Just a couple of years ago, Amazon.com did not practice jewelry sales online. However, in 2010 the company gave the green light for jewelry retailers to place their virtual showcases on its marketplace.
What is Amazon.com?
Amazon.com (NASDAQ: AMZN) is the largest online supermarket, based in Seattle, WA, US, and put on the Fortune Global 500 list. The Amazon Corporation started its business on the World Wide Web in July 1995. Today, the company offers perhaps the broadest range of products worldwide. Amazon is striving to be the most customer-centric company in the world, where shoppers can find whatever they want and at the lowest prices possible.
According to Amazon’s unaudited financial results for the fiscal year 2010, the company earned a net income of $ 1.152 billion, up 28% versus 2009, posting $955 million in operating profits in North America only.
If you have ever been to large wholesale depots or port facilities, you will find it easy to imagine the huge warehouses of Amazon in Seattle. However, inventory does not appear to be the greatest value to the company. In case of fire, Amazon’s client database would be its worst loss.
It is no secret that this online store is monitoring consumer preferences and choice, so that later on to be helpful putting on display to its customers those offers which are more likely to lure them into a new purchase. Today, Amazon has also turned into a marketing tool to track purchasing trends and buyer behavior, including those in the jewelry trade. But more on that later.
Selling and buying jewelry on Amazon
Today, Amazon displays a broad range of jewelry, from bracelets graced with cultured freshwater pearls for $45 to platinum necklaces inlaid with a hundred of diamonds worth $93,000. Of course, operating through Amazon gives great advantages, of which the opportunity to introduce your goods to tens of millions of customers around the world appears to be the main benefit.
Amazon can also lease a warehouse or undertake to prepare your goods for shipping, packaging (even in gift wrapping) and actually deliver them to your customer. In this case, the seller may just showcase its goods at Amazon trying to get only positive customer feedback since the latter affects the seller’s performance rating on Amazon.
However, to sell jewelry is not as simple as it may seem since you may get an access for putting this type of goods for sale only after being cleared by Amazon.
Currently, Amazon runs a separate section devoted to jewelry. It is divided into the following categories: rings, necklaces, earrings, bracelets, pendants, accessories and watches. The following classification is offered for jewelry materials: diamond, gold and platinum jewelry; jewelry pieces graced with gems by date of birth and other gemstone jewelry; pearls; wedding bands and engagement rings. Separately placed is men's and children's jewelry. It is also possible to focus your search on price or design you prefer.
Amazon as a jewelry marketing tool
The above-described segmentation is useful not only for buyers but also for those who study the behavior of these buyers in the market, or for marketing experts. Again, Amazon offers an opportunity to display products of a selected type by bestseller classification which offers interesting possibilities for market analysis.
“One of the best places to get started with your research is right on Amazon. Once you’ve decided on a product, go to Amazon and see how others are doing with that product... If you find the marked is flooded with this particular item, and that none of them seem to be moving quickly, then you know you need to go back and search some more,” says the book "Amazon Top Seller Secrets" released in 2009 by Brad and Debra Schepp, who excelled in the field of online trading.
Of course, Amazon is not the only place to conduct marketing research, and it would be unwise to look here for latest designer solutions, but the great advantage of Amazon is that it gives a chance to see current spending trends. You may go to the section of diamond jewelry, choose a group of diamonds 0.5 to 1.0 carat in size, set the display type for ‘bestseller’ and see that over the past 24 hours the most popular items were diamond stud earrings made of 18-karat white gold with two diamonds weighing 0.5 carat, HI, SI1-SI2, sold at $660 and a ring of 14-karat gold carrying 3 diamonds 0.5 carat each at $399. Free shipping. Plus a 50% discount.
Is Amazon dangerous to other jewelry traders?
When in 2010 the jewelry trade on Amazon was officially given the green light, the blog of legendary brand Tiffany posted an article musing about whether or not Tiffany should fear competition on the part of Amazon threatening to bring jewelry prices down.
Apart from giant Tiffany, large- and small-scale retailers were asking the same question, as Amazon has already started to act not merely as a reseller, but as a dangerous competitor for their business.
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.
This is the downside of trading on Amazon: this web-portal has wide opportunities to gather commercial information about a particular business and analyze consumer preferences putting then for sale goods sold by Amazon itself at lower prices than competitors.
Major U.S. retailers got aware of this danger. In early February, Macy's Inc., Buy.com Inc. and The Gap Inc. were reported to have come to a decision to leave Amazon because of "foul play".
Buy.com President and Chief Executive Officer Neel Grover said that “the company didn’t want to provide Amazon.com information on product pricing and sales that could then potentially be used against them.” Buy.com is also an online store selling all categories of goods, but unlike Amazon it pursues a policy to stay out of competition with vendors exhibiting their products on Buy.com.
To picture the magnitude of the threat to trigger an unprecedented cut in prices it will suffice to remember the latest promotions by Amazon timed to Saint Valentine's Day (very popular among customers in the United States): jewelry discounts ran at 70% to 80%...
Amazon was also walking a tightrope having entered the jewelry segment actually testing new waters and perhaps even more than other online jewelry retailers. In recent years, Amazon was cultivating new "territories", including clothing, sporting goods and culinary delights, by attracting other retail players to work through the Amazon website. For them, the portal did not provide warehousing and transportation services. This approach has helped Amazon to expand, while minimizing inventory risks in the markets where the company had little experience.
Amazon made a bigger and more risky bet on the jewelry trade because jewelry goods mainly come from Amazon’s own depots, despite the fact that the company also sells products from other retailers. Amazon was planning to hire licensed gemologists to select precious stones for sale. Mr. Bezos mentioned that Amazon would be storing “millions of dollars” of jewelry in a secure warehouse, the location of which it declined to disclose. Operating its own stock of jewelry, Amazon has an opportunity to set prices for these goods, rather than to give pricing at the mercy of retail partners.
Amazon’s desire to pervade the jewelry segment is well-reasoned - being a commodity which enjoys higher trade margins and at the same time is less costly to store and transport, jewelry is potentially an important reserve for increasing Amazon’s profits or operating leverage.
According to industry analysts, buyers of low-end jewelry will remain Amazon’s major consumer segment. This orientation is clearly visible in the online store: offers of diamond goods below 0.5 carat are currently exceeding 3,400, while there are only 32 diamonds above 5 carats in size put on sale.
Yet Amazon has something to strive for - for instance, the breakthrough achieved by Blue Nile, which has succeeded in selling engagement rings. “Half the Web site’s orders are for engagement rings and the site’s overall average order size is around $1,000,” the Tiffany blog wrote citing the information from Blue Nile managers.
“Can Amazon get their slice? Sure,” says Lauren Cooks Levitan, an analyst who follows retailing for SG Cowen Securities Corp. He also believes that Amazon will not cause any perceptible damage to Tiffany, as they are different weight classes.
While some jewelry partners fear of competition from Amazon, others, on the contrary, believe that working through the world’s largest online store will help them increase sales and expand their customer base. However, they also do not think that customers will buy large quantities of luxury items.
The Amazon sellers forum at http://www.amazonsellercommunity.com features different views on the jewelry trade, many of them positive. And although it is not always easy to distinguish honest feedback from real vendors from paid-up "publicity", one thing is certain - working through Amazon gives retailers an opportunity to rise to the top on search engines (however, mainly Google). Amazon propels its participants in a virtual space as a digital locomotive, however not missing its own share of "field work."
Maybe for small and medium retailers this does not appear a significant threat, or rather, possible benefits are greater than any possible damage. For larger players, there are serious reasons to ponder. Meanwhile, although Tiffany does not run its own display on Amazon, it still holds a paid link there. You bet tuj is visited by millions of customers every day.
Olga Patseva, Editor of the Rough&Polished American Bureau in San Diego
