I still hear about retailers who think they can bully and threaten suppliers who dare to post their products, in one way or another, on the Internet. Not only is that a teaspoon against the tide, but it is an astounding failure to understand retail dynamics and the remarkable transition we are seeing.
Looked at narrowly - only in
respect to the so-called battle between bricks and clicks - the
issue is plain to see. Even if a supplier does not open their own web
site, their customers will post images and information about the
products on their sites. It does not matter if the web site is a pure
play web retailer or another traditional jeweler. The effect is the
same - another retailer is "invading" the threatening retailer's
territory. Moreover, every evidence indicates that the more a brand or
product is shown, the more everyone selling the brand benefits.
as I said, is looking at the issue narrowly. But traditional jewelers
are dealing with many more issues in today's market. These days, as I
noted in my last post, anyone dealing in true luxury can only view the
Internet as a very helpful tool, not a competitor. I
was referring to specialists in creating expensive home theater
installations, or expensive jewelry. In our industry,
some great examples are some New York-based diamond dealers. New York dealers have transitioned over decades from manufacturing and importing a full range of diamonds, to increasingly specializing in large,
fine stones (some in special cuts) catering to wealthy individuals and
stores dealing with wealthy individuals.
This sort of
specialization makes sense because demanding consumers want to deal
one-on-one with competent and well-connected people. That cannot be
out-sourced or even imported. Or managed on a web site.
It comes down
to market position. Woody Allen's famous line is "80% of success is
showing up." I would add, showing up in the right place. One of the
more extreme, and amusing, examples of that was in Dubai. I was there
working on a project, and the people I was with wanted to get some
alcohol for the evening, alcohol of course being forbidden in a Muslim
country. We drove out to a fairly undeveloped area to an unmarked,
gated warehouse. We parked inside a walled lot, and then entered a
huge, very busy liquor store that carried every label imaginable. This
was a destination that everyone "in the know" in Dubai apparently knew
about, and it could just as well have been on Mars.
similar way, all jewelers (on-line or not) need to become destinations,
recognized by their community for delivering a service and product that makes them
special. A brick and mortar store could be a diamond destination; or
known for creating custom pieces; or known for carrying leading edge
fashion; or even for throwing great parties. Such stores can negotiate
on price, search for unusual stones, and quietly answer all the
questions that a nervous customer might have. None of those aspects are
particularly suitable to an Internet retailer.
that the Internet has a key characteristic - it makes plucking
low-hanging fruit easy. Amazon did it in books, and eBay replaced the
yard sale. In our industry, Blue Nile had retailers screaming threats
at suppliers. But what happened is instructive. Blue Nile, in a few
years, built a $300 million plus business selling loose goods - a truly
remarkable and unique feat for our industry. And it happened because diamond
grading essentially turned diamonds into commodities, much as Amazon did
with books. It combined that with a very low-cost business model that
effectively picked much of the low-hanging fruit by being well-organized,
informative and massively inventoried with other people's diamonds.
good retailers understood that Blue Nile, and the multitude of sites
copying their technique, was a game changer. Diamonds above a certain
size and quality - and below very large sizes - would no longer be the
business it was. They began competing with Blue Nile on price for centers but still
made better margins on mountings and smaller diamonds. But more
importantly, they treated center diamonds as "naked." That is a term I
have used for many years to describe any jewelry item that a consumer
can easily price shop. It used to be gold chain, as an example.
GIA-graded diamonds now fell into that category. Priced too high, and
the consumer now believes that everything in the store is over-priced.
And the reverse is just as true - priced competitively and the retailer has a customer.
And now the worm has
turned. Retailers have adapted to the age of Blue Nile, and Blue Nile
has now seen flattened sales. They have made some price cuts, and expanded further into jewelry, in an effort to
grow their business further. A balance has been reached.
more can be said on the subject (and I am always happy to get your
comments!). No doubt that where a store is located; how well it is
merchandised; how effectively it reaches the right target market and brands itself; how
owners connect with their community; and how thoroughly they service
their customers can all spell the difference between success and
irrelevance. Oh, and by the way, the Internet has a role in all of that.