You launched 77 Diamonds in 2005 as an online-only bespoke jeweler. The name of the company relates to an important year in the history of the diamond industry, correct?
Yes. Traditionally engagement rings were made with precious stones — rubies, sapphires, emeralds — and in 1477, Archduke Maximilian proposed using a diamond engagement ring. That’s the first big record of a diamond engagement ring being used in that context. But actually, do you know how fast light travels?
I guess something to do with the number 77?
Very good — 186,000 miles per second, which is actually not related to 77, but when it hits a diamond, it slows down to 77,000 miles per second. That’s actually taught in the Gemological Institute of America (GIA) curriculum. Then it goes back out at 186,000 miles per second. So we’ve got a double angle. We thought 1477 was too big, so we used 77.
Can you explain your business model?
It’s a made-to-order, fine-diamond-jewelry business with a core product of engagement rings. The customer picks a stone — it could be a gemstone, but mainly diamonds — and then selects from a jewelry style or works with one of our bespoke designers to create something completely unique. Then it’s made to order and delivered. We do that, producing to as high a quality as we possibly can, but at an affordable luxury price. This is built around giving the consumer control; they can literally have anything they desire.
When you first launched, did you see a clear gap in the market for this style of business?
Absolutely. It seemed like there was an immediate demand for this. I think there was a lack of transparency. Consumers were, for the first time, realizing that there were alternatives to what they’d get in a traditional jewelry store, which is premade and sold at a relatively high price. Initially it was a lot of early technology adopters that became our customers, but as the internet has become part of our everyday lives, people realize that choice is almost a consumer right these days. They can easily research and compare. So it transitioned from being early technology adopters and heavy on research, to a larger part of the market that was willing to purchase online.
But then we figured out from listening to our consumers that a lot of people also wanted to be able to go in-store to touch, feel and see the product. Purchasing online is actually quite difficult, even though technology brings a huge amount of information. And when you go into a store, you walk out again and can’t remember every single detail, while online, you can go back over and over again. So there are positives and negatives to both. But if you really think about the optimal consumer experience, you can combine store and online. I think we were quite early in not only bringing the vast majority of diamonds to the market, but in giving consumers the choice of how they wanted to interact.
Do you hold less diamond inventory than an average retailer?
We really wanted people to be able to get tailored solutions, but we also didn’t want to sit on a huge amount of stock, because obviously prices fluctuate. If you’re exposed to currency shifts — and diamonds are priced in dollars — then that affects pricing. We wanted to make sure our consumers had real-time pricing on diamonds and jewelry. So being stuck with lots of overpriced inventory is not good for the company, and it’s not good for consumers. We probably hold the equivalent of one-and-a-half stores. Given that we have 11 stores, this lets us keep a relatively light inventory model. What you need to do this is a really efficient supply and organization, which we have. We’ve invested a lot in technology and have a huge IT department [so we can] deliver within reasonable time frames.
How does that work with your suppliers?
We have a long-established relationship with some of the largest diamond manufacturers, and we were one of the first companies to integrate with their technology and be able to take their virtual inventory onto our website and combine it with the jewelry selections. So we have a really efficient setup for jewelry. We manufacture or finish everything in our UK workshop, which spans four floors filled with some of the best artisans in the country. We are a bit slower than some of the large US players, because we spend that extra time on crafting really fine jewelry. So the quality of what we produce is significantly higher than most of the other online players.
How does it work on a technical level with the last-minute nature of your jewels-on-demand model? Are you taking goods on memo and putting them on your site? Or are the diamonds still in the supplier’s possession and you just market them on the website?
It’s actually a combination of all that. We have inventory from suppliers, and we have agreements with them where they’re holding inventory for us. Then some of it is sourced virtually, but I think there are significant advantages with the way we’ve set it up, because of the long trust and relationships that we’ve built up with our suppliers. So we do hold a significant amount of inventory, we purchase some inventory, and then we source just-in-time inventory as well.
And does that last-minute inventory mean you’re paying more for polished on average than the standard market price?
It doesn’t. And that’s because we have the volume going through the business. So we have the negotiating power with the suppliers.
Would you say your model is similar to Blue Nile’s?
If you look at Blue Nile’s history, although they were the first and really created the market, they were also instrumental in destroying the market. They put a huge amount of companies out of business — mom-and-pop shops all across the US, mainly. They did that, in a way, because they were very much about price. So I would distance myself massively from Blue Nile.
One of the reasons they ended up being sold and why their share price plateaued was because they didn’t invest in the service, in the product. They were very much about just volume, volume, volume. As a jeweler, you’re playing a very privileged part of someone’s life journey, and they got into trouble because they were focusing on the wrong things, and were so price-competitive that they couldn’t actually provide the kind of quality and service that they needed to.
This interview is an edited extract from episode 128 of the Rapaport Diamond Podcast, “Not Europe’s Blue Nile.” Listen to the full episode wherever you get your podcasts by subscribing to the Rapaport Diamond Podcast, or listen online at rapaport.com/podcasts.
Main image: Tobias Kormind. (77 Diamonds)
