Blue Nile, a leader in online diamond jewelry, has partnered with Mudrick Capital Acquisition Corp. II, a special purpose entity (SPAC), to take the company public with an expected listing on NASDAQ in early Q4 2022.
The Company is valued at $873 million and is expected to raise approximately $450 million in capital before expenses, including $50 million in new funding from Mudrick and $80 million from sponsors Bain Capital Private Equity , Bow Street and Adama Partners, and Mudrick Capital.
It’s not the first time Blue Nile has gone this route. Founded in 1999, the company first went public in 2004 and then went private again when it was acquired by Bain Capital and Bow Street in 2017.
With an estimated revenue of $566 million in 2021, Blue Nile is expected to reach $661 million to $773 million in 2023, according to a report published by Mudrick. Since 2018, the company has delivered a CAGR of 17%, including a 22% increase over 2019, and a +515 basis point increase in gross margin. With gross margins currently in the 30% range, the targeted operating model aims to increase them to 40%.
The Mudrick analysis sees the $320 billion global fine jewelry market as ripe for disruption, with Blue Nile’s track record of disrupting the $60 billion fine jewelry market as a proof of concept is applicable.
The fact that its founder, Mark Vadon, and the CEOs who succeeded him, including current CEO Sean Kell, were not from the inbred jewelry industry gave the company an edge when it came to disrupting the status quo.
Blue Nile believes its uniquely integrated digital showroom strategy is the secret ingredient that will propel the company into the new world of what Steve Dennis, a Forbes.com contributor, calls “harmonized retail.”
There are currently 18 Blue Nile showrooms with two more to follow shortly at Lenox Square in Atlanta and Mall of America in Bloomington. The showrooms are designed to take the friction out of the traditional jewelry store shopping experience and make the virtual online experience real.
“Buying diamonds is a lot harder than it needs to be,” CEO Sean Kell told me. “It’s confusing and intimidating and it’s very difficult to tell the difference between one diamond and another. Our showrooms and website offer multi-touch integration in a low-pressure learning environment.”
In the showrooms, customers can touch and see diamonds in different settings when ordering there or later from the comfort of their own homes. “It’s a no-inventory showroom concept where you can see the differences between different sizes, cuts and settings and then order in-store, over the phone or online for delivery,” he continued.
Almost every buyer of diamonds today starts their journey online, no matter where they end up buying. It almost requires consumers to master the 4Cs of diamonds – cut, color, clarity, carat. And since the first diamond purchase is often the most expensive made by an individual or couple, shopping is often a stressful experience as consumers enter uncharted territory.
“Diamond shopping is like a child’s slides and ladders game, where a few steps forward sends you sliding backwards,” Kell mused. “It’s an extremely complicated shopping spree where people look at one or more websites, go to one or more stores, then go back and do it all over again. But what underlies it all is a thirst for knowledge and a belief that they are doing a good job.”
When it comes to selection, Blue Nile is the undisputed favorite with over 650,000 diamonds available, which is orders of magnitude greater than the handful of a typical independent jeweler and five times greater than digital competitor Brilliant Earth.
But with all this choice comes confusion. Blue Nile is working to eliminate this through its showrooms, customer-friendly website that makes it easy to select the right diamond cut, size and setting, and virtual showrooms by appointment featuring a personal jeweler working in a professional studio , carefully selected articles presented online for customers to view and discuss. The call center also helps close the sale, with 35% of sales associated with it.
“We see a great opportunity to facilitate the purchase of diamonds and fine jewelry by instilling trust. Our personal jewelers take a consultative approach to helping clients find their perfect piece of jewellery. It’s a very different experience than a buyer in an old-school, higher-pressure jewelry store.”
And because Blue Nile started with a B2C internet business model, it was able to keep costs down and pass the savings on to the customer. Blue Nile prices are typically 25% to 50% lower than traditional brick and mortar retailers. And it offers a price guarantee if the customer finds a stone of similar quality and size cheaper.
“Everyone is looking for a fair price. Most people don’t want to pay the absolute lowest price, but they do want to get a really good quality deal. That’s what we’re trying to achieve,” Kell explained.
And customers can buy with confidence thanks to the 30-day return policy, lifetime guarantee, and upgrade policy that allows customers to reclaim full value to upgrade to a more expensive diamond. “Our upgrade offer puts a new twist on the ‘diamond is forever’ notion,” he joked.
Today, Blue Nile has almost three million customers and almost a third of its sales come from repeat customers. The customer base is 45 years and under for engagement rings – the typical first purchase – and 55 years and under for jewelry purchases. And income and net worth are high for both buyers, over $100,000 and over $1 million respectively.
“After someone buys an engagement ring, they come back a year, two, three years later for an anniversary gift. Diamond stud earrings, eternity bracelets and tennis bracelets are our most prized items,” he continued.
Going forward, Blue Nile plans to open 26 showrooms by the end of the year and another 10 or so more in 2023. Not only do showrooms offer a higher completion rate and increase average order size compared to orders placed through the website, but they increase overall sales in the store Trading range by 80%.
Further expansion into international markets is also on the horizon as the company currently ships to 44 countries including China, UK, Canada and Australia.
“We are very excited about our upcoming plans to go public,” Kell concluded. “We think it’s a great opportunity for our business. And raising capital gives us a great opportunity to invest in our business and expand our showroom network. We already have good business outside of the US, including China, Canada and Europe, and see a great opportunity for us outside of the US. Everyone around the world wants high quality and beautiful jewelry.”