 500 sq. feet, and the selling square footage is less than 400. We have just a smaller footprint and have maintained what’s fundamentally a different cost model.
JCK: And that lesser cost model is because of the smaller size?
Kanter: Absolutely. We have less fixtures, we have less salespeople, we have less square footage, we have less inventory.
Inside the webroom
Kanter: Yes, it’s all about creating greater awareness. Some of the new customers are people who didn’t know us. Which is exactly what creating a webroom is all about.
JCK: Do you feel Blue Nile needs to increase consumer awareness?
Kanter: There is no question we need to increase awareness, because, most importantly, the consumer online penetration [for jewelry] is slower to evolve than in other categories.
On his blog, Edahn Golan wrote we were one of the leaders and more serious investors in marketing compared to other specialty stores in the jewelry category. If everyone invested in marketing at the level we do, the industry would benefit.
In Q1, we spent more on advertising as a percent of revenue than we ever have. We will continue to invest in marketing to grow our business. We have grown our marketing from just over 4 percent of revenue to well over 5 percent.
JCK: You mentioned that less jewelry is sold online as a percentage than other categories. Why do you think that is?
Kanter: I used to work at an apparel company. The average transaction value is about $100. Consumers were not spending $7,000, which is the average transaction value of our engagement business. Over time, that millennial customer will continue to transition. They use the mobile phone more than other generations have historically. Our challenge is to help them understand all the benefits to buying online, which is what we believe the webroom will do.
JCK: If you want more webrooms, will sales tax will be an issue?
Kanter: I will give you the standard answer: Whether or not the sales tax law passes, we offer consumers incredible value. The only difference is, if sales tax passes, we will collect sales tax.
We collect sales tax today in Washington and New York, and those are two of our strongest markets by far.
JCK: Regarding New York, it passed a sales tax a few years ago. Did that affect sales?
Kanter: When [the online sales tax law was passed in] New York, it was during a recession, and so it’s hard to understand whether the recession affected us or something else. On a per capita basis, New York is one of our strongest markets today, and we charge sales tax there.
JCK: Would you set up a store in a state that would make you incur sales tax?
Kanter: Honestly, I can’t answer that, because I don’t know. The store is an experiment. We will see how well it works. We’ll make decisions based on that.
JCK: There is talk that millennials are less interested in diamonds. Do you find that to be an issue?
Kanter: I would remind you of the conversation on the panel [in Las Vegas]. The feeling among the panelists was: A great deal of millennials, as well as the majority of couples, still want engagement rings and a traditional experience.
JCK: Do you see Blue Nile getting more involved in industry issues, such as conflict diamonds or synthetics?
Kanter: As appropriate, we will get involved in issues. We are very involved in Jewelers for Children. [Kanter is a board member.] We have not historically been involved in that. We are getting involved in panel discussions, which we also haven’t done. So yes, we are part of the industry, and will get involved in issues or opportunities to help propel the industry.
JCK: Anything else you would like to say to the industry?
Kanter: Blue Nile would like to continue to be an important part of our industry, and I think we are.