Today Amazon.com Inc. will formally introduce an area of its Web site devoted to selling tiffany jewelry, including everything from a $45 freshwater-cultured-pearl bracelet to a $93,000 platinum radiant-cut necklace speckled with 100 diamonds.
The Seattle Internet retailer says it plans to sharply undercut rivals on jewelry prices by aiming for lower overall gross profit margins, which is raw profit after its wholesale costs for jewelry are deducted from sales. The average overall gross profit margin at some online jewelers is about 23%, but it can be more than 45% at store- based retailers. “The margins in a typical jewelry retailer are so high you can save people a significant amount of money,” says Jeff Bezos, Amazon’s chief executive.
To persuade consumers that it is serious about breaking into the category, Amazon today will promote its jewelry launch in an advertisement taking over its entire home page. The company also promises it will reduce jewelry prices if customers can point to less expensive, comparable products elsewhere either online or offline. Most of Amazon’s diamonds and gemstones will ship to customers with a certificate from an independent certification firm verifying the quality of the stone. “We’re building trust with our customers,” says Eric Broussard, Amazon’s vice president of jewelry.
Amazon, which has been quietly testing jewelry sales for several months, wants to make a splash in a bangles area that is growing quickly, despite the Web’s early failures in the market. Sight-unseen purchases of jewelry may seem improbable to many people, but an increasing number of companies are seeing strong online results from the category, from Internet-only jeweler Blue Nile Inc. to Tiffany & Co. Despite Amazon’s plans for steep discounts, the big-ticket nature of most jewelry purchases still could help it in its quest for more consistent profits.
The potential is huge. Blue Nile recently filed to sell as much as $84 million in shares through an initial public offering. The registration papers for the offering show the company isn’t like the loss-plagued dot-coms of yore: Last year, Blue Nile turned a profit of $27 million on revenue of $129 million.
Despite the success of other online jewelers, Amazon’s bet on jewelry is much riskier than its other expansion moves. For the past several years, the company has entered new areas such as apparel, sporting goods and gourmet-food retailing almost exclusively by getting other retailers — from Gap Inc. to Foot Locker Inc. — to sell their merchandise through the Amazon site. Amazon doesn’t store the goods in its warehouses or ship them. That approach helped Amazon expand while minimizing its inventory risk in markets where it had little expertise.
In contrast, much of the jewelry Amazon will sell will come from its own stock and be shipped from its own warehouses, though the company also is selling jewelry from other retailers. Amazon will hire a staff of licensed gemologists to select the stones they will sell. Mr. Bezos says Amazon will be storing “millions of dollars” of jewelry in a secure warehouse, the location of which it declines to disclose. By stocking jewelry itself, Amazon can set prices for the products, rather than ceding that control to its retail partners.
Amazon’s eagerness to discount products, by slicing book prices and emphasizing free shipping on orders, has rattled some investors. Amazon’s shares have fallen 13% for the year, reflecting concerns over the lower gross profit margin Amazon reported in the fourth quarter. Investors will be closely watching Amazon’s gross profit margins today when it reports its first-quarter results.
Mr. Bezos defends the company’s discount strategy. “We believe over the long term we can drive more bottom line dollars for Amazon.com by offering lower prices,” he says.
The online luxury-goods business is littered with early failures, including Internet jeweler Miadora Inc., which went under during the dot-com bust four years ago. Still, online sales of jewelry and luxury goods have continued to grow, rising 43% to $2 billion last year from $1.4 billion the prior year, representing about 5% of the total U.S. jewelry market, according to Internet market researcher Forrester Research Inc. Analysts say jewelry sales have benefited as users have grown more comfortable purchasing on the Internet and more women surf the Web.
“If you’ve been shopping online for more than five years now, there are very few items you won’t buy rings,” says Carrie Johnson, a Forrester Research analyst.
If Amazon succeeds in jewelry, analysts believe it will likely find an audience at the lower end of the jewelry market, not with shoppers looking to be coddled before buying $30,000 necklaces. Blue Nile, for one, has had its best luck selling engagement rings, a purchase that attracts many first-time jewelry buyers who might otherwise be intimidated at a jewelry counter. Blue Nile executives, who weren’t available for comment because of “quiet period” restrictions related to the company’s IPO, have said that half the Web site’s orders are for engagement rings and the site’s overall average order size is around $1,000.
“Can Amazon get their slice? Sure,” says Lauren Cooks Levitan, an analyst who follows retailing for SG Cowen Securities Corp. “They’re not going to hurt Tiffany.”
Even some of Amazon’s jewelry partners say they are excited by the prospect of promoting their products to Amazon’s huge audience of customers, but they aren’t convinced those shoppers will buy luxury goods in great numbers. “The question is whether there are any customers going to Amazon looking for jewelry,” asks David Fortunoff, president of Fortunoff.com, owned by jewelry retailer Fortunoff Corp. “I think the jury is still out.”
Amazon Goes for Gold With Discount Jewelry
Today Amazon.com Inc. will formally introduce an area of its Web site devoted to selling tiffany jewelry, including everything from a $45 freshwater-cultured-pearl bracelet to a $93,000 platinum radiant-cut necklace speckled with 100 diamonds.
The Seattle Internet retailer says it plans to sharply undercut rivals on jewelry prices by aiming for lower overall gross profit margins, which is raw profit after its wholesale costs for jewelry are deducted from sales. The average overall gross profit margin at some online jewelers is about 23%, but it can be more than 45% at store- based retailers. “The margins in a typical jewelry retailer are so high you can save people a significant amount of money,” says Jeff Bezos, Amazon’s chief executive.
To persuade consumers that it is serious about breaking into the category, Amazon today will promote its jewelry launch in an advertisement taking over its entire home page. The company also promises it will reduce jewelry prices if customers can point to less expensive, comparable products elsewhere either online or offline. Most of Amazon’s diamonds and gemstones will ship to customers with a certificate from an independent certification firm verifying the quality of the stone. “We’re building trust with our customers,” says Eric Broussard, Amazon’s vice president of jewelry.
Amazon, which has been quietly testing jewelry sales for several months, wants to make a splash in a bangles area that is growing quickly, despite the Web’s early failures in the market. Sight-unseen purchases of jewelry may seem improbable to many people, but an increasing number of companies are seeing strong online results from the category, from Internet-only jeweler Blue Nile Inc. to Tiffany & Co. Despite Amazon’s plans for steep discounts, the big-ticket nature of most jewelry purchases still could help it in its quest for more consistent profits.
The potential is huge. Blue Nile recently filed to sell as much as $84 million in shares through an initial public offering. The registration papers for the offering show the company isn’t like the loss-plagued dot-coms of yore: Last year, Blue Nile turned a profit of $27 million on revenue of $129 million.
Despite the success of other online jewelers, Amazon’s bet on jewelry is much riskier than its other expansion moves. For the past several years, the company has entered new areas such as apparel, sporting goods and gourmet-food retailing almost exclusively by getting other retailers — from Gap Inc. to Foot Locker Inc. — to sell their merchandise through the Amazon site. Amazon doesn’t store the goods in its warehouses or ship them. That approach helped Amazon expand while minimizing its inventory risk in markets where it had little expertise.
In contrast, much of the jewelry Amazon will sell will come from its own stock and be shipped from its own warehouses, though the company also is selling jewelry from other retailers. Amazon will hire a staff of licensed gemologists to select the stones they will sell. Mr. Bezos says Amazon will be storing “millions of dollars” of jewelry in a secure warehouse, the location of which it declines to disclose. By stocking jewelry itself, Amazon can set prices for the products, rather than ceding that control to its retail partners.
Amazon’s eagerness to discount products, by slicing book prices and emphasizing free shipping on orders, has rattled some investors. Amazon’s shares have fallen 13% for the year, reflecting concerns over the lower gross profit margin Amazon reported in the fourth quarter. Investors will be closely watching Amazon’s gross profit margins today when it reports its first-quarter results.
Mr. Bezos defends the company’s discount strategy. “We believe over the long term we can drive more bottom line dollars for Amazon.com by offering lower prices,” he says.
The online luxury-goods business is littered with early failures, including Internet jeweler Miadora Inc., which went under during the dot-com bust four years ago. Still, online sales of jewelry and luxury goods have continued to grow, rising 43% to $2 billion last year from $1.4 billion the prior year, representing about 5% of the total U.S. jewelry market, according to Internet market researcher Forrester Research Inc. Analysts say jewelry sales have benefited as users have grown more comfortable purchasing on the Internet and more women surf the Web.
“If you’ve been shopping online for more than five years now, there are very few items you won’t buy rings,” says Carrie Johnson, a Forrester Research analyst.
If Amazon succeeds in jewelry, analysts believe it will likely find an audience at the lower end of the jewelry market, not with shoppers looking to be coddled before buying $30,000 necklaces. Blue Nile, for one, has had its best luck selling engagement rings, a purchase that attracts many first-time jewelry buyers who might otherwise be intimidated at a jewelry counter. Blue Nile executives, who weren’t available for comment because of “quiet period” restrictions related to the company’s IPO, have said that half the Web site’s orders are for engagement rings and the site’s overall average order size is around $1,000.
“Can Amazon get their slice? Sure,” says Lauren Cooks Levitan, an analyst who follows retailing for SG Cowen Securities Corp. “They’re not going to hurt Tiffany.”
Even some of Amazon’s jewelry partners say they are excited by the prospect of promoting their products to Amazon’s huge audience of customers, but they aren’t convinced those shoppers will buy luxury goods in great numbers. “The question is whether there are any customers going to Amazon looking for jewelry,” asks David Fortunoff, president of Fortunoff.com, owned by jewelry retailer Fortunoff Corp. “I think the jury is still out.”