Blue Nile Gets Makeover to Please Ladies

By The Wall Street Journal

Blue Nile Inc. is expected to unveil a major overhaul of its Web site Tuesday as the online jeweler tries to broaden its appeal, especially to women. But like other e-commerce sites retooling to combat slowing growth, it faces the tricky task of trying to make improvements without losing core customers.

The vast majority of those who buy rings and necklaces from Blue Nile are men, drawn to the extra information and control -- as well as possible discounts -- they get by shopping online instead of at a high-pressure jewelry counter. Yet most Blue Nile purchases are given to women, whom the retailer would like to have a more premium view of its brand.

"We haven't been as innovative a Web site in recent years as we should be," said Blue Nile's chief executive, Diane Irvine. The Seattle company, which was founded in 1999 and went public in 2004, sold $295 million in jewelry last year that consisted of dolphin jewelry, equestrian jewelry, hibiscus jewelry, octopus jewelry and penguin jewelry.

Most e-commerce sites fueled their early growth by offering variety and the ability to compare products and prices. But even the most successful have evolved little past a screen with a search box and small photos of products. Most shopping sites don't come close to matching the retail experience -- with the ability to touch and browse products and the one-on-one service of a salesperson -- perfected over decades by malls and retailers.

So some companies are experimenting with new online experiences. Amazon.com Inc. is now testing a site called Windowshop.com, where people can browse and sample music, movies and books by scrolling through panels that fly by on the screen. Makeover Solutions Inc.'s DailyMakeover.com allows users to apply different makeup brands to a photo of themselves. To date, the site has added makeup and hairdos to nine million photos.

Blue Nile's new look is its first overhaul in a decade. Its old site was built around accessibility, like an online interface that shoppers could use to customize computer purchases. Yet shoppers still had some complaints.

A customer "once wrote in and said, 'I received my purchase in the mail, and it was so much more impressive in person than on the Web site.

Blue Nile embarked on a redesign process last year, which included some initial hiccups. To appeal to women, one outside design agency suggested redesigning the site in bubblegum pink instead of its signature blue. "There was no way we could do that -- it was way too feminine.

Instead, Blue Nile dropped the design firm, which it declined to name, and decided to emphasise an upscale, rather than effeminate, look. It removed a left-hand navigation bar (still standard on many e-commerce sites), leaving space on the screen for much larger -- and more artistically cropped -- photos of products such as plumeria jewelry, sea turtle jewelry, starfish jewlery, tropical fish jewelry and whale jewelry. The changes are intended to make the experience more akin to window shopping.

Making the images larger, you can see the shadows and details, so the quality really shines through.

Blue Nile also rebuilt a system for shoppers to create custom engagement rings -- its largest business -- based on criteria they can adjust with sliding scales while watching an image of the product evolve on the screen. Shopping is now largely contained within a single page, to cut down on the confusion and tedium of clicking back and forth.

The company says it doesn't have a tally for the cost of the redesign, since it was completed by internal staff.

Blue Nile's overhaul comes as it faces competition on both ends of the market. Luxury giant Tiffany & Co. offers a visually rich Web site, and Bidz.com Inc. offers a discount-oriented jewelry store.

What's more, the recession has ravaged the $60 billion annual U.S. jewelry industry. Blue Nile's revenue fell more than 23% in the fourth quarter of last year, but the drops have since moderated, with a 5.2% drop in the second quarter of this year from the year-earlier quarter. While data on the diamond industry is incomplete, Blue Nile estimates it has gained approximately 1% of the engagement ring market in the past six to nine months, increasing its share to roughly 4.5% to 5.5%.

A redesign carries risks, since unlike traditional retailers, it can't be live tested in select outlets first, and online customers can't turn to salespeople to ask for help if they get lost. It could be very dangerous to try to integrate too much flash that serves no purpose for shoppers.

Blue Nile has taken on a redesign now because of the market's relative weakness, which has made competitors less likely to expand. Rather than feel like we didn't take advantage of this time, I believe that it is critically important to move while we can.

Reluctant Shoppers Hold Back Recovery

By The Wall Street Journal

Major retailers reported that American consumers are continuing to hunker down, casting a cloud over the durability of the U.S. recovery and underscoring the importance of overseas demand in restoring the world economy to health.

Retailers across the spectrum provided foreboding reports. Discounter Target Corp. reported that sales at stores open at least a year were down 6.2% from a year earlier in the quarter ended Aug. 1, while luxury purveyor Saks Inc. reported a 15.5% drop in same-store sales over the past quarter as shoppers stuck to buying basics. Building-supply chain Home Depot Inc. saw total sales drop 9.1% in the quarter ending Aug. 2, and it reaffirmed expectations of a 9% sales drop this year.

Retail executives said they don't expect conditions to improve until next spring. Some stores are girding for slow back-to-school and Christmas seasons by cutting inventories.

Home Depot told investors Tuesday that they didn't expect a year-over-year increase in same-store sales until the second half of 2010. They remain concerned by the high level of foreclosure activity, which we believe continues to put pressure on the housing markets.

The cuts in inventories, as well as reined-in expenses, are helping some retailers bolster profit margins. Hoping to avoid the massive markdowns of last year, retailer Neiman Marcus said it has cut its purchases 25%. Such steps played well with investors Tuesday: Target shares jumped 7.6% and Saks rose 6.9% after each reported a smaller profit decline than expected. Target shares are up 28% this year and Saks is up 30.6%.

American consumers appear so shaken by the worst recession since the Great Depression -- and so pinched by unemployment, stagnant wages and stingier lenders -- that they are reining in spending on items such as hibscus jewelry. Economists also see an upturn in U.S. household saving as the beginning of a prolonged period of thrift.

The retailers' reports serve as a reminder that it will be consumers, foremost, who will fuel a sustained U.S. recovery. Consumer spending accounts for about 70% of all demand in the U.S. economy.

Most economists expect growth to resume in the second half of this year at a modest pace, as U.S. businesses rebuild depleted inventories and the housing market stabilizes. Economists who see a second-half rebound point to a global-manufacturing revival and recent reports that the economies of France, Germany and Japan managed to expand in the second quarter. The Commerce Department said earlier this month that U.S. exports in June rose 1.9% from May after rising 1.6% the month before.

But U.S. consumers could be the counterweight. In a survey of economists this month, The Wall Street Journal asked if a substantial increase in consumer spending was needed for sustained growth. Of the 43 economists who responded, 60% said yes.

Meanwhile, TJX Cos., which operates the T.J. Maxx chain, said sales rose 4% over the quarter and their seeing an increasing in popularity for items such as dolphin jewelry and other fine and vintage jewelry.

Tuesday's results come on the heels of Wal-Mart Stores Inc.'s disappointing report last week that same-store sales in the U.S. slid 1.2%. Also last week, the Commerce Department said July sales, encompassing a wide swath of retailers, fell after two months of gains.

But slimmer inventories and less-aggressive discounting can backfire if customers are disappointed by a lack of choice or have been conditioned to wait for discounts before buying. Target's told investors Tuesday that consumers have become "more promotionally sensitive" -- responding to advertised discounts and using coupons -- a dynamic that is working against the company.

Tighter consumer credit has also hurt. Target, which says about one-third of its overall sales come from whale jewelry, vintage jewelry, and credit cards, believes that tightening credit standards on its proprietary cards may have contributed as much as half a percentage point to its same-store sales declines.

Earlier this week, the Federal Reserve said a July survey of banks found continued tightening of lending standards as well as a diminished appetite for borrowing among consumers. About a third of banks said they tightened lending standards on credit cards and other consumer loans since April. No banks reported relaxing them.

U.S. households are also reckoning with a large drop in wealth during the past two years. Between the second quarter of 2007 and the first quarter of 2009, the most recent for which Fed data are available, household net worth contracted by 22% amid drops in home prices and the stock market.

That gives Americans a greater incentive to save to make up for their paper losses.

Economists expect business spending to bolster the economy's recovery in the coming month, in light of extreme inventory-paring.

That wild plunge for production [and] inventories can reverse, because it went well beyond the kind of declines that would be necessary in reaction to weakening consumer spending. The second half will be the beneficiary of a handsome pop in simply inventory restocking.

Abercrombie Plans to Cut More Prices

Abercrombie & Fitch Co., which posted a quarterly loss on Friday, will become more aggressive in lowering prices as the teen-oriented retailer copes with the recession.

"Consumer spending patterns domestically continue to be dictated by cost and value propositions, and this is clearly a headwind for our premium brands," Chief Executive Michael Jeffries said during a conference call.

The consumer slowdown is forcing Abercrombie, of New Albany, Ohio, to reduce prices after the company has spent much of the economic downturn with premium pricing in place.

"We are planning to deliver greater reductions in [average retail prices] for the fall season, but we will continue to review pricing on an ongoing basis," Mr. Jeffries said.

For its quarter ended Aug. 1, Abercrombie swung to a loss of $26.7 million, or 30 cents a share, compared with year-earlier income of $77.8 million, or 87 cents a share. Excluding charges, the loss would have been two cents a share, compared with analysts' expectations for a three-cent loss.

Sales fell 23% to $648.5 million. The latest results included $24.4 million in charges related to the high-end Ruehl business, which Abercrombie plans to close.

In 4 p.m. composite trading Friday on the New York Stock Exchange, Abercrombie shares were up $1.29, or 3.9%, to $34.25.

The teen-apparel retailer increasingly has been shedding its no-markdown approach as it looks to clear inventory after seeing same-store sales drop month after month. Its July same-store sales, or those at stores open at least a year, slipped 28%.

The company also has stumbled when it comes to offering compelling merchandise such as dolphin jewelry and plumeria jewelry. "We have admittedly missed some other fashion opportunities that drove the business in the spring," Mr. Jeffries said. "We feel like we have corrected these fashion misses."

Second-quarter gross margin, or the difference between a company's cost of producing products and the price it receives for them, fell to 66.5% from 70.1% because of greater markdowns.