Blue Nile Corporate Strategy Essay Example

2000, and Money Magazine listed our price, service, and education as reasons they rated us a "Best Deal. Kiplinger.

com stated that "the best online jeweller is Blue Nile", and we were recently profiled in full by The New York Times. The Wall Street Journal describes how our individual diamonds "... are described in even more intricate detail, including depth, table, symmetry, polish, girdle, culet and fluorescence", and they go on to recognise that Blue Nile ".

.. even explains what all these things mean” BlueNile. com (2008) Competitive Five -Forces Analysis ConclusionBlue Nile has a fantastic historical track record in generating attractive ROI and generating healthy growth and profits which has been largely due to Blue Nile navigating the water’s of competitive pressures from other online retailers and in generating web based new shopper traffic which is proof that they are dealing with competitive forces lurking around their innovative successful business model but at the same time competition will see entrance into the market from traditional Bricks & Mortar retailers such as Tiffany’s & Co and increased online competition from the like’s of Amazon who sell Diamonds online, Diamond. om, Mondera to name a few The biggest danger is major speciality Jewellery name brand players who are already very well respected and have gained the trust from consumers over a number of years such as “Zale Corp & Sterling who have positioned themselves Number 1 & 2 in the US market with combined Sales of $4. Billion (USD) per year” Thompson p C-73 (2007) But at the same time the saviour for Blue Nile is that the Online Jewellery market still has extensive room to

grow taking market share away from traditional retailers and room for other competitors to enter the market without affecting Blue Nile’s future sales turnover and profit projections.

Plus at the same time Blue Nile is carving out and pioneering new market industry segment that will continue to grow for some years yet. Outlook/Trends “In 2005, online jewellery sales have a 3. 5% market share, and they are projected to reach a 7. % share in 2010. In part, the rise is due to high online sales of expensive diamond engagement rings.

By 2009, online sales of fine jewellery should hit $2. 7 billion, or 6. 6% of the total market” emarketer. com (2006) “But jewellery is just part of a retail online picture which is growing even faster across the board, according to Forrester. Thanks to innovations that will make online shopping simpler and more engaging, online retail sales will nearly double within five years; from $172 billion in 2005 to $329 billion in 2010, according to the report.

That increase includes a 14 percent compound annual growth rate over the next five years” Europstar. com (2007) “ An increase in the number of female shoppers will contribute to 14 percent of jewellery sales moving online by 2010, according to a new forecast from Forrester Research and Nielsen//NetRatings. "As the online buying population matures, there is increased confidence and comfort in purchasing non-commoditized goods online, which has provided retailers with the opportunity to sell a wide variety of product categories and price points. Harris Interactive: (December 20, 2004) Key Success Factors Next 3 – 5 Years •Increasing product range to include lower cost high quality consumer

segments including pearl necklaces and friendship rings etc •Offering greater customer trust, security, comfort, creditability online buying experience by providing independent grading reports on all product lines sold by Blue Nile which in turn will create positive market image. •Offer greater customer services such as 24 hour Global delivery E. g.

DHL overnight •Increase product line specialization in tailor making & customising to shopper’s requirements •Develop & Implement public relations & consumer education programmes targeted towards potential US domestic & International buyers on Blue Nile Online product lines and services offered. E. g. Oprah Winfrey Show •Develop and Implement creative marketing campaigns & pricing strategies that will drive greater sales & growth ultimately profitability. E.

g. Sponsorship travel events Source: Blue Nile Annual Report (2006)Blue Nile Strategy The Blue Nile’s Inc strategy is “striving to achieve lower overall costs more than rivals and appealing to a board spectrum of customers , usually by under pricing rivals which is their overall competitive advantage with vast many price-sensitive buyers “ Thompson p 134 – 135 (2007) The main elements of Blue Nile’s strategy are:- •Low operational costs with the company only having “133 full time employee’s and independent contractors and temporary personnel on seasonal basis.Blue Nile use combination of proprietary and licensed third party information technology systems for financial reporting, inventory management, order fulfilment and merchandising” Thompson p C-64 (2007) •Heavily utilizes information and sales aids such as five C’s of diamonds of buying diamonds in educating shoppers about quality, value and characteristics of stones Thompson p C-65 (2007) •Product & service offering is based around offer “high-quality diamonds and fine jewellery at outstanding prices” Blue Nile. com

(2008) Postives & Negative’s Blue Nile’s Business Model Postives of Business Model:- •Low Overheads & Operational costs E. . •Minimum Capital Investment required in equipment, plant and property E.

g. $7,601million (USD) Yahoo Financial (30th Dec 2007) •Low stock levels and warehousing inventory required E. g. $20,906 million (USD) Yahoo Financial (30th Dec 2007) •Highly geared Cash flow with payment before Shipping to Shopper E. g.

Cash & Cash Equivalents in the Bank $122,793 (USD) Yahoo Financial (30oth Dec 2007) •Bank Managers dream client with Cash held in Bank Account before payment required from Suppliers between 30- 60 days payment terms. •Extremely low Capital Expenditure as of 30th Dec 2007 $1,320 million (USD) Yahoo Financial (30th Dec 2007)Negatives of Business Model:- •Extremely vulnerable & open to imitation (copy cats) in the online market place. Rather difficult legally to copyright business model with exception of trade marking the brand name or securing exclusive proprietary rights to online website interface software. •Vulnerable to Economic downturn in Consumer spending on Premium items which are the first products to suffer in Economic downturn E.

g. Recession •Focused predominantly on the online engagement ring market which makes up 68% with balance 32% of other product lines contribute to total sales turnover.Seventy percent of its revenue comes from diamond engagement rings whilst 20% comes from other types of diamond jewellery and the rest is everything from wedding bands to pearl necklaces. ” emarketer. com (May 2006) SWOT Analysis Blue Nile Inc Strengths Weaknesses Internal? Successful Strategy & Business Model ?Online Jewellery Market Leader Seller ?Lean Operational Costs compared Traditional Jewellery Retailers ? Strong Brand Name Awareness Online Jewellery Consumers ?Reputation for

High Quality Product & Customer Service ?Extensive Product Range ?Functional & Informative Customer Friendly Website Interface ?Minimal Capital Investment Required ?Strong Supplier Relationship ?Core Focus On Engagement Ring Product Segment E. g.

68% Sales Turnover ?Low Brand Awareness in High Premium Jewellery Market ?Not highly Capital Geared in comparison Traditional High Street Jewellers ? Highly Exposed to be Business Model being Copied by Competitors ? Poor Consumer perception and Lack of Trust Purchasing High Value Jewellery Online. ?Extremely Reliant on Solid Relationship with Diamond/Fine Jewellery Suppliers ? Lack of Capital to fend off Unwanted Takeover or Buyout ?Revolving Door CFO & Senior Management Team Leaving Blue Nile ?Blue Nile Stock Price Rides on the Coattails of Other Powerhouse Publicly Listed Jewellery Retailers E. g. Tiffanys & Co Opportunities Threats External? Further Global Expansion ?Massive Scope to Increase Growth taking Market Share from Traditional Jewellery Retail Market ? Potential to move into other Product Segments/Lines ?Further Increase Potential from Expansion of Current Product Range ? Merger with Major Traditional Jewellery Retail Group E.

g. Tiffany & Co ? Brand/Product Leveraging with other Online Sellers ?Buyout by Major Online Seller E. g. Amazon U. S.

A ?Future Increase in Consumer Online Shopping Dramatic Increase in International Markets of Internet use E. g. UK ?Erosion of market share, revenue and profits from potential Copy Cats & Traditional Jewellery retailers ? Stray from core competencies ?Increased competition in domestic and new foreign markets ? Global Economic Recession E. g.

Less Consumer Spending on Premium Items ? Pressure from Traditional High Street Chain Retailers on Diamond Suppliers to stop Selling to Blue Nile Inc ? Depressed Stock Price Resulting in

Further Capital Investment or Stock Buy Back ? Uninvited Hostile Takeover by Competitor/Investment Speculator ?Overheating of Stock Price leading to sell-off & Stock Price Collapse ? Soaring Raw Material Prices used in Production of Jewellery E. g. Platinum Conclusion •Blue Nile Inc has a major operational cost based advantage over traditional High Street retailers who cannot compete with Blue Nile’s lower price margins passed onto shoppers Online. •If Blue Nile becomes too much of a threat in the marketplace taking large chunks of market share away from traditional large chain retailers Blue Nile could realistically could be a hostile takeover. •Ample room for high growth & profitability prospects or the continued development and growth of Online Jewellery shopping especially in the US and Global international markets such as United Kingdom & Germany. •The Online low cost strategy has placed Blue Nile in a fantastic strong market leader position while barring major economic or terrorists attack crisis’s which could affect consumer spending there growth and profitability prospects look relatively very healthy over the next few years.

Financial Performance Highlights •Earnings per share for year ending 2007 was $1. 04 (USD) which was a rather attractive return on investment considering year ending 2006 returned $0. 6 (USD) which was increase of $0. 28 over last year to stakeholders. Finance Yahoo.

com (Mon 7th April 2008) •The reported gross profit earnings in year ending 2007 were $65,204 M (USD) compared to 2006 year ending of $50,853 M (USD) which represents rather healthy 23 % increase in comparison to 2006. Finance Yahoo. com (Mon 7th April 2008) •Cash and cash equivalents as of 30th Dec 2007 was $122,793 M

(USD) compared to year ending 2006 was reported at $78,657 M (USD) which is again is rather healthy cash reserves to fund further international expansion of business and marketing activities.Finance Yahoo. com (Mon 7th April 2008) •Capital expenditure year ending 2007 was $4,897 M (USD) compared to year ending 2006 total of $3,423 (USD) which indicates relatively low investment in capital goods such as equipment, plant and property which is very refreshing for organisations heading into the 21st century. Finance Yahoo.

com (Mon 7th April 2008) •The bottom line net income as of year ending 30th Dec 2007 totalled $17,459 M compared to year ending 2006 total of $13,064 M (USD) 25% increase over last year. Finance Yahoo. om (Mon 7th April 2008) •Earnings per share for year ending 2007 was $1. 04 (USD) which was a rather attractive return on investment considering year ending 2006 returned $0.

76 (USD) which was increase of $0. 28 over last year. •Blue Niles business has grown considerably since its launch in 1999 where the ending fiscal year 2007 Blue Nile reported total revenue of $319,264 M (USD) compared to 2006 year ending of $251,581 M (USD) which is 61% increase compared to 2006 result with respectable compound average growth rate (CAGR) 0f excess of 40%.Finance Yahoo.

com (Mon 7th April 2008) In conclusion Blue Niles Inc financial situation is rather healthy and bright with projected 2008/2009 increases in growth and profitability with plenty of cash in hand to fund operations, further international expansion ultimately the business model and strategy is working well in the marketplace in achieving the organisations goals. Financial data source: Finance Yahoo. com (Mon

7th April 2008) Annual Income Statement 30th December 2007 - 2006 Source: YahooFinance. com (2008)Competitive Strengths Assessment The competitive strength assessment will give us a snapshot indication of Blue Nile’s “overall competitive strength in comparison to competitors in the marketplace” according to Thompson p 122 (2007) Using the case study notes Tvorik (2008) where table 1 illustrates the following score’s for Blue Nile Inc against competitor Jewellers catering to shoppers in various industry segments:- Jewellery Industry Segment Total Score Retail Jewellery Chains 5. 75Local Retail 5. 40 Other Online Jewellers 6.

25 Blue Nile Inc 8. 05 Lower overheads, operational costs, product supply infrastructure from suppliers, wide product range and independent creditable grading reports has enabled Blue Nile Inc to gain that trust, confidence and provide price & service advantages to consumers when compared to traditional bricks & mortar jewellery retailers for example Tiffany & Co U. S. A Strategic Issues & Problems As we all know in the business world one of the major problems with web based marketing is maintaining and driving consumer traffic to the website which will pose Blue Nile’s major challenge going into the 21st century so how can traffic numbers be increased? •What if the search engine market under goes major consolidation due to Yahoo Inc being purchased by major competitor will limit the choices for web based marketing? •Developing & implementing creative web based and media marketing campaigns? •How should Blue Nile Inc increase consumer awareness & confidence purchasing high value luxury Jewellery online? If the market becomes saturated with new competitors and profitability plummets as a results/what strategic plans are in place such as M

& A? Strengthening Competitive Position The US Economic recession will have a major effect on Blue Nile Inc as result of reduced consumer spending on luxury items where new pricing strategies and promotions will have to be developed and implemented in the online marketplace as the outlook is not too colourful taking into account that stakeholders expectations is that they are demanding ROI on investment and return to 2005 profits/ dividends.The company costs and capital expenditure appear to be totally under control so the two areas of boosting sales turnover is increase International expansion to insulate Blue Nile from the potential US recession they should place more focus on strategic pricing especially in peak business periods and increase product range in widening that net in drawing in the next level of consumers in marketing terms the late adopters of online jewellery purchasing.Blue Nile Stock Analysts Prediction Source: Finance Yahoo.

com (Mon 7th April 2008) There is no doubt that Dec 2009 earnings per share projections look very healthy where my recommendation would be for those that have already purchased stock is to HOLD as medium term investment till late 2009 bar another 911 should offer very exciting prospects on ROI.I would not recommend purchasing shares until we get a clearer picture on the US economic recession which is currently pending like the London winter fog where after the US & European summer holiday periods August – September we be a serious BUY as in this writers opinion we have not seen the last of the sub prime crisis in the US and the recessionary current is just starting to bite in the European economies Prediction:

Blue Nile will become Merger & Acquisition target by one of the major online companies or traditional brick & Mortar retailers.Blue Nile 2008 – 2009 Earning Estimates Earnings EstCurrent Qtr Mar-08Next Qtr Jun-08Current Year Dec-08Next Year Dec-09 Avg. Estimate 0. 140.

221. 061. 28 No. of Analysts 13121514 Low Estimate 0. 130. 191.

031. 18 High Estimate 0. 160. 241. 101.

45 Year Ago EPS 0. 190. 231. 041. 06 Revenue EstCurrent Qtr Mar-08Next Qtr Jun-08Current Year Dec-08Next Year Dec-09 Avg.

Estimate 68. 56M78. 01M352. 69M407. 13M No.

of Analysts 12111312 Low Estimate 67. 20M75. 30M349. 2M392. 60M High Estimate 69.

90M81. 20M360. 00M426. 90M Year Ago Sales 67. 91M72.

09M319. 26M352. 69M Sales Growth (year/est) 1. 0%8. 2%10. 5%15.

4% Source: YahooFinancial. com (2008) References Europstar. com (2007) http://www. europastar. com/europastar/magazine/article_display. jsp? vnu_content_id=1001433585 BlueNile.

com “Profile” Available: http://www. bluenile. co. uk/bluenile_advantage. asp? track=sb_1&elem=more_button (Accessed 7th April 2008) Businessweek. om (June 5th 2006) “Hot Growth” Available:http://www.

businessweek. com/hot_growth/2006/company/10. htm (Accessed 7th April 2008) Businessweek. com (March 6th 2006) “Checking Up on BW's Web 20 “ Available: http://www.

businessweek. com/magazine/content/06_10/b3974120. htm (Accessed 7th April 2008) Reuters. com (2008) “Blue Nile Inc Nile.

O (NASDAQ)” Available:http://stocks. us. reuters. com/stocks/incomeStatement. asp? period=A (Accessed 7th April 2008)