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Blue Nile CEO Harvey Kanter speaks at the Executives in Fashion Series at the Impact Hub.

Blue Nile was founded 15 years ago as an online retailer of diamonds and engagement rings. At the time, skeptics wondered who would actually buy such a special — not to mention expensive item — over the Internet.

Well, Blue Nile has survived and thrived over the years, with annual sales last year of $450 million. But the problems associated with buying luxury rings online still persist.

An engagement ring case at Seattle’s Nordstrom store. Blue Nile photo.

“The penetration for online jewelry is less than 10 (percent),” said Blue Nile CEO Harvey Kanter, speaking at last night’s Executives in Fashion Series in Seattle. “And the reason is that  — somewhere around 70 percent of consumers say — ‘I can’t see it, touch it, feel it.'”

To get around that persistent bottleneck, Kanter and crew approached Nordstrom last year about a unique partnership.

The idea?

Place a special diamond ring case in Nordstrom stores, allowing customers to “see, feel and touch” the product. At this point, Blue Nile has two displays, one at the downtown Seattle Nordstrom store and another at a location on Long Island.

“We are getting really good traction,” said Kanter, who described the project as a test. “Nordstrom sees it as an opportunity to, hopefully, create an additional element to fill in their funnel. Our core customer that buys engagement is around 30 and … their core customer is older.”

blienileceo2Kanter said that they are still experimenting with the concept, bringing 130 wedding bands and 75 settings into the physical stores. At least one wedding proposal has taken place at the Blue Nile display case, and Kanter noted that the biggest sale was a $95,000 transaction.

“We don’t talk about the specifics of how much business we are doing, but we feel like it is going along in the right way,” he said.

Kanter also discussed the company’s expansion in Asia, discussing a recent wedding show in Shanghai in which 60,000 people attended over two days. Kanter called it a “completely different market, with a completely different orientation.” But he said the Chinese market represents a big opportunity as consumers there embrace a “westernization” of marriage and engagement.

Over time, Kanter said that China alone could represent a $100 million business for Blue Nile.

“We don’t know when we are going to get there specifically, but we are building to get there,” said Kanter, adding that before Blue Nile’s arrival it was already one of the most recognized jewelers in the country.

As to competition in the U.S., Kanter said that they are taking market share mostly from traditional mom-and-pop and single-store brick-and-mortar retailers.

“If you think about what we do, we don’t really compete against Zales and Signet and Kay — they have a different customer, a lower income level,” said Kanter. “Our average transaction for engagement is like $7,000…. The U.S. average is under $3,000.” In the physical world, Kanter said that perhaps Costco is the closest competitor.

Furthermore, Kanter said that Blue Nile has grown more in the past 24 months than the nearest online competitor now does in total business. “While we don’t rest on our laurels and think that there is no one that can approach us, we definitely think that we have defensible barriers,” he said. “There are competitors, but they don’t compete in the way that we compete.”

Meanwhile, Kanter called — which has its own jewelry business — a “great retailer” which he watches closely.

“They are not in the loose diamond business. Before I got here, word is that they tried to be in that business, and it didn’t work out. I don’t know why,” he said. “The fact of the matter is, when we talk about defensible barriers, 150,000 stones and 25 percent of the world’s polished, those are really big defensible barriers. It’s not guaranteed that we can defend them, but they are pretty big barriers.”

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