The Blue Nile Blues

A little over a year ago, Blue Nile stock peaked at $106.16. As of close of market today, the stock was at $22.90. What a difference a year makes! One might ask if the stock was over priced or the business model is unraveling, or is it just bad timing?

 

For those of you who don’t know about Blue Nile, let them, in their own words describe what they do.

 

“The company is built on a unique idea: choosing an engagement ring doesn’t have to be complicated. Diamonds can be simple to understand. Making the right choice can be easy.”

 

A few years ago, Bear Stearns, AIG, Fannie May, Freddie Mac, Lehman Brothers, Wachovia, Ford, G.M., IndyMac, American Express and countless others said to us with a very similar drum beat, “Buying is easy, credit is easy, credit default swaps and derivatives aren’t complicated, come follow us to the land of riches. Follow us to easy street with cars and homes and diamonds. You deserve a McMansion. You earned a Mercedes Benz. Life is short; buy now! It’s easy! Just charge it! That’s the American way! Want to start a war or two to feel better about 9-11? No problem! Just charge it! Put it on the tab! Pay for it later! Bills? Just pay the minimum. You don’t want to miss the Grand Old Party!

 

Well America, “Easy come, Easy Go.” On the world stage, all the developed nations took the short cut and are shocked that we stabbed ourselves in the back.

 

Buying should never be easy. It should be hard. It should be thought out. It should be complicated enough to stop our impulse buying reptilian brains from stockpiling more crap that we could use in ten life times. Half the world doesn’t have clean running water and depends on fire as the main source of energy, and we want easy?

 

Blue Nile believed they could build a company with no assets. No skin in the game; use other companies’ inventory, play middle man and walk away with an Ebay broker commission. Did it work? Kinda—until customers found out they couldn’t return merchandise they didn’t need after 30 days—until customers found out that they couldn’t exchange mistakes after 30 days—until customers found out that all those precious “certificates” that Blue Nile proudly tout with every diamond sale don’t guarantee the quality or authenticity of what they bought.

 

How would you feel about buying a refrigerator and getting home and realize you got a trash compactor? A little crushed?

 

Sadly, in the end Blue Nile, if they survive will be remembered not for top quality at the best price but as a consolidator of ground round that has passed its expiration date. Is it still safe to consume? Don’t ask me; I like to buy things with my eyes wide open from someone who stands behind their product and is there for me if anything goes wrong.

by Fred Cuellar, author of the best-selling book “How to Buy a Diamond.” More questions? Ask the Diamond Guy®