Nothing can scratch a diamond except another diamond, but a recession can carve deep gouges in the diamond jewelry business. Take the holiday season that just ended: sales of luxury goods, including jewelry, fell 34 percent. Still, Marc Stolzman, CFO of online diamond and jewelry merchant Blue Nile, sees opportunity in hardship. Like traditional retailers, Blue Nile (2007 net sales: $319m) has been hammered by the downturn; its domestic net sales have fallen for the past three quarters and its stock price has plummeted more than 50 percent. But the online jeweler, which was founded in 1999, has few of the costs incurred by its bricks-and-mortar rivals. Customers can build engagement rings to order on Blue Nile's Webs site, choosing from a huge variety of stones and settings. Stolzman says the same lean business model that enabled Blue Nile to survive the dotcom bust and dominate its online niche will allow it to weather this downturn, too, and grow its market share.
"We have exclusive relationships with diamond and jewelry suppliers," Stolzman says. "What you see on our Web site can be found only on Blue Nile. We have more than 50,000 diamonds available at any time, but it's (mostly) a virtual inventory, so we don't have the carrying cost of what would be $500m to $600m of inventory."
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