Irony and De-Nile

Judging from the number of people who called to ask if I’d seen the Jan. 7 New York Times article about Blue Nile, I’d say it hit a nerve in the industry.

Senior diamond editor Rob Bates, in a blog post called “Diamond Media Watch: In a State of Blue Nile” on JCKonline.com, called the article “verging-on-PR” for its laudatory tone. He has a point—the article (accessible through a link on the blog post) does heap praise on Blue Nile and its founder Mark Vadon.

But it also quotes some renowned industry veterans who admit, if grudgingly, that Blue Nile’s success comes as a result of an industry that has largely been in denial—or should we say de-Nile—that the forces of change are pressing hard against old ways.

“Ours is an industry in big turmoil over Blue Nile,” Gary Gordon, chief executive officer of Samuel Gordon Jewelers in Oklahoma City, told the Times. Mark Moeller, owner of the three-store R.F. Moeller chain in Minneapolis, St. Paul, and Edina, Minn., said, “I don’t get up every morning and curse Blue Nile, like some do. But the Internet has certainly affected profitability, there’s no doubt about that.”

The irony here is that both Moeller and Gordon are jewelers well known for innovation, clever and extensive marketing, and a willingness to risk trying something new. Whether it’s Moeller’s in-store full-service bar or Gordon’s jazz party in his parking lot, both men seized upon experiential retailing long before most of the industry had even heard the term. If Blue Nile is giving these jewelers pause, one can only imagine what it’s doing to stores that are not particularly distinctive.

To use an unfortunate metaphor in the wake of disasters like the Asian tsunami or Hurricane Katrina, a major change in any industry—call it a paradigm shift—is like a flood: Nothing in its path is spared the impact. Yet for all our hand-wringing statistics that 500 independent jewelers are closing every year, we’re still in better shape than many other retail categories. Count the independent jewelers in a 10-mile radius from your store. Now count the number of independent book stores, hardware stores, video rental stores, and camera shops. I’m willing to bet there are far more jewelers than any of the others—if any of those even exist. And, while you’re at it, try buying a new-release movie on VHS.

The film-processing industry was devastated by the advent of digital photography. Blockbuster helped put many independent video stores out of business, only to find itself threatened by Netflix. Behemoth bookstores like Borders and Barnes & Noble pushed the demise of local book shops, but they face stiff competition from Amazon.com—which, ironically, knows its customers’ individual preferences as well as the old bookseller down the street used to!

The other irony about Blue Nile is that Doug Williams, the man who launched the original site, wasn’t a dot-com whiz kid. He was an ordinary jeweler. He had a successful business catering to Microsoft employees and other dot-com millionaires in Seattle, but that wasn’t what spurred him to create an online diamond store.

Williams was astute enough to foresee—in 1995—the Internet’s eventual impact on shopping. The Times describes his first Web site, Internet Diamonds, as a bare-bones operation that cost $2,000 (in consultant fees) to develop. Williams wrote some basic copy to help customers understand how to purchase a diamond—no different from what any jeweler would do to educate consumers—and put it online. When Vadon, fresh from a disappointing diamond-shopping experience, stumbled onto Williams’s site and purchased a diamond from it, the stage was set for Blue Nile.

After meeting Williams in person and learning that his $5,800 diamond was merely average among Internet Diamonds’ sales—and discovering that the sale carried very little overhead—Vadon offered Williams $5 million for an 85 percent stake in his company, contingent on actually raising the money. The deal, scribbled in pencil on a napkin as so many of these kinds are, would eventually shift the ground underneath the jewelry industry.

Change—even radical change that fundamentally alters the long-standing traditions and underlying premises of an entire industry—doesn’t have to be calamitous. Those who prepare for it and adapt to it will withstand even wrenching change and, in many cases, emerge stronger. Those who can’t, or won’t, heed the warnings are destined to fall victim to it.

Visit the JCK Voices blog at www.JCKonline.com to read Bates’s Blue Nile post.