Mark Vadon’s Legacy—and Blue Nile’s Future

With the news that Mark Vadon is leaving Blue Nile, there was a lot of talk on the company’s conference call about his “legacy.” 

Vadon changed the industry, probably more than he ever dreamed starting out. In the ’90s, debates over diamond “commoditization,” jewelers talked with horror about diamonds being one day sold out of vending machines. Vadon, in a way, built the ultimate diamond vending machine. And now there is scarcely a jeweler out there who doesn’t know/compete with/have an opinion about the company. Most have been forced to up their game, and lower their prices, as a result.

Blue Nile was built on what Vadon once called a “beautiful model” featuring low prices, low inventory, and quick turnaround. And yet, perhaps the most underappreciated aspect of Blue Nile’s business has always been its solid customer service. But Vadon always knew that was key, telling CNN:

I’m obsessed with Starbucks. I was talking to one of its executives and asked him why they have grown so much when other people have tried and haven’t. And he said, “Well, there are 1,000 little things that impact the customer where we’re 10 percent better than anybody else.” I think that’s exactly what we’re trying to do: stay focused on all the tiny little details that matter to customers.

Maybe it’s because of those details that 13 years after it was founded, Blue Nile is still the number one company in the jewelry dot-com space.

And yet, for all this, there is a sense that the ultimate online jewelry business model may still be out there. The former Blue Nile executives working at the new clicks-and-bricks experiment Ritani seem to feel their former employer is vulnerable; one told me he was shocked that, after years of touting the benefits of selling diamonds online, how nerve-wracking it was to return one by mail. Even Blue Nile is slowly but surely moving away from its former model and carrying more “non-engagement” pieces and launching new brands.

This all makes sense. Lately, Blue Nile has shown an impressive growth but—because of its low margins and now-expanded investments—not particularly impressive profits. In its latest quarter, its net income was $2.2 million on $108 million worth of sales. That makes the company less profitable than it was in the past; in the second quarter of 2007, it made $3.8 million on $72 million worth of sales.  And yet, raising margins would drive customers away, for its customer acquisition strategy has, up until now, been built almost entirely on low prices. 

With a new era coming at Blue Nile, let’s hope that it sheds some of its former baggage. Blue Nile has historically had a lot of antipathy towards the rest of the industry—which the industry has largely returned. That mutual wariness was the basis of a memorable 2007 New York Times article about the company. 

Whatever happened in the past, Blue Nile is now an important part of our business, as much as Signet or J.C. Penney is. Not only does the industry need to be more accepting, but a company whose business is based on diamonds should be more active and vocal about consumer confidence efforts like the Kimberley Process. It has been largely absent from debates about this industry’s direction, even though its fortunes are ultimately tied to the larger trade’s, and as a public company, rules like Dodd-Frank Act Section 1502 affect it as much as anyone. Really, it is kind of crazy it hasn’t made its voice heard more. (It is active in Jewelers for Children, to its credit.)

All in all, Mark Vadon built something important and wildly successful. Still, he came from a financial, rather than jewelry, background, and Blue Nile often seemed more like a clever business model come to life than a company that had any real passion about what it sold (an “Amazon for jewelry,” as its current CEO put it). Now, we are seeing that change, and whatever jewelers feel about Blue Nile, that’s for the good. The more Blue Nile can nurture the jewelry-buying habit, the better it is for all of us. If the first Blue Nile era was all about price, let’s hope the second era can be about more.

JCK News Director