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We can begin with a pretty simple statement. Buying online is going to be more affordable than buying in a store.
We go through the significant challenges physical retailers face below but, in short, there is no way they can compete with an online retailer when it comes to price.
We often get emails from our readers that are hesitant to buy online, despite the fact that they know it will be cheaper.
For that reason, I think it’s necessary for me to explain why I understand those concerns, but I think they are misguided.
We have found that far more people end up getting taken advantage of by going into a store than buying online. Diamond buying is confusing and, deep down, you realize that you will never know as much as the experts selling the diamonds.
Many of our readers spend a lot of time pouring over our Diamonds 101 and Diamonds 102 section. You can find out all the ins and outs of diamond buying. But when you walk into a store, you have to be 100% sure you aren’t forgetting any trivial detail (they may seriously impact the value of the diamond). After all, you are facing off against someone who is more ready and more incentivized to make sure you walk out of that store with a diamond on their terms.
When you buy online, you have the advantage of going at your own pace, cross referencing (with a site like ours) and checking off all the boxes. We are also able to assist with somewhat unbiased opinions. While we usually get paid by the online merchants we recommend, we have no reason to recommend one diamond over the other unless it’s the better choice for you.
The opposite is the case for a vendor. When you walk into a store, the less desirable the diamond, the more reason the owner of the diamond has to sell it. Which item would a jeweler rather sell you? The extremely desirable, well-valued one that he can sell to anyone?
Or would they rather make you buy the less desirable diamond that is dead weight in their inventory box and on their cash flow sheet?
There have been numberless readers who I’ve started the process with and partway through sending me a message along the lines of ‘we went to this store and found this diamond that was such a great deal, so we snapped it up.’ I then feel like garbage when I have to emphasize the things they missed which turn it from a good deal to a terrible deal (improper certification inflating the quality, strong luorescence, yellow fluorescence, even artificial treatment).
Unfortunately, most stores make it very difficult to return a diamond ring and get your money back.
It’s plausible you can find a good deal at a store (by a good deal, I mean not much more expensive than an online retailer), but you are far more likely to fall into a sales trap. I’m not saying that you should unequivocally stick with online purchasing, but I think the anxieties over principle are misplaced.
What about Traditional Retailers?
Running a physical jewelry store is uncommonly difficult. Follow me as I give a little background. The average apparel retailer runs a store on 40-50% gross margins.
This provides them enough money to cover all the expenses a retailer incurs and, hopefully, leaves some over for profit. While this is a standard profit margin for the store, bear in mind that the wholesaler/manufacturer who sells them the product also has good profit margins.
The truth is that the raw materials for clothing are only a part of the total cost of the product. That is surely not the case when it comes to diamonds and diamond jewelry.
The real cost of the goods makes up a much larger percentage of the price than in most industries.
Another problem is the cost of stocking a store. How much do you think it takes to fill up all the racks in a store? You think tens of thousands of dollars? Or a couple hundred thousand dollars? A typical diamond jewelry store should have a couple of million dollars of inventory on hand. The big majority of stores don’t have enough spare cash to pay for that inventory up front.
They either use money from a bank, buy the diamonds on credit from the wholesaler or just take the product on consignment.
In any of those cases, the price has to be raised in order to cover the additional cost. In addition to these costs, they have the regular overhead any retailer's faces. Rent and preservation of a storefront (given that they are selling luxury items, this is pretty significant) and the cost of having a fully staffed store. Diamonds are not a simple item where people can start trading them after a few hours of training. So the staff costs are also pretty high.
The Revolution Begins with the Blue Nile
In 1999, Mark Vadon transformed the diamond buying landscape by starting the Blue Nile. There were other sites out there, but the Blue Nile produced a great business model and they were the ones that made buying online mainstream. They created a market with two major benefits.
The main revolutionary concept they have is that they don’t own their diamond inventory. As it was mentioned above, the biggest cost for a diamond store is their inventory.
The Blue Nile just cut that out. With the coming of internet shopping, Blue Nile decided to cut deals straight with the manufacturers and wholesalers of diamonds. They are able to list the inventory directly from those suppliers without actually buying the diamonds.
This assists both the Blue Nile and their suppliers (which in turns helps the consumer). The Blue Nile gets to list thousands of diamonds in “their” inventory without having to drop any money into it. The wholesalers, in turn, get to make sales with the smallest effort and are paid right away.
The second benefit they have is overhead. The Blue Nile doesn’t have to pay rent for a nice store.
They don’t need to regularly update the furnishings. All they should pay for is office space and warehouse space (for order fulfillment). This is far cheaper than a beautiful store.
And how about employment costs? A regular store that sells $10 million a year has about 30 employees. That comes out to around $333,000 per employee. The Blue Nile sells almost $500 million a year with only 300 employees. So each BN employee estimates $1.65 million of sales.
What does this all mean to you, the customer? Basically, Blue Nile can afford to sell the same diamond to you with a much lower markup than a physical store can.
Easy as that. Your typical store needs to make 30-50% margins on their products to have a good business. Blue Nile (which was a publicly traded company, so you were able to see their old numbers) can sell you a diamond with only 15% margins. That is significant savings. Revolution, Part Deux and James Allen The next revolution that made buying online a greater choice was started by James Allen. James Allen is the second biggest online retailer. When they rebranded and relaunched in 2005 as James Allen, they introduced a great innovation; pictures of each specific diamond.
The biggest flaw in Blue Nile’s business model was that you were not able to see the diamond. As we explain in our clarity article, it is not important if a diamond is a VVS clarity or SI2 clarity. Once the diamond is eye-clean, it’s definitely eye-clean. The problem is that 90 or 95% of SI2 diamonds have eye-visible embodiments.
The photographs allow consumers to sift through all the SI2s out there and choose the one that is eye-clean. This new business model paired the fundamental advantages the Blue Nile brought to the table with the ability to use your own eyes to select your diamond.
Since then, James Allen has proceeded to hone their technology. They presently have the best 360-degree video technology for viewing the diamonds.
Buying Online Nowadays The Blue Nile appears to have caught up to James Allen. At the end of 2016, they launched their own video technology. There are other companies that have joined the fight as well. For a quick rundown, we made summary of our reviews so you can find it easier to figure out where to buy a ring.