Diamond Reality Check

We are several months into 2007, and I wonder if retailers have learned much from 2006. It was a rocky year for many—except Internet retailers. They seem to have flourished and continue to see double-digit growth. Granted, this is a period in which Internet retailers are picking low-hanging fruit. Many have gone after the core diamond items, which are easiest to describe and readily understood by consumers. But these items have been the critical category for retailers for years, so we shouldn’t be surprised.

We can make some high-percentage predictions. Internet sales of diamonds will become even more entrenched and accepted. Suppliers will rely more on those outlets and enter the field themselves in greater numbers. Pricing will remain tight, because profits for online retailers with multimillion-dollar sales will easily warrant short markups.

The question is, How have brick-and-mortar retailers responded to this sea change in diamond retailing? And how might they react, before it’s too late?

There are three categories of brick-and-mortar retailers: those with no Web site (at risk of extinction); those with Web sites, good and bad, that don’t include e-commerce; and those with Web sites that include e-commerce. This last group at least understands that customer service, now and in the future, means providing people with full information and the ability to buy something. To do otherwise flies in the face of common sense and violates a basic rule of service: Do everything you can to satisfy customers and not frustrate them.

A random check of some online diamond listings offered by traditional retailers left me wondering if some of them had any grasp on reality. While online retailers follow Blue Nile closely and sometimes underprice it, traditional retailers are still fighting the last war. One showed full keystone on the Rapaport benchmark price. (I searched for a 2.00 ct. round, G/VS1, VG/VG, Gemological Institute of America report. Blue Nile was consistently 13 or 14 percent below the Rapaport price and had eight stones that didn’t vary in price by more than 2.4 percent.) Another was 10 percent above Rapaport, another 20 percent over. One prominent store elected to show a “retail” price next to its price, which was far above Rapaport. Some sites offered mounted rings only, did not list any of the “four Cs,” and quoted prices that were much lower—by 30 to 50 percent—than Blue Nile. We can imagine the quality.

This is denial of the worst sort, which destroys credibility. It would be better not to list loose diamonds at all. Tiffany does that, and some retailers have followed that path, though Tiffany has huge, obvious advantages. That might be the middle ground until a real solution is found. And a solution needs to be found if traditional retailers are to retain and win business.

A perfect parallel to this problem existed in the book trade. Amazon proved that the Internet could capture billions of dollars in book sales. Small booksellers around the country wanted to find a way to survive, so they created Bibliofind, a unified site on which one could search the inventories of over 5,000 retailers and millions of books. Old, hard-to-find, and out-of-print books (not Amazon’s strength) are available there. Amazon liked the concept, worked out a merger, and fully supports the group.

Retailers should set aside their insular habits and create a similar site. The benefits would be enormous: much better turn, ability to acquire larger stocks, a listing to rival anything Blue Nile or other online retailers could post, and more. Transactions could be made in the consumer’s locale, with a member retailer.

There is real strength in numbers.