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Florida Diamonds
From Virtual Mines to Virtual Stores
In 1999, noticing his sales were slipping, Gainesville jewelry store owner Oscar Rodriguez wondered whether he might be able to harness the power of the internet to invigorate his business. He figured he could save a tremendous amount of money on overhead expenses and pass those savings along to his customers. But the wholesale diamond dealers he knew in New York told him he was crazy — that the public needed the tactile experience of seeing and touching diamonds before they’d buy — and Rodriguez backed away from his plan.
 LORD OF THE RING: Oscar Rodriguez’s typical customer spends $7,000. Sales at his Gainesville-based online jewelry store, Abazias, have been increasing about 50% a year. [Photo: Jeffrey Camp] |
It took off almost immediately. During the first three months of operation, Abazias posted $220,000 in sales. In October 2001, Rodriguez took the company public. Today, annual sales are about $5 million and increasing about 50% each year. While the typical customer spends about $7,000 on a purchase from Abazias, Rodriguez sold one customer a 5-carat diamond for $160,000 this past February. The company’s typical customer is between 25 and 45 years old, highly knowledgeable and looking for a deal. And buyers usually get one: Abazias’ prices are 50% cheaper than store-based retailers and 25% less than many other online competitors.
Like Blue Nile, the largest online retailer of certified diamonds and fine jewelry, Abazias has an “inventory free” business model, displaying its suppliers’ diamond inventories on its website without holding them until they’re ordered by the customers. The store’s database offers a selection of 100,000 diamonds and provides unconditional 10-day return policy to customers. (The company’s historical return rate is between 2% and 4%.) Abazias also offers a lifetime trade-up policy, which guarantees 80% of the price of the original diamond purchase.
Abazias still has a long way to go in the profitability department. The company posted a net loss of $434,905 in 2005 and $222,012 in 2006, according to the company’s Securities and Exchange Commission filings. By comparison, Blue Nile, which opened for business in 1999, posted a profit of about $13 million in 2006. While shares of Blue Nile have been trading at $57, Abazias has been trading at $2 a share. The company has been working with Cantor Fitzgerald to pursue a merger or acquisition.
Jewelry industry analyst Ken Gassman estimates that online jewelry sales generated about $2.5 billion in 2006 — or 3.9% of the entire U.S. jewelry industry sales — and that Blue Nile controls about 9% of the online market. And there are plenty of players competing for their share of online sales, including Amazon.com, department stores, online auction sites, catalog and TV retailers such as Home Shopping Network and QVC, and discount superstores, to name a few. Nonetheless, Gassman predicts the brick-and-mortar jewelry dealers are here to stay. “We’re sort of saying that online jewelry sales might cap out at 10% of industry sales. That’s a long way of saying jewelry stores are likely to be around a long time.”
