Dan Farber: Darrell thank you for joining me.
Darrell Cavens: Thanks Dan it's great to be here.
Dan Farber: Now I know that Blue Nile is an e-commerce site and I've heard it called the Dell of jewelry. Can you tell us a little bit of what goes on at Blue Nile?
Darrell Cavens: So, we've really over the last 8 1/2 years become the leading online jeweler and really one of the largest specialty jewelers in the U.S. We've got a great model in that we don't hold a lot of inventory and as consumers are coming to our website they're able to select from 60,000 diamonds most of them available for next day delivery and we don't hold all that inventory so as a consumer comes in and buys an item from our site we go out to our partners around the world acquire that diamond put it through an assembly process based in our facilities here in Seattle and able to turn a ring around to them very rapidly. So if a customer comes in on Monday and orders a diamond we're able to get it out to them Wednesday or Thursday and just provide a level of service and quality that's really unsurpassed in the industry and do it while they're saving 20% to 40% off of what they would pay at a typical jeweler store.
Dan Farber: Now that just in time delivery does that give you a significant advantage over competitors such as a Tiffany's or Zales?
Darrell Cavens: Yeah, I think consumers really are able to get a selection that they wouldn't be able to get at a typical offline jeweler store. So if you go into a jeweler store they may have 10 or 15 diamonds behind the counter, they just can't hold the inventory selection that we have access to and make available to our customers. We think we have a better selection there, we run on very low overhead and very low margins so we're passing on that value back to our consumers where they're saving a significant amount. Having a better selection, I think really think it's the perfect retail model and we're able to provide a better experience where our costumers just absolutely love it. They come in and tell their friends. Our number one source of sales is referral and I think a big piece of that is we're redefining this product is sold and removing the anxiety away from it. These guys come in and they're typically telling us things like, "I went into the store and the commission sales person ran over to me." It's a very anxious purchase and we've put a lot of education and information guidance. It's really what we lead with, we don't negotiate on price, we have no commission sales folks. So it removes that anxiety and able to provide a better shopping experience, better selection, better pricing and the model is just taking off and we're really excited about where the business is going.
Dan Farber: Now I understand that your talking about it's the men that are paying the money but as I understand it it's the women that are spending a lot of time on the site. So how do you balance that out in terms of the interface design?
Darrell Cavens: It's a, it's a challenge to deal with. If you look a traffic to our site, roughly 60% of the traffic coming to the site is females but if you look at buyers, roughly 85% of the buyers are males so from a brand perspective we spent a lot of effort trying to make sure that the brand really appeals to her and targets him and we've tried to put in a really high end experience and a high end brand a around this and you know allowing customers in these females shoppers to come in and look at the product, have some different visualizations, some great photography and information, a search to be able to find the product but also allow a guy to come on and get information, it's such and information intensive purchase for this guy coming in where he's wanting to get educated and really learn about this product and so we're trying to balance that that since of feeling like it's a beautiful product providing that and also providing that it's good set of information and the web allows us to do that where a typical store really has a challenge providing the set of information you need to make a smart decision a diamond.
Dan Farber: And what kind of technology to you have behind that system, behind your e-commerce system, a first in terms of you know how your delivering to the customer and secondly how your using the information from the customers to do a better job at serving them?
Darrell Cavens: Sure. Yeah within the technology platform we've ended up building a lot of information and systems in house. It's an interesting product to sell in the since that you can think of it kind of like fine art might be a good example in that every diamond we sell is a truly unique skew so in the early of this business where we went out and said let's look for an inventory management system or a CRM system that handles this, most of them are built for you know the red shirt where you've got 35 of them and then when you sell some you reorder and manage that. This is a product that every item is truly unique so we've got a pretty unique technology infrastructure behind the scenes to manage this and to really make it happen.
Dan Farber: Now on the business intelligence sides how are you minding that data to better experiences as well as to optimize revenue per customer?
Darrell Cavens: Yeah, data is really the core and heart of what we do we spend a lot of time and information to help us make informed decisions on the website and I think that's what makes us work so well, we're able to measure put a new piece of functionality out there test it we've got custom data warehouse built on an Oracle platform that allows us to access information. We have this kind of unique situation in the sense that we don't have the Amazon dot com problem of so much traffic that you couldn't ever store it and analyze it and be we've also got each visitor coming to our site is very valuable so we've got traffic data going back for years that we can analyze and look at traffic patterns, and so, for example, we know that people come to the site many times before they purchase, this isn't a purchase they coming into day one and umm plop down $5,000 dollars and walk out of the store. They do research. They come back 5, 6, 7 times over a 30 to 45 day period and we understand how they react with the site and through that set of analyses and information we've done a lot of efforts to improve the site and the effectiveness and that data is so key to everything we do and I really don't think this business could work without that set of analytics to help make smarter and more important decisions.
Dan Farber: Now to what do you attribute the higher range in terms of the purchase price for these engagement rings, I think it's gone up from $2,500 dollars a few years ago to $6,600 dollars, is that just inflation?
Darrell Cavens: No it's actually, if you look at those numbers your average ticket is about $6,600 dollars but it's the national average that's about $2,800 dollars and so we're selling that's roughly twice the national average. So we're selling a high end, which again is somewhat counterintuitive when people think of going online often times their thinking of going market, lower save discount. What we're finding is this guy coming to us tends to if you look at our customer base it's not necessarily the Hollywood celebrity but it's the executives, it's the MBA class. We call them the smarter shopper coming to buy and I think the big piece of our average ticket is we've got that smarter shopper coming in and able to do research instead of going in and plopping down their $10,000 dollars at the local jeweler store their able to come in and get that same product for $6,600 to a little less money. They're able to get a much better product for the money they're spending. We're typically 20% to 40% less then your going to pay at a typical jeweler store and we think that smart shoppers really looking for that value to make that happen.
Dan Farber: Now you've recently expanded out to a number of countries outside the US, the UK and Canada. Do those present some real challenges in terms of your e-commerce solution?
Darrell Cavens: They do. We've recently rolled out to 12 new countries that we're shipping to and really trying to understand where the global market and opportunities are. Certainly over the last couple of years rolled international into the UK, into Canada, we now have an office and a distribution center in Dublin, Ireland and managing the logistics of that is challenging. As we go into these other markets we're really trying to put in a platform and I think we've got a good platform that we can build off to go into multiple languages, multiple currencies supporting and there is a lot of technical challenges that come with that but I think we're well suited to handle it.
Dan Farber: What are some of the innovations that you're working on that you see going forward, for example anything in the area of web 2.0 and social networks?
Darrell Cavens: Sure, one is in our diamond search application. We've put a lot of work into an Ajax application in the last two years to really help find people the right diamond and it's a somewhat complicated process as people come in and we've tried to make it easy to understand and simple allowing then to expand their interest in additional information if they want and if you look at our site you've got application that has sliders and information that really tries to solve the what if problem. So if your coming in searching for a product around $5,500 dollars we wanted to have a solution where you could say what if we just spent a little more, what if I spent a little less, what if the quality went a little higher or a little lower and we've got a great application there to solve that that would be really hard to do without that 2.0 type application and so I'm intrigued to find that, but again we're focusing on the things that the consumer will want.
Dan Farber: Now you're a small team, only 180 people at Blue Nile. How do you get all that work done given you have a small IT staff and come up with those innovations?
Darrell Cavens: If you look at our business, we've got roughly $319 million in sales last year on a about 180 employees, so we don't have infinite resources out there to make it happen so we have a pretty robust prioritization process where we're going through and trying to make sure that we're doing the right thing. I'd say our number one strategy and my belief is keep it simple and innovate quickly and we try to do those things by being quick in how we approach things and trying to keep them straightforward and simple we're able to move faster then the other guy and allow our consumers to tell us what's important so we can put something out there and it is the great thing about retail on the web we can put something up for a week, see what the response is and adjust and adapt and we're pretty nimble. That is our strategy is to be nimble, make sure we're using the data and information from our data warehouse, from our customers and from our customer groups. We collect tremendous amount of feed back from our customers and try to feed that back into our iterate process where we're releasing features on the site every week to two weeks and I think that really matters in making the site and business run effectively.
Dan Farber: Well Darrell thanks so much for speaking with me.
Darrell Cavens: Appreciate the opportunity to be here.
Dan Farber: For CIO Sessions I'm Dan Farber thanks for watching.
