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Jewelry E-tailers: Who Pays for Their Overhead? May.2000

Jewelers who are worried about web-based jewelry e-tailers stealing their customers may be able to take a deep breath for now. Both the Wall Street Journal and New York Times recently wrote that many analysts foresee a shake-out in the e-tail sector. Two well known sites— Cdnow and Value America (which used to sell the De Beers Millennium stones)—are in serious trouble, and the stock prices of all the companies are skidding.

The article says what many have been saying for a while: that these companies’ business models are fundamentally flawed. While e-commerce is still growing at an impressive rate—higher, even, than expectations—costs are rising at an even faster rate.

Many of these web sites have not only low margins but huge advertising budgets, in the tens of millions of dollars, that exceed their overall sales, as well as venture capitalists who someday are going to demand a return on their money. Who’s going to pay for all this? Chances are it will be the consumer.

Think about it: If you are going to spend as much as Tiffany on advertising, you are going to have to charge Tiffany-like prices. After all, these sites are trying to establish brands. And, brands, as we all know, command premiums.

So eventually, we may see the web sites no longer able to undercut jewelers on prices. In the end, the e-sellers may not be as scary as they now appear.

The jewelry sites that will survive will be generalists in luxury items, from watches to scented soaps—because they have a bigger audience and can move a lot of product in a short time.

In a CNN interview on the subject, The Diamond Registry pointed out that, according to the U.S. Geological Survey, Angolan diamonds are only 2% of the world’s production of diamonds. While we certainly agree that diamonds should not finance these civil wars, diamonds themselves cannot be blamed for the war any more than money is responsible for it..v


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