Signet Jewelers has signed a deal to acquire online retailer Blue Nile for $360 million in cash.
The purchase will boost Signet’s bridal, “accessible luxury” and digital businesses, while expanding the group’s consumer base, the US retail chain said Tuesday. The company expects to complete the transaction in the third fiscal quarter, which runs until late October. Either side can pull out if the deal hasn’t closed by November 3, 2022.
“Blue Nile brings an attractive customer demographic that is younger, more affluent, and ethnically diverse, which will broaden our customer-acquisition funnel,” Signet added.
The announcement comes around two months after Blue Nile revealed plans for a stock-market flotation via a merger with Mudrick Capital Acquisition Corporation II, a special-purpose acquisition company (SPAC). The proposed deal valued Blue Nile at $873 million. Mudrick was not immediately available for comment on how that transaction progressed. The current owners are Bain Capital Private Equity and Bow Street, which acquired the e-commerce jeweler for around $500 million in 2017.
Blue Nile’s sales exceeded $500 million in 2021, according to Signet, which has stated its intention to reach total annual revenues of $9 billion in the coming years. Last October, it agreed to acquire Diamonds Direct USA for $490 million; in 2017, it bought diamond retail website James Allen for $328 million.
“By joining Signet, we will extend our premium brand and fine-jewelry offering to millions of new customers while bringing new capabilities to our leading e-commerce business that will drive additional growth opportunities for Blue Nile,” said Blue Nile CEO Sean Kell.
Meanwhile, Signet has reduced its sales guidance for the second quarter, which ended in late July, estimating revenue of $1.75 billion compared with an earlier forecast of $1.79 billion to $1.82 billion. Management cited “heightened pressure on consumers’ discretionary spending and increased macroeconomic headwinds.”
“We saw sales soften in July as our customers have been increasingly impacted by rapid inflation, so we’re revising guidance to align with these trends,” said Signet CEO Gina Drosos. The new outlook for the quarter still translates to a sales increase of around 25% compared with the equivalent period of 2019, before the Covid-19 pandemic, the executive noted.
Blue Nile, a market leader in online diamond jewelry, has combined with Mudrick Capital Acquisition Corp. II, a special purpose acquisition company (SPAC), to take the company public with an expected listing on NASDAQ in early fourth quarter 2022.
The company is valued at $873 million and is anticipated to generate some $450 million in capital before expenses, including $50 million in new funds 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 been down this road. Founded in 1999, it first went public in 2004, then private again when it was acquired by Bain Capital and Bow Street in 2017.
With 2021 revenues estimated at $566 million, Blue Nile is expected to reach $661 million to $773 million in 2023, according to a report released by Mudrick. Since 2018, the company has garnered 17% CAGR, including a 22% rise from 2019, and a +515bps rise in gross margin. With gross margins in the 30% range currently, the target operating model aims to increase it to 40%.
The Mudrick analysis sees the $320 billion global fine jewelry market ripe for disruption with Blue Nile’s track record in disrupting the U.S. $60 billion fine jewelry market proof of concept.
The fact that its founder Mark Vadon and the CEOs who followed him, including current CEO Sean Kell, didn’t come from the in-bred jewelry industry gave the company a leg-up when it came to disrupting the status quo.
MORE FOR YOU ‘No Christmas Trees, No Christmas Trees’ Another Shortage May Be On The Way The Grocery Business Is Going To Get Much More Competitive Costco Addresses Supply Chain Pains By Chartering Their Own Ships Blue Nile believes its uniquely integrated digital-showroom strategy is the secret sauce that will power the company forward into the new world of what fellow Forbes.com contributor Steve Dennis calls “harmonized retail.”
There are currently 18 Blue Nile showrooms with two more coming soon in Atlanta’s Lenox Square and Bloomington’s Mall of America. The showrooms are designed to take the friction out of the traditional jewelry store shopping experience and make the online virtual experience real.
“Buying diamonds is much harder than it needs to be,” CEO Sean Kell shared with me. “It’s confusing and intimidating and it’s very hard to tell the difference between one diamond and another. Our showrooms and website provide multi-touch integration in a low-pressure, learning environment.”
Blue Nile Houston Showroom’s interior COURTESY OF BLUE NILE
In the showrooms, customers can touch-and-feel diamonds and see them in different settings with orders placed there or later from the comfort of home. “It’s an ‘inventory-less’ showroom concept where you can see the differences between different sizes, cuts and settings, then you can order in the store, by phone or online for delivery,” he continued.
Virtually every diamond shopper these days starts their journey on the internet no matter where they end up buying. It’s almost required for consumers to master the 4Cs of diamonds – Cut, Color, Clarity, Carats. And because that first diamond purchase is often the most expensive one that an individual or a couple makes, shopping is often a stress-filled experience since consumers are stepping into unfamiliar territory.
“The diamond shopping journey is like the kids’ game of ‘Chutes and Ladders,’ where a couple of steps forward may send you sliding back,” Kell reflected. “It’s an extremely convoluted shopping journey where people may look at one or many websites, walk into one or many stores, then go back and do it all again. But what underlies it all is a thirst for knowledge and confidence that they are getting a good deal.”
When it comes to selection, Blue Nile is the hands-down favorite, with over 650,000 diamonds available, which is orders of magnitude higher than the handful offered by a typical independent jeweler and five-times more than digital competitor Brilliant Earth.
But with all that selection comes confusion. Blue Nile works to eliminate that through its showrooms, the customer-friendly website that makes it easy to select the right diamond cut, size and setting and by-appointment virtual showrooms where a personal jeweler working in a professional studio presents carefully selected items for customers to view online and discuss. Its call center also helps close the sale, with 35% of revenue connected with it.
“We see such a great opportunity to make buying diamonds and fine jewelry easier by inspiring confidence. Our personal jewelers take a consultative approach to help customers find their perfect jewelry item. It is a very different experience than shoppers may have in a higher-pressure, ‘old-school’ jewelry store approach.”
And because Blue Nile started under a B2C internet business model, it’s been able to keep costs low and transfer the savings along to the customer. Blue Nile prices tend to run 25% to 50% below that of traditional brick-and-mortar retailers. And it offers a price-match guarantee if the customer finds a similar quality and size stone for less.
“Everyone is looking for a fair price. Most people aren’t looking to pay the absolute lowest price, but they want a deal for really good quality. That’s what we try to do,” Kell explained.
And customers can buy with confidence with its 30-day return policy, lifetime warranty and its upgrade policy that allows customers to recover full value to move up to a more expensive diamond. “Our upgrade offering puts a new spin on the ‘diamond is forever’ notion,” he quipped.
Today Blue Nile boasts nearly three million customers and nearly one-third of its sales come from repeat customers. Its customer base skews 45 years and under for engagement rings – the typical first purchase – with ages skewing to 55 years and under for jewelry purchases. And incomes and net worth runs high for both buyers, $100k+ and $1 million+ respectively.
“After someone buys an engagement ring, they come back a year, two or three later for an anniversary gift. Diamond-stud earrings, eternity bands and tennis bracelets are our most gifted items,” he continued.
As for the future, Blue Nile plans to have 26 showrooms open by end of the year and another ten or so added in 2023. Showrooms not only provide a higher closing rate and increase the average order size compared to website-alone orders, but they increase overall sales in the trade area by 80%.
Continued expansion into international markets is also ahead as it currently ships to 44 countries, including China, U.K., Canada and Australia.
“We are very excited about our pending, 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 a good business beyond the U.S., including China, Canada and Europe and see a big opportunity for us outside the U.S. Everybody all over the world wants great value and beautiful jewelry.
