5 million This allows Blue Nile to over a wide range of products without having to maintain an inventory. Additionally, and most importantly, Blue Nile's supplier agreements have 45-60 day payment periods. This allows Blue Nile to hold on to revenues for 40-55 days. This cash can provide additional income via interest and it allows Blue Nile to self-fund its' operations.
2004 = $6.5 million
2005 = $7.6 million
2006 = $9.7 million
Should watch Jamesallen.com whose offer and features very closely match Blue Nile
Key Success Factors for online diamond and fine jewelry
1. Accurate product descriptions and certifications
Selling online eliminates the opportunity to have physical engagement with the jewelry. Accurate descriptions and third party certifications build confidence for the buyer that the items they purchase are genuine.
2. Easy to use website
Given the large number of products sold on the jewelry sites, the website must have sophisticated search capabilities. If customization is an option, a tool to see multiple combination at one time would be allow the customer to compare different combinations.
3. Reliable suppliers
Online retailers must have suppliers they can count on to deliver supplies within 24 hours. Given the nature of the products, the suppliers must provide adequate protective package for shipping.
4. Internet redundancy
In online retailing, if there are Internet problems, the store is closed. Redundancy provides protection from outages and increases capacity.
5. Reliable shipping suppliers
Shipping suppliers need to provide careful packaging, insurance against theft, lost and damage, on time pickup and delivery and the ability to track packages anywhere in the delivery system.
6. Low operating costs
Low operating costs and SG&A are necessary for competitive pricing and good profit margins.
7. Low inventories
Low inventories reduce costs and eliminate the need to reduce prices to clear out inventory.
8. Competitive pricing
When buying on the Internet, consumers have easy access to competitor site and to price comparison site such as mysimon.com. This will raise the consumer's price sensitivities.
9. Brand reputation
The seller's brand reputation is very important in jewelry sales. Fake diamond and gems are often marketed as real; therefore an online seller must be able to eliminate any doubt about the quality of its products. Additionally, there must be a fair return policy incase the item is misrepresented in the online photo or the size is incorrect.
Porter's Five Forces Analysis: Threats of new entrants
Competitive Strength Assessment
Blue Nile has two categories of competitors: online retails and bricks and mortar retailers.
Online JamesAllen.com matches and exceeds Blue Nile's features, with the exception of pricing which is unknown without further research.
Online competitors
Feature
Blue Nile
James Allen Long
Diamonds
Whiteflash
Ice.com
Website functionality
Customer service
High quality diamonds
Build your own capability
Large selection of diamond
Educational information
Certified diamonds
Financing options
30 day return policy
Low pricing
N/A
N/A
Overnight delivery
Preset diamonds
Name designers
Upgrade policy
Financial Analysis
The liquidity ratios show strength, specifically: a decreasing current ratio of 2.38 in 2005 to 1.56 in 2006, meaning that the company is becoming less solvent. A decreasing quick ratio of 1.37 for 2006, which meets the banker's desire for at least 1 or higher. This ratio has dropped from 2.17 in 2005 and should be monitored.
The performance ratios have shown a positive trend. The return on assets, ROA, has increased from 9.3% in 2005 to 10.70% in 2006. During the same time period, the return on stockholder's equity, ROE, has also increase to 16.62% in 2005 to 27.62% in 2006. The Net Profit Margin has decreased from 2005 to 2006, 6.47% and 5.19% respectively.
Problems
Blue Nile's executives believe that the company's market position was highly defensible. This analysis shows a different assessment:
The total diamond and fine jewelry industry is still dominated by brick and mortar stores. Blue Nile and other online retailers still have a small amount of the market.
Currently, Blue Nile spends most of their advertising budget for online, they may need to shift its advertising to offline in order to create greater awareness for their…
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