Case Study: Tradeshop.

com

By James Maguire

June 10, 2003

To understand how Ray Elsey built his online business, you have to go back to the time before
the Internet, before the shopping mall, back to the era of the little corner shop. These stores were
usually homey little affairs, low on flash, but the proprietors worked with customers individually,
and they were typically lifelong experts in their craft.

Imagine one of these little shops on the Internet and you have Ray Elsey's Tradeshop.com. A
master jeweler, Elsey has worked as a jewelry craftsman since the '60s. His days are spent at the
workbench, turning customer desires into reality using gold, diamonds, platinum and other
precious substances.

True to his roots, Portland, Oregon-based Elsey is more of a craftsman than a businessman. He
does no advertising. "I do none at all," he explains. No banner ads, no affiliate programs, no paid
search engine listings. His sole mass e-mailing was when his brother-in-law became seriously ill
and Elsey informed customers that he would take donations.

The only promotion Elsey ever engaged in was when he frequented newsgroups such as
rec.craft.jewelry shortly after launching his site in 1994. "I'd go there and civilians would come
in and professionals would ask questions and I'd answer them, and pretty soon they asked me to
be the moderator."

According to Elsey, his popularity was due to word of mouth from satisfied customers, which
ultimately drew more and more visitors to his site. According to Elsey, the secret to his success
is three-fold: working with customers on an individual basis; prices that are lower than retail
chains due to his low overhead; and -- Elsey's point of pride -- quality craftsmanship.

True Personalization

Elsey's site will never be called slick. "In 1998 I won the Ziff-Davis Mud Brick Award for the
most chaotic and insane Web site on the Internet," he jokes. But his site does contain the key
elements that allow him to do business online. Chief among these is a small library of customer
testimonials, "happy letters" he calls them, which serve as proof to prospective buyers that he's
an accomplished craftsman.

Also essential, he has posted an online gallery of his custom-made jewelry, which demonstrates
his craftsmanship and serves as a source of inspiration for browsers.

"What happens is that people will look at something and they'll feel seriously compelled and call
up and say 'I want it in platinum, I've got a carat and a half center. What do I do now?'" Elsey
says. "I just had this gal ask me 'how much is this ring?' on my Web site -- this happens to me
every day. I said, 'I made that ring for a gal in Germany ... I designed the project around her
stone. So, I can make this ring for you with any shape stone, any size. Whatever you want.'
What's hard for most people to understand is that my site is an idea factory."

When he begins discussions with prospective customers, Elsey remains focused on his central
tenet of customer interaction: the buyer must be in charge. "I keep working it until I find out
what they want," he says.

Once a sale is made, the site once again plays a key role. The most popular part of
Tradeshop.com is the client preview section, where buyers monitor the progress as Elsey
finalizes the design. With thousands of dollars changing hands, customers have to get what
they're expecting, and the preview section enables Elsey and his buyers to stay on the same page.

"People first see the stone's picture, wax carved, then the stone set, then maybe the ring finished
and hand engraved -- they see it evolve," Elsey explains.

This one-on-one work with customers is a big part of Elsey's success, and it's also something he
enjoys about his business. "I really get into it with the customer, and the excitement, the joy
starts to creep in. I don't get out much," he says, with a laugh.

Undercutting the Malls

Elsey describes his overhead as "less than most companies spend on their utilities." This allows
him to offer custom-made jewelry at prices that mall-based jewelers cannot, he says.

"There's the mall rent and the employees standing around doing their nails on your time -- it's all
expensive," Elsey says. "And those dead cases of jewelry floating around the mall are albatrosses
around the neck of the merchant."

According to Elsey's survey of jewelry mark-ups, for pieces in the $2,500-$3,500 price range,
where most retail sales are made, the average mark-up is 270 percent.

"In that range, for example, I think I'm about 6 or 7 percent... less than 10 percent," he claims.
Elsey makes additional profit because he crafts the pieces himself, so included in his price is
payment for his time.

Also helping Elsey offer lower prices is the lack of sales tax on items sold over the Internet to
out-of-state buyers. This is particularly important for his sale of loose diamonds. "If you're
shopping for a $100,000 diamond, you can't afford to buy it locally, not with the sales tax and the
mark-ups," he says. "We have one fellow up in Canada we saved thousands. And it was the exact
same diamond he looked for up there."

Elsey doesn't hold diamonds in inventory because he can quickly buy them from diamond
wholesalers. "There are diamond houses out there that stock bazillions of dollars of inventory
and anything can be had and on the desk the next day," he says. "I've leveraged that many times."
He says he has no problem with credit card fraud because he never ships until funds are entirely
secured. It also helps that he brought two partners into the business that help with payment
issues. "I do jewelry, and I don't want to worry about that bean counter stuff," Elsey says.

Secret Weapon

There was a point in the late '90s that Elsey's average order size was around $7,000, but he
estimates that now it's about $2,500. This is partially due to the popularity of his handcrafted
Celtic rings, which sell for less than the diamond-encrusted jewelry, which was popular in the
'90s. The Celtic rings have proven so popular that he launched CelticRings.com to promote them.

He also owns the domains AffordableDiamondsOnline and IdealDiamonds, but Tradeshop.com

still gets the vast majority of traffic. Elsey estimates he gets about 35,000 unique visitors a
month.

Through the years, Elsey has learned an essential technique for selling crafts online: the large
photo. "If you look at my photographs, they're huge -- monstrous -- 600-700 pixels across. But
that's the secret weapon: let people look close, then they'll enjoy what they see.

Making the Net Personal

The fact that Elsey runs a sort of "corner shop on the Web," focusing on custom work on a one-
on-one basis, is "the funniest set of contradictions there could possibly be," he says.

"I think everyone's goal on the Internet is to set up some equivalent of a vending machine so
people can shuck their money in, pull the handle, and you don't have to deal with them as a
human being. Well, that's not what I came here for," he says. "My first love is the building and
designing, and it's fun to watch dreams come true."