Blue Nile and Diamond Retailing Networking Design in the Supply Chain

Blue Nile and Diamond Retailing Networking Design in the Supply Chain

Group 1

Tasha Davis
Ben Imbolo
Robert Farmer
Mamoudou Roufaye Ben
Jonathan Dian

Intro & Background

The Diamond Retailing Industry was having a very difficult year in 2008. The weakening economy caused many customers to cut back on discretionary spending, which meant high priced purchases were first to go. This cause an influx of supply, triggering the World Federation of Diamond Bourses to step in and have diamond producers reduce the supply of new gems entering the market. This once expensive and competitive industry, felt the impact of the economy during these rough times. Leading to traditional jewelry retailers filing for bankruptcy or announcing plans to close certain locations. Discount retailers such as Wal-Mart and Costco continued to thrive, since they sold jewelry and other products. The dwindling market caused jewelry retailers to think about how to gain and keep customers; offering additional services, lowering prices and if lowering prices would cause customers to see that retailer in negative way.

Companies like Blue Nile, Zales, and Tiffany had to figure out how they going survive.

        While brick and mortar store; such as Tiffany Zales and, where experienced very sufficient drops in their sales. The web based jewelry retailer, Blue Nile was seeing continuous growth. They offered a different experience to customers. They focused on educating the customer on how the four Cs; cut, color, clarity, and carat, could determine the price.  They offered many customers high quality jewelry for incredible prices. Blue Nile could achieve quality jewelry for incredible prices, since they had minor inventory and warehousing expense. They also allowed customers to build your own ring by selecting a stone of their choice, followed by what type of setting they loved best. Customers could also ask questions through the phone from sales reps. This type of stress free buying appealed to many customers.

        Zales was suffering since back in 2005. When they tried to reimage themselves to a more upscale and fashion conscious retailer by dumping their lower value jewelry and diamonds. Instead of a promotion driven and lower end retailer. They could not achieve this due to delays in new merchandise arriving to their stores and the lack of store sales. This cause many loyal customers to take their business elsewhere and while not attracting any new cliental.  Transitioning back to their previous role as the promotional retailer, they had to sell nearly 50 million in discontinued inventory from previous strategy and purchased 120 million of new inventory. Although this transition had some success, the suffering economy cause their target market to cut back on discretionary spending. This caused Zales to close nearly 105 stores, mark down inventory by $100 million, and reduce the company personal by about 20 percent.

Tiffany offers high end jewelry, watches and luxury items for around house. They focus on quality, luxury, and exclusivity which is an important part of their success. Yet, during this weakened economy that became a major risk factor. Tiffany established diamond processing operations were they cut and polished rough diamonds. Yet their standards were to high they only used nearly 40 percent of the rough diamonds and the other were sold, sometimes at a loss. Tiffany started using services to appeal to their customer, such as having a separate customer fulfillment center for processing direct to customer orders and a retail service center that received product from all over the world and replenishing inventory at their retail stores. Later Tiffany started selling products though the Web and catalogs. Yet they did not offer any engagement jewelry through the Web until much later. They also offered non gemstone, sterling silver jewelry with an average price of $200. Those represented about 58 percent of total sales for the direct channel

Issues or Questions

        The main concern at this time was surviving the weak economy. It was a very difficult year for everyone and jewelry retailers had to figure how to keep and attract customers. This caused competitive rivalry over companies trying to attain business. This also caused competition with the online presence of Blue Nile or the threat of new entry. This prompted jewelry retailer to figure out ways to gain business. What customer service factors are need retain or attract customers. Since nothing was selling, it caused an influx of supply, triggering the World Federation of Diamond Bourses to prevent new gems from entering the market. This created the issue with suppliers, like De Beers, refusing to give any assurance of production. What cost factors could be put in place. Would nothing having a physical store where customer can see the item up close hurt Blue Nile. Zales and Tiffany were losing money by having physical stores and both could not offer enormous discounts. Zales changed their core competencies, which changed their target market. Having low brand recognition could change a customer’s mind. Tiffany standards became a risk factor. What competitive pricing could be used to assist in saving the company money. Not having product variety and availability for customers to find what they are looking for. This could allow other companies to offer substitute products. Not having a lean operation to lessen make the company more efficient. A major issue is not having an efficient supply chain, to allow the flow between each stage.         

Methodology/Solutions

Each company looked for solutions for each of their issues. Blue Nile method was to educate the customer. The biggest issue they had was not having a physical store were the customer could physically see what they are buying. But since Blue Nile educated their customers, they felt less pressure. Zales tried to rebrand themselves, as upscale and fashion conscious retailer, and failed because they did not receive their new inventory and they had to mark down their lower valued jewelry. Resulting in the loss of loyal customers, while not gaining any new customers. Once they reverted back to their previous image, they gain some profits until fuel prices went up.  To save some cost they closed down nearly 105 stores, marked down inventory, and reduced company personal. All this back and forth did not allow them to have an effective supply chain. Tiffany’s brand focused on quality, luxury, and exclusivity. This type of focus hindered new customers, since the economy was fragile. Yet some of the services they provided, such as separate customer fulfillment center for processing direct to customer orders, made them feel like their brand. Not having a wide variety of products or economical prices, they created “D” items that allowed others to wear the tiffany brand with paying tons of money. They also followed in Blue Nile footstep, by selling their jewelry online and through catalogs.  They did find ways to improve the supply chain and lean operations by using direct to customer orders and sourcing third parties.