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Prospects are glittering for Internet luxury sales

By Monica Soto Ouchi
Seattle Times technology reporter

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In the past week, one customer purchased a $150,000 engagement ring for his girlfriend; another ordered a $166,000 anniversary ring for his wife. Two women, on opposite coasts, each ordered $60,000 diamond earrings.

That's $30,000 per ear.

"There's pent-up demand at the high end of the market," said Vadon, whose Seattle-based company expects sales of $125 million this year. "They're feeling better about the economy. They're feeling better about the stock market being more stable. They haven't bought something of that magnitude in several years."

A month into the critical holiday retail season, luxury-goods retailers appear to be reaping the benefits of savvy Internet shoppers schooled in the ways of e-commerce — and more retailers are jumping into the arena.

Seattle-based Amazon.com recently began testing a jewelry and watches store that features earrings priced as low as $4.99 and engagement rings priced as high as $24,000. The online retailer also launched a gourmet foods store where one can purchase 2.2 pounds of beluga caviar for $4,500.

Observers consider both moves promising — a validation, of sorts, from the e-commerce bellwether.

Jason Goldberger, Amazon's senior category manager for Gourmet Food, said it's too early to tell who's buying from the store, but he said they're catering to the Amazon customer.

So far, Amazon's gourmet food buyers appear to like items as varied as low-carb bars, fine cheeses, ostrich and chocolate. One advantage, Goldberger said, is that gourmet food buyers have long been accustomed to ordering through catalogs.

"I'm very intrigued that someone would come to our site and buy caviar," Goldberger said, "and that's been really reassuring for us."

Holiday spending

Others feel reassured by the amount consumers are spending online in general. Forrester Research analyst Carrie Johnson raised her projections for online retail spending this year after sales began picking up in the spring.

Forrester projects online holiday retail sales — transactions that occur between the day after Thanksgiving and the week of Christmas — will grow 42 percent, to $12.2 billion, versus the same period a year ago.

Johnson attributed the expected uptick to a slight rebound in consumer confidence and pent-up demand. Anecdotally, while online retail e-mail campaigns didn't bode well during the first part of the year, the same types of promotions are proving successful in the second half, she said.

"When the economy goes bad, online retail is great because it's so impulse-driven," she said.

Paid search, in particular, has emerged as a promising online advertising segment as online retailers bid to be associated with specific keywords that Internet users type into search engines.

That might work for smaller-ticket purchases, but luxury retailers cater to another customer altogether. Dave Swarm, a buyer for Seattle-based fine-china retailer Table and Home.com, said his clientele is made up of highly sophisticated online shoppers who come to the store already clear on what they intend to purchase.

Swarm said his customers are detail-oriented and have likely made other large purchases.

"We had one (customer) that had done the research and was quite upset that we didn't have knife rests," Swarm said. "For a proper fine-dining experience, he had to have knife rests."

If Table and Home.com has proved itself to consumers, it had a harder time convincing vendors. The company recently opened a physical store in downtown Seattle so it could carry a wider selection of fine china and silver.

Both Nambe and Waterford, Swarm said, wouldn't allow Table and Home's online site to carry items unless the company had a physical presence, too. "That's a rule," he said. "You have to have a store to be, in their eyes, legitimate."

Room for growth

To be sure, online shopping still has room to grow. Last year, it represented 3.6 percent of total retail sales, with $75.7 billion in revenue, according to Shop.org, the National Retail Federation's online group. That group projects online retail revenue may break the $100 billion barrier this year.

BlueNile's Vadon thinks the luxury category has been borne out. On a dollar basis, his 4 ½-year-old company reaps more than 2 percent of the engagement ring market nationally.

But the category, he said, relies on trust more than any other niche. Roughly 99.94 percent of the company's packages ship on time because they have to.

"Our average ticket is over $1,000," he said. "When you're talking about that kind of money, consumers don't give you any room for error."

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com

Copyright © 2003 The Seattle Times Company