The Smell of Profits, and Shrinking Profit Margins

There was a time not long ago when pundits generally dismissed the online jewelry seller Blue Nile. People might be willing to buy a book online, or a compact disc, maybe a toaster, they said, but a $3,000 diamond engagement ring? The jewelry industry seemed impervious to the Internet.

Not any more. Only a decade after it was founded, Blue Nile ranks behind only Tiffany in diamond ring sales.

While Blue Nile has grown, Main Street jewelers have seen their profit margins shrink and many have closed their store doors. It is easy to sympathize with a small retail jeweler confronting a rival like Blue Nile, which sells its diamonds at only 20% over cost and still makes money. By comparison, the typical jewelry store sold its rings for 49% above cost in 2005, down from 52% in 2002.

From the International Herald Tribune.