Blue Nile Inc.Business Analysis

Date: 08-06-15

1.Current situation

A. Past performance

Founded in 1999, Blue Nile has grown to become the largest online retailer of certified diamonds

and fine jewelry.Internet Retailer Magazine reports Blue Nile is bigger than the next three largest

online jewelers combined. 

The company is built on a unique idea: choosing an ENGAGEMENT doesn't have to be

complicated. Diamonds can be simple to understand. Making the right choice can be easy. This

unique approach and reputation for excellence has gained notice from publications such as The

New York Times. 

Blue Nile is a publicly traded company listed on the NASDAQunder the symbol NILE. The

company has been awarded the Bizrate.com Circle of Excellence Platinum Award, which

recognizes the best in online customer service as ranked by actual consumers. Blue Nile is the

only jeweler to have ever received this award, and has done so every year since 2002. 

At Blue Nile you'll find high-quality diamonds certified by the most respected independent

diamond grading labs. You can create your own jewelry, choose the right diamond and we'll set

it in your favorite earring, pendant, or ring design. Every order is shipped free, guaranteed and

returnable within 30 days, so you can be sure you made the right decision.

Although the company had $44 million in revenue in 2000, it lost $30 million because it spent

$40 million in television advertising. Itsinvestors contributed an additional $7 million in 2001. In

2006, Blue Nile sold $197 million in engagement rings and wedding bands, compared to $186

million for TIFFANY & Co. In 2010, Blue Nile reported net sales of $332.9 million. Net income

increased 10.2% to $14.1 million and international sales increased 30.4% to $43.3 million from

$33.2 million. Full Year sales for 2012 increased 14.9% to $400.0 Million.

On Nov, 8, 2011, CEO Diane Irvine, who had been with the company for 12 years and it’s CEO

since 2008, abruptly resigned. Irvine was replaced on an interim basis by senior vice president

and general manager of international Vijay Trawler. In March 2012, Harvey Kantar, former CEO

of Moose Jaw, was named the new CEO.

B. Strategic Posture

Mission

The mission of the co is to be the market leader in online selling of diamonds through more

customer satisfaction, the satisfaction from customer can only be achieved if the company is

willing to tailor the products according to the expectations of customers as well as by

manufacturing those products that are required by most of the customers, in the mean while the

mission of the company is to gain competitive advantage.

Objectives

The objectives of the company is to make products of superior quality thorough cost savings that

can be achieved by manufacturing products of economic cost, as most of the diamonds of the

company are to be sold online from the website so the customers may demand the same product

as they booked on the website, if the expectations of customers are not met than customers may

switch to other brands, so the overall objective of the co is to produce products with lower

economical costs without compromising on the quality of diamonds.

Strategies

The strategy of the company is to manufacture diamonds if there is recession in the economy, the

investment should be made on the website with having the knowledge in the market segment

recession, also the co has edge over the manufacturing of quality diamonds so the co is more

willing to manufacture diamonds of higher quality in the future as well to retain old customers &

make new customers, this is one of the best marketing strategy that the co can use in order to

gain & retain competitive advantage in the market.

Policies

The policies of the co are to ensure that diamonds must be of a standard size & shape according

to the pattern set in the diamond market, the policies of the diamond market should be adhered to

by the co so that there may be no fine & penalties for the co to pay. If there are breach of policies

by the co then the co may not be able to continue for manufacturing diamonds in the diamond

market if the size or shape of diamond is not according to the set pattern.

2.Corporate Governance

A. Board of directors

Harvey Kantar 

Chairman, CEO and President

Mary Alice Taylor 

Director

Leslie Lane 

Director

Michael Potter 

Lead Independent Director

Steve Shied 

Director

Robert van Schoenberg 

Director

Mindy Meads 

Director

Scott Howe 

Director

Chris Bruzzo 

Director

B. Top management

Harvey Kantar 

Chairman, CEO and President

Michael Potter 

Lead Independent Director

3. External Environment

A. Natural Environment

Physical resources

The physical resources of the co are manufacturing tools that are needed for the manufacturing

of diamonds & other products of the co, the physical resources are a very important asset for the

co to retain as they are to be used in the manufacturing of branded diamonds as well as other key

products of the co, the co should be able to inspect the physical existence of the intellectual

property & resources so that the co may not loose key tools in the manufacturing process. EFAS

in external environment is concerned with physical resources of the co. This should be integrated

into the system by understanding the environment.

Wildlife

Wildlife is an important aspect to consider by the co in assessing the external environment of the

co, as the external environment is extremely affected by the wildlife around the co, so these

factors should be considered in advance prior to the manufacturing of diamonds, wildlife has a

material effect on the success & failure of a co so the co should investigate the consequences of

any wildlife impact in advance so that they may not has to see the face of failure of

manufacturing of the co.

Climate

Climate is also one of the most important factor for analyzing the external environment of a co,

as the diamonds are highly manufactured on high temperature, so the climate in which the

manufacturing is in process should be moderate to extreme hot so that perfect temperature is

provided for the manufacture of diamonds, if the climate is not according to the desired

manufacturing of diamonds then diamonds may over burn that may result in injuries or deaths to

the co.

B. Societal Environment

Economic

This PhD study is part of the wider UNESCO-IHE and IVM-VU project Blue Nile Hydro

solidarity. The project is funded by the Netherlands ORGANIZATION for Scientific Research

under the WOTRO Science for Global Development Program. Due to unsustainable land

management the Blue Nile faces significant soil erosion, causing negative on-site and off-site

externalities to different water users. The main objective of the PhD study is to assess the

economic value of the positive and negative externalities of sustainable soil conservation and

watershed policy and explore the possibilities of introducing payment schemes for watershed

services. In particular, the study examines the institutional-economic incentives and conditions

needed to be in place for such schemes to encourage sustainable land and water use across the

whole international river basin.

Technological

Blue Nile got its start selling custom diamond rings online, working a supply of 130 wedding

bands and 75 settings. Then, last year, the company broke onto the physical scene with in-store

displays at Nordstrom’s Seattle flagship store and a store at Long Island’s Roosevelt Field Mall

in New York.

Today, the Seattle Company opened its first permanent brick-and-mortar space in Long

Island. The store will operate in a similar fashion as the previous displays, customers can get a

feel for the Blue Nile quality, but still buy the ring online through the company’s “Build Your

Own Ring” feature.

The low-pressure sales environment also carries over from the online experience. Blue Nile says

its store employees aren’t paid on commission, so you won’t be hounded to buy immediately.

Instead, they will guide customers through ring building on in-store IPADS and show off some

of the settings and bands available to customers.

Political/Legal

The political/legal environment around the co should be considered before making investment in

that sector of industry, as the political situation is the most important factor to consider an

investment in a country, if the political situation of the country is not good then the investment in

that segment is not made if the selling of physical diamonds is considered where customers

purchase diamonds from the retail outlets, the legal environment should also be considered in

physically selling diamonds as well as legal environment should be considered if the co is

making online sale of diamonds, the rules of online sale of diamonds should be followed in order

for the continual success of the co.

Sociocultural

The social factors should also be considered in evaluating the external environment of the co, the

social lifestyle of the people living around the industry segment in which the co is selling

diamonds should be considered, as the diamonds are a rich item to purchase so the will power of

the customers to purchase diamonds should be considered before making investment in that

segment of industry, the cultural environment of the segment should be considered in order to

assess the cultural factors around the industry of people living, the culture should be embedded

in the co before starting the physical sale of diamonds.

C. Task Environment

Threat of new entrants

Several of the existing firms have contracts with well-known diamond distributing companies.

New entrants may find it difficult to contract with these companies, because they lack the

financial status. Also new entrants do not have a reputable name, which may cause doubt from a

diamond distributing company and thus no contract will be created.The entry into this market is

getting increasingly difficult due to the growth of companies already established in the industry

and due to high initial investment costs.

Existing firms experience economies of scale from large investments in research and

development, brand advertising, or in physical location of stores. The barriers to entry and to

exit are very high in this industry.

Large economies of scale make it very difficult for new entrants to compete in an industry.The

more assets a firm has the greater the firm’s ability to take advantage of economies of scale.

Power of buyers

When there is a large market of buyers the industry has the ability to set its price points as high

or as low as they choose.

Customers have little bargaining power regarding price when they shop at luxury stores and

refuse to search for alternatives, because of such a limited selection.

However, when buyer power is strong, “the relationship to the producing industry is near to what

an economist terms a monopsony- a market in which there are many suppliers and one buyer.”

(Quickmba) In this particular market condition, the buyer sets the price.

Threat of substitute product

The threat of substitutes depends on the relative price and performance of the competing

products and on customers’ willingness to consider substitutes.

In this Industry there are millions of consumers who will not purchase a diamond unless they are

absolutely certain it is conflict free due to ethical and social concerns. Since conflict free

diamonds are harder and more expensive to obtain, this creates a high level of competition for

the jewelry industry.

Products price elasticity is also affected by substitute products. For example, as more substitutes

become available the demand becomes more elastic because customers have more alternative

choices. Therefore a close substitute product constrains the ability of firms in the industry to

raise prices.

Power of suppliers

Since diamonds are scarce, mining companies have absolute control over the selling price.

Diamond-mining companies such as DeBeers and Aber control the price of the diamonds that are

supplied to several firms in the jewelry industry, such as Tiffany and Co. Since these precious

gems are of great value to the firms, the power of the supplier is even larger.

The power of suppliers within the jewelry industry has skyrocketed within the last few years due

to natural gemstone scarcity.

Rivalry among competitors

In the jewelry industry companies that are considered mass merchandisers or limited line

jewelers generally compete on the basis of price.

Specialty jewelry companies have found great success competing on quality rather than

competing on price. Brand recognition is the greatest asset.

There is a high growth rate in the industry. As the jewelry industry expands globally, the

industry’s top competitors are opening many stores in order to increase market share and

capitalize on competition.

This has created a stagnant industry that now competes by taking market share away from the

other players and creates price wars among many of the firms in the industry.

The switching costs and degrees of differentiation lower as the industry grows. These low

degrees of differentiation lead to consumers purchasing items based on price rather than quality.

Power of other stakeholders

The power of other stakeholders is connected with influential power that exists in stakeholders of

the co that can turn around the current status of the co, the stakeholders are an important aspect

to consider by the co in any situation because they have the power to go against the co if the co is

not performing according to the standards set by the industry & the going concern status of the

co may also be called into question if the power exerted by other stakeholders is too high.

4.Internal environment

Corporate structure

Blue Nile specializes in educating first-time shoppers about diamond quality and making it easy

for them to buy engagement rings. Diamond rings account for 70 percent of Blue Nile’s sales,

and other diamond jewelry accounts for an additional 20 percent.  They do not own or house

their diamonds that are in their “inventory” but instead utilize the common business practice of

drop-shipping allowing for the company to purchase the diamond from the supplier when the

customer actually purchases it. In 2008, its share of the U.S. engagement ring market rose to

4.5% from 4%. The average price of a Blue Nile ring dropped from $6,200 in 2007 to $6,000 in

2009, but the average carat weight of 0.90 remained constant. In 2006, the site set an online

diamond purchase record with the sale of a $1.5 million 10-carat D-Flawless diamond. In

September 2011, Blue Nile sold a diamond engagement ring that cost more than $300,000

through its iPhone app. Blue Nile has announced plans to broaden the company’s base to include

more female customers.

Corporate culture

The corporate culture of the co is dependent on the organizational culture or rituals on which the

co is operating, the rituals & cultures of a co truly reflects the image of the co in the industry in

which the co is operating, corporate culture is very much important from physical sale of

diamonds as from retail outlets, the culture is set by the norms of industry so should be defined

by the co by any means in order to operate successfully, the culture should be integrated into the

rituals of the co so that co may be able to communicate with its staff frequently & easily, so as

the staff may also be able to communicate effectively. IFAS is connected with the internal

environment of the co so should be developed accordingly according to the plans of the co set at

the start.

Corporate resources

The corporate resources of the co are defined as below,

Marketing is concerned with the appropriate advertising of diamonds to the relevant niche of

customers; there should be enough resources for the co in order for the marketing of diamonds.

Finance is related to the financing of the co, as the finance is the main part of the business to

survive so regular plans should be made in order to arrange finances for the co at the right time

when the co wants the most.

R&D is connected with research & development of diamonds, as the diamond market is

innovative so proper research should be conducted in order innovate the manufacturing of new

diamonds in the market.

Operations & logistics is evaluated by the manufacturing operations & product inbound &

outbound logistics, these should be operating effectively so that co may be able to achieve the

objectives as set at the start.

Human resource is related to the recruitment department of the co, the staff should be highly

skilled so that appropriate recruitment is made of the new staff for the manufacturing of

diamonds.

Information system is concerned with the IT department of the co, this should be highly

innovative so that the co may be able to benefit from new updates of latest change in the

technology.

5.Strategic factors

SWOT analysis

Strengths

1. Low Price

Blue Nile has a unique warehouse in Seattle and employed 115 employees. The company sells

exclusively jewelries online. This strategy allows it to reduce considerably its operating expenses

that occur with physical stores. Furthermore by avoiding those costs, Blue Nile can charge

customers 20 to 35% less than traditional retailers when they are purchasing diamonds. Blue Nile

offers very competitive price accompanying with a great customer service.

2. First Company to offer Customization

Blue Nile was one of the first companies to offer a service that allow customers to customize an

engagement ring. With Build Your Own Ring option, customers can choose the shape, the clarity,

the size, and the color of the diamond. Blue Nile has access to 7,000 loose diamonds and can

ship the final product within 48 hours.

3. Category-Killer

Blue Nile is an expert in selling diamonds. It sells a wide assortment of different diamonds but it

also provides information on their website about the 4 C’s: cut, color, clarity, and carat. The

customer might not have the in-store experience but it can access to a wide range of information

that could not be available in store.

Weaknesses

1. Blue Nile does not offer the Physical Store Experience

Customers shopping online are not able to see and touch the diamonds they purchase. Buying a

diamond is an investment. Online diamonds are usually sold at a cheaper price and some

customers take the risk to buy diamonds without having seen and touched the product to benefit

the lower cost. The majority of purchases made on Blue Nile website are below $5m, Customers

seem to be more comfortable buying a pricy diamond at local stores or famous stores, such as

Tiffany's, than buying online from a relatively new and not so well-knownretailer, such as Blue

Nile. To encourage customers to buy with confidence, Blue Nile offers a 30-day money-back

guarantee.

2. Brand Awareness

Blue Nile is definitely a growing and healthy company but it has to raise its profile. Blue Nile is

well-known in San Francisco and Seattle areas but has not yet a national recognition. This gives

a considerable advantage to its well-known competitors such as Tiffany that have strong brand

awareness and attract more customers. Blue Nile needs to find ways to promote its brand;

advertising could be one solution.

Opportunities

1. Offering more Fashion Jewelries to Attract Women Shoppers

The site offers a lot of different jewelries such as necklaces, bracelets, earrings, and rings. It

should consider the opportunity of expanding their target market to women and to offer more

everyday life accessories such as purses, sunglasses, glasses, wallets, etc…

2. Going Global

Two warehouses have opened recently in the world: one in Canada and one in United Kingdom.

They have adopted the same strategy as in the USA by selling online diamonds, especially

engagement rings. The European market is growing and could become an interesting place to do

business for Blue Nile.

Threats

1. Competition

Competition is the biggest threat to Blue Nile. Local stores selling high-end jewelries are direct

competitors to the company. Tiffany and Co. is one of the most dangerous competitors since it

also targets men and sells engagement rings. Some online jewelries retailers are also dangerous

competitors, such as diamonds.com, ice.com, and ashford.com. SFAS is concerned with the

strategic factors of the co in order to establish the strategies of the co.

Tows matrix

TOWS Strategic Alternatives Matrix

 

External Opportunities

(O)

1.

2.

3.

4.

External Threats

(T)

1.

2.

3.

4.

Internal Strengths

(S)

1.

2.

3.

4.

SO

"Maxi-Maxi" Strategy

Strategies that use

strengths to maximize

opportunities.

ST

"Maxi-Mini" Strategy

Strategies that use

strengths to minimize

threats.

Internal Weaknesses (W)

1.

2.

3.

4.

WO

"Mini-Maxi" Strategy

Strategies that minimize

weaknesses by taking

advantage of

opportunities.

WT

"Mini-Mini" Strategy

Strategies that minimize

weaknesses and avoid threat

Recommended strategy

Brand awareness

When first entering the market, Blue Nile spent a lot of money on advertising its company

through television, and the Internet. However, the company did not put as much effort and

money in advertising these last few years. As a result, the company is not well-known around the

United States as it could be. In 2005, it spent only 4% of revenue on advertising (mainly through

Google).12 Blue Nile should consider advertising its company through the United States. Blue

Nile does offer low prices diamonds but if a potential customer is not aware of the company’s

existence, sales could be missed. The company has a lot of dangerous competitors such as

Tiffany. Tiffany stores can rely on brand recognition; however, Blue Nile is not as well

recognized and cannot benefit of Tiffany’s name advantage.

Exhibition of their collection

Blue Nile does not have any physical stores. Buying online makes it more difficult for customers

to fully assess the jewelries. Buying a diamond or other jewelries can be a real experience. How

many people visit Tiffany stores just to look closely at jewelries, to try them on, and to dream

about having they? Blue Nile could organize regular-annual expositions of their jewelries to give

information about their products, brand and services but also to attract new customers.

Opening Stores

The company could open physical stores in big cities and present their collection. Diamonds

make people dream and when they sparkle front of their eyes, they get the real desire to buy

them. Selling jewelries online is a tough challenge and I believe that opening stores in the future

could highly benefit Blue Nile: it will spread out the brand's name and it will increase sales due

to more exposition to potential customers.

ConclusionFew years ago, many people believed that only certain kind of products such as books and

CDs could be sold online. They thought that some products were too personal, too expensive, or

too difficult to visualize to be sold on the Internet. Today, many companies have proven them

wrong. Blue Nile is a successful company that became the largest online diamond retailer. They

have succeeded in the virtual world by offering competitive prices to their customers. On

average, Blue Nile charges 35% less for jewelry than offline competitors13.

Their e-tailing business model has been successful. They took advantage of their low operating

expenses to pass savings onto consumers and still make good profits. They also have

successfully engaged virtually with their customers. Blue Nile treats its customers with great

importance. The company has understood that word of mouth is a powerful tool to build their

business and they work hard on making every customer happy. Blue Nile has proven over the

years that they are an expert in the field by offering a very informative and interactive website.

They have become one of the leaders the in diamond retailing sector.