BLUE NILE AND

DIAMOND RETAILING
Group 4:
Adhithya R- 20PGDM005
K Sriram Manoj- 20PGDM028
Kanhaiya Poddar- 20PGDM149
DIAMOND RETAILING INDUSTRY

● Diamond is generally considered as a high end product with unpredictable demand with high
information complexity.
● The 2008 economic crisis was a difficult period for diamond retailers and wholesalers
● Diamond supply had to be curtailed due to decline in demand
● Huge producers such as De Beers were increasing supply into an already oversupplied market
● Discount retailers like Walmart thrived over traditional jewelry retailers like Friedman and
Whitehall
● Competition has increased heavily for the shrinking number of customers, creating difficulty in
understanding success factors
 Blue Nile
1 3 5 6

Company called Internet Diamond Company sold more By 2014, Blue Nile
Internet Diamond was renamed than 70000 rings offered more than

End of 1999
started, run by as Blue Nile larger than a carat. 1,40,000 diamond

2014/15
Seattle jeweler On its site.

By 2007
Doug Williams International

1995
sales increased
to $81 million.

1999

2012

2007
Mark Vadon joined Launched website
The firm In Canada and the
UK and opened an
Office in Dublin
2 4
2016
Blue Nile opened
Company started 5 brick and mortar
selling more webrooms. In Nov
product variety Blue Nile entered
such as rings, into an agreement
Necklace, etc. To be acquired by
Bain Capital and
Bow Street LLC
6 7

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 Blue Nile

Products Philosophy Tactics

High quality diamonds and “Offer high quality diamonds Low-pressure selling tactics
fine jewelry, engagement and fine jewelry at outstanding that focused on education.
rings, non-engagement 11 prices. When you visit our
website, you’ll find
22 Besides explaining 4 Cs,
Blue Nile allow customer to
products such as rings, build their own ring.
extraordinary jewelry, useful
neclaces, pendants, etc. guidance, and easy-to-
understand jewelry education
that’s
occasion.”
perfect for your 33
66
Other info Resolution Markup and Hurdle
1. Started with only one Warehouse in in
The markup for the company was
USA Blue Nile offered a 30-
2. Dublin office offered free shipping to
several countries in Western Europe.
55 day money back
44 20% while other’s keep 50% markup.
Thus BN provide good value to it’s
3. In june 2007, sold a single diamond for customer. The hurdle was some
$1.5 mill.
guarantee on items in
customer did not care as much about
4. Huge network of supplier. original condition. underpricing the competition.
5. Started webrooms for online experience in
a physical location though all transaction
took place online.

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 Zales
1 3 5 6

Zales Jewelers was Company was Company became Company announce

established by purchased in a public again and to close approx
Morris Zale; William leveraged buyout operated nearly 105 stores, reduce

By 2005
Zale; Ben Lipshy by Peoples Jewelers2400 stores. inventory by $100
of Canada and million and reduce

1924

1986

2008
Swarovski staff by 20%
International

1941

1992

2006

2014
Opened 12 stores Debt pushed Zales Zale CEO forced to In May Zale Corp.
in Oklahoma and into Chapter 11 resign as his was acquired by
Texas bankruptcy for a strategy didn’t work.Signet Jewelers Ltd.
year. A new CEO was Company’s focus
appointed. on Omnichannel
allowed it to
achieve online
2 4 6 sales of $360 7
million in 2015.

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 Zales

Products Marketing Strategy Company’s Division

Diamond Jewelry, gold “To offer a credit plan of “a 1. Piercing Pagoda – ran mall based
jewelry, etc. penny down and a dollar a kiosks selling jewelry to teenagers.
11 week.” 22 2. Zales Jewelers – sold diamond
jewelry for working class mall
shoppers.
3. GBB and BFJ – offered even
pricier products out of fancier malls.
33
66
Other info New Strategy Zales Strategy
1. Company announced a plan to close Zale returned to its role as a
105 stores, reduce inventory by $100
Due to declining market share to
million, and reduce staff in company
headquarter by 20%. The goal was to
55 promotional retailer focused on
diamond fashion jewelry and
44 Walmart and Costco, Zales dumped
its lower-value 10-karat gold jewelry
enhance the company’s profitability and diamond rings. The company had and modest-quality diamonds as a
improve overall efficiency. success with this new strategy makeover. The goal was to make the
2. After many years company finally but was hurt by rise in fuel prices
reported a profit in the year 2012. jewelers more upscale and fashion
in 2007. conscious. The Strategy failed.

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 Tiffany
1 3 5 6

Tiffany opened as Introduced famous Tiffany established Tiffany had 275

stationery and fancy “Tiffany setting” for Diamond-processingstores and
goods emporium in solitaire engage- operations in boutiques all over

By 2012
New York city. ment rings. Canada, SA, China, the world.
Vietnam.

1837

2003
1886

By 2007
1845

1987

2012
Published its first Company went 40% approx. 90% of Tiffany
catalog public diamonds were net sales came
produced from from jewelry,
rough diamonds with approx 48%
purchased by the of net sales coming
company. from products
containing
2 4 6 diamonds. 7

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 Tiffany

Products Brand Power Tiffany Outlets

Diamond rings, gemstone Tiffany’s brand associated with 1. Total 275 stores
jewelry, non-gemstone quality, luxury, and exclusivity. 2. US – 90 stores
gold, platinum, sterling 11 No other retailers enjoyed high
margin as Tiffany enjoyed. The
22 3.
4.
Japan – 50 stores
Asia-Pacific – 65 stores
silver jewelry, watched and 5. Stores size ranged
company listed its strong brand
other high-end items for as a major risk factor because between 1300-18000
home such as crystal. dilution in its brand image would sq.ft
have negative impact on its
margin.
33
66
Sales Data Other Info Sales Channel
1. NY store contributed 10% of the 1. In 2007, company sourced 60%
company’s sales. of its jewelry from Internal 1. Manufacturing facilities (Rhode
2. Category D sales represented 58% of total
sales for the direct channel.
55 2.
manufacturing facilities.
The company had a separate
44 Island and NY) – Retail stores –
Customer.
3. ½ of retail sales came from high-end customer fulfilment center for 2. Supplier – Retail Service Center
products such as diamond rings and processing direct-to customer
orders.
(New Jersey) – Retail Stores –
gemstone jewelry.
4. In 2012, 90% of Tifanny net sales came 3. In 2007, approx. 40% diamond Customers.
from jewelry with approx. 48% coming from were produced from rough 3. Online channel website and
products containing diamond.. diamond. catalogue.

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Key Success Factors in Diamond Retailing for Blue Nile

● High-quality diamonds and find jewellery and outstanding prices

● Educating the customer and assistance during the purchase

● Cut, colour, clarity and carat

● Personalisation of ring

● Reducing the inventory to enable lowering the prices

● 30 day money back guarantee Infosys trust in their customers

Key success factors for Zales

● Credit plan of a penny down and a dollar a week

● Very low delays in introducing new merchandise

● Send the discontinued inventory from failed upscale strategy

Key success factors for Tiffany

● C
ZALES
TIFFANY

Tiffany supply chain:

Manufacturing Facilities (Rhode Island and New York) (60% of its jewelry)

Retail Stores (275 stores: 90-USA; 50-Japan; 65-Rest of Asia)

Customer

Retail Service center (All over the world)

Retail Stores

Customer
Q1. Key success factors in diamond retailing
Factor BLUE NILE ZALES TIFFANY

Product variety High quality diamonds, Lower product variety Low product variety but
140,000 varieties offered than Blue Nile multiple category of
on website. Later also products.
added non-engagement
products.

Product Availability Inventory is aggregated Multiple stores and thus Multiple stores and thus
at a single warehouse. high Inventory. high Inventory.

Response Time High Low Low

Customer Experience Good (Home delivery) Good Good

Order Visibility Difficult but essential Less an issue Less an issue

Returnability Expensive and difficult to Cheaper and easier Cheaper and easier
implement as well costly.
Cost Factor
Cost Factor Blue Nile Zale Tiffany

Inventory Inventory is Inventory is Inventory is

aggregated at a aggregated at aggregated at
single warehouse. stores. Thus high stores. Thus high
Thus less cost. cost. cost.

Transportation Cost is high Cost is low Cost is low

Facilities and Single warehouse Multiple stores thus Multiple stores thus
Handling thus cost is low cost is high cost is high

Information Expensive and Simpler Simpler

Significant Infrastructure and Infrastructure and
investment to comparatively less comparatively less
integrate. investment. investment.
Financial Analysis
Q2. What do you think of the fact that Blue Nile carries stones priced at $2500, whereas a
large fraction of products in Tiffany website are priced at $200? Which of these categories is
better suited to the online channel?

● Blue Nile has a fully online business model whereas, Tiffany only sells non gemstone silver
online which is its secondary product.
● Blue Nile had lower inventory cost and facility cost compared to Tiffany which has 275 stores
worldwide.
● Blue Nile Inventories were only $33.3m while Tiffany has $2234.3m in inventory
● Broad product variety and availability offered by Blue Nile are beneficial with online channel
● Tiffany had a very strong brand image and shifting high end products into online channel would
be a risky move considering its trusted customer base and could dilute its brand image.
Blue Nile’s strategy is better suited to online channel because:
➔ It has high product variety along with cost advantage, which they could attain through less
inventory holding costs.
➔ Higher priced stones are a low demand product and hence it is better to reduce the burden of
holding inventory in retail stores
➔ Tiffany’s main strength is its brand image, luxury products and the customer perception of its
retail stores, which could get diluted with online sales.
➔ Apart from that, Tiffany’s strategy has been successful, because the low value products account
for majority of its online sales and high end products account for majority of its retail sales.
Q3. What do you think of Tiffany’s decision to not sell engagement rings online?
What do you think of Blue Nile’s growth into the non-engagement category?

Tiffany sold high-end products through retail stores.

More than half of the retail sales came from high-end products with avg sales price higher than
$3,000 in 2007.

Inventory cost High Inventory turnover in days is 500 days.

Transportation cost Low

Facilities & Handling High SG&A expense is 38.64% of the sales

Information cost Low
Service Factor:

Response Time Very Low

Product Variety Limited Variety

Product Availability High

Customer Experience Excellent Some customers prefer to buy high

end product from Tiffany and get a
discount

Order Visibility / Returnability Quick

Tiffany is trying to compete on service for high-end / unpredictable demand / high information
complexity product in expense of other major cost. Tiffany could have opened showrooms to
compete on price.
Blue Nile growth in non-engagement products:
This are products with somewhere predictable demand (during festivals or wedding season, etc);
medium information complexity; medium value product.
With reference to cost factor, Blue Nile will incur huge Transportation and Information cost whereas
Blue Nile could save on Inventory and Facilities cost.
As aggregation is not feasible for this product individual package transportation cost will be incurred.
There is also less scope to reduce margin. Thus Blue Nile can focus only on region where warehouse
is location.
Blue Nile could also sell this by giving combo offer with engagement rings in other region of USA and
other countries.
Q4. Given that Tiffany stores have thrived with focus on high end jewellery , what do you
think caused the failure of Zales’ upscale strategy in 2006? What products should Zales focus
on?

➢ Tiffany was a more popular brand with many years of experience as compared to Zales whose
target group was the working class mall shoppers, not a stable customer base.
➢ Tiffany’s focus was on gradual expansion of the existing business, but Zales’ strategy was an
ambitious move to upscale with radical changes in too little time, which completely backfired.
➢ The company already had high inventories in its stores and it wanted to bring in completely
new merchandise, which had a huge impact on its manufacturing and inventory holding costs.
➢ It should focus on being the promotional retailer of low value products which it has returned to,
but with huge inventory write-downs ( approximately $170m)
Q5.Which of the three companies do you think is best structured to deal with weak
economic times?

During weak economic times impact on demand of such high-valued products are severe.
1. Sales of Blue Nile increased by 24% whereas sales of Zales and Tiffany decreased by 9% and 2%
respectively. Increase in Blue Nile sales was because of its online presence.
2. Inventory and Facility cost of Zales and Tiffany was very high due to huge number of stores
whereas Blue Nile has only one warehouse thus inventory and facility cost is low.
3. Blue Nile got an opportunity to capture market share lost by Tiffany and Zales due to its
competitive pricing with less margin.
4. Blue Nile was able to compete with the existing brand of Zales and Tiffany as well as new
entrants trying to move in and gain market share.
5. Thus Blue Nile was best structured to deal with economic crisis such as of the year 2008.
Q6.What advice would you give to each of the 3 companies regarding strategy &
structure? How can they best use omni-channel retail?

Blue Nile:

Continue with its low pricing strategy on high end diamonds with low inventory holding cost

Expand its marketing efforts to attract more people to online shopping and increase its brand image

Expand its international business as it is easier for companies with online business model as compared to
companies with offline retail store business- Mobile Apps in later stages

Establishing the forces and third-party validation to value a diamond has disabled the customers to touch and and
see the stone before buying - Create a provision to let them do so

Propose an aggressive positioning emphasising its lower prices and high-quality within hi end Time in details
diamond retailers
Q6.What advice would you give to each of the 3 companies regarding strategy &
structure? How can they best use omni-channel retail?

Zales:

Better control of its inventories

Reducing the delay in introducing high expensive Products to the stores

Lower value diamonds will be stopped and sold from retail stores

For the higher and diamonds imitation of these models or stones can be used to help customer make a decision

Centralising high-value items and decentralising low value items

It will have to work hard to maintain the brand image

It’s move into wholesale part of diamond business has of wholesale and give it some form of exclusivity on its
stones
Q6.What advice would you give to each of the 3 companies regarding strategy &
structure? How can they best use omni-channel retail?

Tiffany: