Essay on "Blue Nile, Inc"

Essay 5 pages (1424 words) Sources: 0

[EXCERPT] . . . .

Blue Nile Company History

Founded in 1999, IPO in 2004

Stock price hovers around $30-35 per share during 1/06 -- 8/08.

Websites for USA, UK and Canada

World's largest online retailer of certified diamonds and fine jewelry

Larger than the next three competitors combined

Sold over 80K engagement rings between 2000 -- 2Q06

2006 Sales = $251.6 million

2005 Sales = $203.2 million

72% of 2005 Sales were engagement rings at the average cost of $5,600

18% of 2005 Sales were other diamond jewelry

Non-diamond jewelry = 10% of 2005 revenues

Management believed it had 50% share of online sales of engagement rings and 3.2% of all engagement rings sold

Received many awards including The Biz-Rate.com Circle of Excellence Platinum

Award for customer service 2002 -2006 and several other awards for their business

Industry Analysis

Industry famous for big markups, frequent closeout sale, consumers often confused in determining a gem's value

Jeweler Industry Sales

2006 = $55-60 billion

2005 = $59 billion

2004 = $57 billion

Annual sales of diamond jewelry = $30-35 billion, with diamond rings = $4-5 billion

US compound annual market growth rate is 5.7% over the past 25 years

Annual sales growth

2003 = 2.9%

2004 = 8.0%

2005 = 2.7%

2006 = 6.0% (forecasted estimate)

Sales are seasonal with highest sales during February, May and October -- December.

The market for diamond and fine jewelry is highly fragmented

Locally owned stores = 34%

Retail chains with more than 100 stores = 13%

Chain department stores = 12%

On-line retails and online auctions = 4%

Television shopping retails = 4%

Mass merchants (big box stores) = 23%

2005 Online sales

Engagement rings = $340 million

All other jewelry = $2 billion

Majority of online jewelry buyers are men

Online competitors include: diamonds.com, whiteflash.com, ice.com and jamesallen.com, zale.com and tiffany.com

Brick and mortar competitors include: Zale Corporation and Tiffany & Co.

SWOT Analysis

Strengths

Overcoming consumer's concern of buying online with educational information, in-depth product information and certification ratings from well-known and respected third parties.

Business Model: minimal inventory, just in time purchasing of diamonds and exclusive supplier arrangements and cash float of 40-55 days

Offers high quality jewelry at competitive prices

Wide product selection

Gems and minerals available from Bile Nile include diamonds, platinum, gold, pearl, and sterling silver

Settings, rings, wedding bands, earrings, necklaces, pendants, bracelets and watches

"Build your own" -- choose your gem and choose your setting

60,000 independently certified diamonds, 100's of styles

Prices 20-40% lower than local retailers

Brand based on trust, guidance and value.

Economical supply chain

Multiyear exclusive agreements with leading diamond and gem suppliers, representing more than 50% of total supply of high quality diamonds in USA

Very low inventory -- did not purchase diamonds until it had been ordered by a consumer

Lack of inventory resulted in all products being sold at full-price

Low operation costs

Licensed third party IT systems for: financial reporting, inventory management, order fulfillment and merchandising

Redundant internet carries

Significantly lower SG&A expenses in 2005 compared to competition

Blue Nile = 13.3% of annual sales

Zales = 41.2% of annual sales

Tiffany = 40.1% of annual sales

Award winning customer service including customer financing, free certificate of value for insurance coverage and 99.96% of orders delivered on time.

Self- funding - able to generate cash 40-55 prior to having to pay suppliers

Weaknesses

Other websites are offering similar features

Educational information and certification information

Free shipping

30-day return policy

Large product offering

Opportunity

Small but increasing number of sales over $100K

Varying gross margin for higher priced jewelry

Using current success to extend existing exclusive supplier contracts

Ability to test market new products at a low cost

Slowly testing expansion into international market

Threats

Bricks and mortar stores building web presence

Zale Corporation

Tiffany & Co.

Ability to maintain lower costs and pricing strategy

Lower costs = lower prices and lower markups and lower profit margins

Blue Nile = 33% markup resulting in 22% profit margins

Zale = 100% markup resulting in 56% profit margins

Tiffany = 127% markup resulting in 56% profit margins

Net profit margins

Blue Nile = 6.5% in 2005

Zales = 4.5% in 2005

Tiffany = 10.6 in 2005

Dropped diamond prices in 2Q06 for 30% increase in sales

Increasing advertising… READ MORE

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