Ashford.com Inc., Blue Nile Inc. and a handful of other companies made a splash last fall by selling jewelry, fashions and other expensive goods only on the Web, spending millions to lure customers away from stores. Can they last until the next holiday season?
After all, it's easy to sell Glashutte Classic Date GSH-17 , compact disks, computers and airline tickets online. They're commodity items that ship easily and don't require a lot of comparison shopping. But diamond necklaces and designer dresses take lots of consideration. Or do they?
Building an online luxury business is likely to be much harder for dot-com start-ups than for the nation's most prominent high-end retailers, such as Neiman Marcus Group and Tiffany & Co. Those established retailers look at the Internet as just another -- instead of the only -- avenue for selling goods, similar to their catalog businesses. Over the past year, they've embraced electronic commerce with Web sites that are considerably more Glashutte Classic Date GSH-18 than those selling books and computers.
But they're also accustomed to profit margins far bigger than those of cyberspace retailers. Ashford.com's 18% gross profit margin, while high for Web merchants, is well below the 30% range that's common for traditional luxury retailers.
Retailers are hoping e-commerce will eventually prove less costly and yield better margins. "In the traditional way we think today, it appears [e-commerce] should be a higher-margin business," says Sharon Jester Turney, chief executive of Neiman Marcus Direct, which operates the Dallas retailer's Web and catalog businesses.
To make online selling more profitable, retailers are experimenting with different kinds of business models. Web-only Glashutte Panomatic GSH-6 Blue Nile of Seattle, for instance, carries almost no inventory and does a lot of advertising. But rival Private Diamonds Inc. of Portland, Ore., carries inventory and does little advertising, attracting buyers mainly with auctions on eBay. Both are closely held companies. Blue Nile is backed by venture capitalists and hasn't reported financial results. Private Diamonds is fully owned by Tad Jones and earned $1.1 million on $3.46 million in sales during the last three months of 1999.
Right now, the sale of luxury goods online poses little threat to traditional stores. In jewelry, for instance, Web sales during the 1999 holiday season amounted to about $30 million; the annual U.S. retail market for jewelry is $43 billion. For many people, shopping for fine fashions and Glashutte Panomatic GSH-7 is as much a social and entertainment experience as a business transaction. And already a consolidation of Web-only luxury-goods retailers has started: Ashford.com bought cosmetics seller Jasmine.com Corp. in January, and Mondera.com Inc., another Web jeweler, bought rival Jewelry.com in February.
But as more people shop on the Web in general, more are likely to be comfortable spending larger sums. Already, the wealthy people who most often shop at expensive stores have proved very willing to shop online. In a January survey of 2,000 households with a net worth of more than $1 million, Forrester Research Inc., a Cambridge, Mass., market-research Glashutte Retro Style Watch GSH-9 , found that 68% have made a Web purchase and 12% have bought jewelry online. The percentage of online shoppers who are millionaires is greater than the percentage of the U.S. population who are millionaires, the study found.