Diamonds are Amazon's best friend

Amazon.com said Wednesday that it has purchased a $10 million stake in online jeweler Ashford.com. Amazon will own 16.6 percent of Ashford.

The deal allows Ashford (Nasdaq: ASFD) to market its diamonds, watches and other high-end goods to Amazon's (Nasdaq: AMZN) three million customers, Ashford CEO Kenny Kurtzman said.

Amazon will not sell Ashford's goods directly, but will instead link users to the company's Web site. But Ashford will be able to mine Amazon's customer database to try and find likely buyers of its high-end goods.

"What we're doing is targeting those customers through (Amazon's) understanding of who their customers are and who would be interested in buying luxury products," Kurtzman said. "We'll be working with them to identify which of their customers to target and doing either e-mail inbox or direct mail campaigns to try and drive customers to our site."

Amazon (Nasdaq: AMZN) will now have an in into the $200 billion luxury goods market.

The deal marks yet another step Amazon has taken to expand its offerings, both through its own store and through investments. The company now sells books, music, video games, toys, consumer electronics and home improvement products directly through its site. To date, the company has taken out stakes in Pets.com, Drugstore.com, Gear.com, an online sporting goods store, and HomeGrocer.com.

Kurtzman said the average order size per customer is about $500. The site added diamonds and jewelry in October, a move that has upped the frequency of purchases, Kurtzman said.

"Watches are only bought every two or three years on average. Some other categories are bought two or three times a year, like fragrances, sunglasses and writing tools."

With diamonds, the company has increased its offerings on the higher end. One customer has even gone so far as to purchase a $40,000 diamond through the site.

Tapping into affluent households
Ashford.com initially launched as a watch store, and carries more than 12,000 watches, designer jewelry, leather accessories, fragrances, ties, scarves and writing instruments from more than 300 top brands such as TAG Heuer and Montblanc. Kurtzman said Ashford.com plans to have all orders delivered in time for Christmas and said it will ship every order overnight free of charge. Each shipment is insured for up to $1 million, he said.

About 48 percent of households with more than $750,000 in investable assets, use the Internet, while only 33 percent of the overall population is online, according to market research firm Forrester Research Inc.

Kurtzman said Ashford.com's site has seen a large jump in traffic since the Thanksgiving holiday, with about a 40 percent to 50 percent jump in traffic since October when the site had about 500,000 unique visitors, a number he expects to ramp up as the holiday season continues.

'I think (the deal) can only mean good things for Ashford.com and trouble for their competitors in the luxury retail space.' -- Lisa Allen, an analyst with Forrester.