The Internet: Retailers' New Challenge

August 24, 1999

Polygon Conclave

The Internet: Retailers' New Challenge

A customer walks into your jewelry store with printouts of diamond selections from Internet Diamonds, the well-funded company that claims it's the largest retailer of diamonds on-line. The list prices for the customer's desired diamond is only $100 above your cost for a stone of the same characteristics. Do you let the customer walk or come down in price to compete?

That was the question that started "The Jewelry Industry and the Internet," a "war room" session at the Polygon Conclave in Seattle, WA, this past weekend. Moderated by Rich Goldstein, president of iJeweler in Austin, TX, the free-for-all session was a chance for retailers and suppliers in the audience to make cases for both strategies.

The Internet makes much of the world's knowledge instantly accessible to people who want it, which means customers can be just as educated as the average jewelry salesperson. "When customers come in with that kind of power, things change," said one jeweler. "Get your diamonds down to a reasonable price. You'll eventually make money from this guy on other things – someday you'll have the chance to sell him pearls for his anniversary or something. But don't lose him to the Internet."

Some agreed, saying they lower prices on a case-by-case basis. Others said they walk away from profit margins that go too low. "If a guy says he'll buy a diamond for $100 more than my cost on-line, I say 'Knock yourself out,'" a jeweler said. "I'll be here when you need me." Many agreed jewelers will make their margins in the future on add-on sales – custom designs and mountings, repairs and appraisals on Internet diamond purchases.

A few audience members voiced strong opinions against cutting prices to compete. "What if the word gets out that you're discounting?" asked one retailer. "A long-time customer may come in and say 'I've been a loyal customer for 10 years – why didn't you give me the best price?'" Others pointed out that as retailers, they're selling service."Retail will always exist – otherwise, people wouldn't still go to Nordstrom," where they get great service but pay significantly more.

- by Stacey King