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Over the past two decades, Blue Nile and James Allen have blazed the trail for online diamond buying. Blue Nile came on the scene in 1999 but between these two giants, the diamond industry has been revolutionized and for buyers, developing an understanding of how these companies rewrote the playbook on diamonds will offer invaluable insight into the perks of buying online.
Getting to grips with the business models may seem like a lot of homework just to buy an engagement ring, but I have no doubt that a little understanding will go a long way towards empowering you. Shop online with confidence, and find out which of these two leading vendors will come out on top.
Before Blue Nile…
The traditional model of the diamond supply chain starts with De Beers. At one time, the De Beers market share of rough diamonds was as high as 90% – although this had reduced spectacularly by 2000, the model remained the same. De Beers sell rough diamonds to a selected list of diamond polishers who have the rights to buy De Beers diamonds (sightholders). They are required to pay cash on each batch of rough diamonds which become available every six weeks. This equates to millions of dollars needed to acquire the diamonds which the polishers do not have.
This results in cash flow issues. The diamond dealers and jewelry stores purchasing the diamonds rarely pay in cash and rarely pay on time. A huge pressure is placed on the polishers to shift each load of diamonds before the new ones arrive six weeks later.
If you have read my articles before, you will know that I talk about over heads and stock in bricks and mortar stores. With so many quality, shape and size variants for diamonds, you need a huge physical inventory in order to really present customers which the choice they need. A store holding 100 diamonds (which would be no where near enough to make reasonable comparisons) could still be spending up to a million dollars on that stock. As most companies can’t afford to do this, the diamonds are on loan (although this is not possible in all cases). Among other issues, for buyers this translates to hard-sell tactics as the pressure is on to move the diamonds and a limited selection. When you add to this the additional steps such as being part of the Kimberly Process to avoid blood diamonds entering the supply, and the huge overheads of running a jewelry store, you can see that the model is complex and expensive.
In the simplest terms, the old system relied upon ownership. At each stage of the supply chain, the diamonds are bought outright or heavily loaned and this results in huge mark ups – up to 100%.
The Blue Nile Business Model
Like most business revolutions, much of the Blue Nile effect hinged on ‘cutting out the middle man’ and also removing the need to own the diamonds before selling them to the consumer. Blue Nile lists hundred of thousands of diamonds belonging to a multitude of different companies. They keep the Blue Nile inventory up to date using a constant electronic feed. It costs the companies nothing to list their diamond on Blue Nile but opens the door for millions of potential buyers who visit the Blue Nile site. When a diamond is sold on Blue Nile, it is sent from the supplier directly to the customer along with a Blue Nile invoice. The mark-up is around 18% which is a huge saving VS the 100% mark ups we see in bricks and mortar stores through the old system. The huge online inventory creates a real time look at diamond prices, forcing the different companies to compete and thus the prices are driven down for the customer.
Blue Nile vs. James Allen
The fact that Blue Nile revolutionized the system does not give them an edge over the competition, nor does it allow them to offer cheaper diamonds than rival vendors. James Allen successfully filled in the gaps left by Blue Nile by investing in cutting edge diamond imaging technology and the world’s first ‘virtual loupe’. Since the introduction of diamond imaging by James Allen, Blue Nile have been playing catch up and at present, their imaging cannot rival the James Allen technology.
James Allen have taken the Blue Nile business-model but adapted it to add usability and a more personal approach. Alongside the ground-breaking ‘virtual loupe’, James Allen offer a real-time diamond inspection service, allowing you a one-on-one consultation with a gemmologist to analyse their diamonds. Although they may seem gimmicky, James Allen place customer needs and the importance of seeing a diamond front and centre and it is this approach that fuelled their success.
There’s a lot to love about both companies with only small differences between them. I always recommend that customers take advantage of the low pressure that comes with buying online, and take the time to shop around. Make comparisons and decide which company is right for you.
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