Blue Nile (19) exterior

Blue Nile To Become Another Jewel In Signet Jeweler’s Crown

Signet Jeweler just announced it signed a definitive agreement to acquire Blue Nile, a pioneering digital disruptor in the diamond jewelry business, founded in 1999.

With the $360 million cash deal expected to close in the third quarter, Blue Nile brings a war chest of over 650,000 diamonds, more than three million online customers and sales in excess of $500 million to Signet, already the world’s leading retailer of diamond jewelry.

This is the second major acquisition for Signet in less than a year, following last fall’s purchase of the regional, 25-store Diamonds Direct chain for $490 million.

Upon closing, Blue Nile will join Jareds, Diamonds Direct and James Allen, another DTC jeweler, in Signet’s Accessible Luxury segment. And it will put the $7.8 billion Signet that much closer to its goal of $9 billion in annual sales.

This news follows shortly after Blue Nile’s announcement it had partnered with Mudrick Capital to take the company public in the fourth quarter. At the time, Blue Nile was valued at $873 million with hopes that it would generate $450 million in capital.

But given the current economic uncertainty and skyrocketing inflation causing consumers to pull back on discretionary spending, Signet’s bird in the hand is better than two in the IPO bush.

“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 Sean Kell, CEO of Blue Nile, in a statement.

From a strategic perspective, Signet’s CEO Gina Drosos shared with me that the thinking behind the Blue Nile acquisition is “very crisp and clear,” but she recognizes that many acquisitions can derail if the corporate cultures don’t fit. Her team spent a “good deal of time” assessing the fit to ensure that doesn’t happen.

Drosos said:

“The core values and purpose of Blue Nile are very similar to ours at Signet. We’ve done a lot of work to create a culture where leadership and innovation can come from all levels of our company. Sean has been doing much the same at Blue Nile. And as a pioneer in the online space, they have an entrepreneurial spirit with the speed and agility to respond to a dynamic environment like we face today.

“I’m appreciative to our team at Signet for providing the financial foundation that gives us the ‘dry powder’ to invest in an acquisition like this. It will strengthen the fundamentals of our company as we grow and serve more customers to celebrate life and express love. The strategic and cultural fit of this acquisition are very strong.”

As is typical for Signet, it doesn’t mess with the secret sauce of the brands it acquires.

“Blue Nile has a magic recipe of diversity, in points of view, experiences and racial, ethnic and gender, that are a strategic benefit to them as well as for us. Our companies have a very similar philosophy on the value of diverse experience and fresh thinking that by coming together will drive the business forward,” she continued.

In particular, Signet will likely learn much from Blue Nile’s proven leadership in selling diamonds in what fellow contributor Steve Dennis calls “harmonized retail.”

“I’m excited that we can infuse both companies with fresh energy and innovative thinking by sharing the best ideas,” Drosos said.

Besides excelling at selling diamond jewelry sight unseen over the internet, Blue Nile has perfected an inventory-less showroom model.

With about 20 Blue Nile mall-based showrooms in operation, they are physical locations where personal jewelers hand-hold customers through the often arduous journey of buying an engagement ring or other fine diamond jewelry piece. Blue Nile jewelers help customers navigate the company’s massive diamond inventory, custom design their piece, and guide them while placing orders online.

Blue Nile reports that its showrooms greatly increase the closing rate and order size compared with website-only orders. Plus, they give an 80% boost in sales in the trade area where showrooms are located.

During an interview with Kell about Blue Nile’s IPO plans, he shared that the proceeds from going public would be used to expand its showroom network and to continue to expand internationally. Likely that will be the direction that Signet will follow as it folds Blue Nile in.

Tapping the power of online jewelry retail has been a priority for Signet since the pandemic broke its primary in-store retail business model. In fiscal 2020 right before the pandemic, e-commerce sales represented 12.2% of the company’s total $6.1 billion and its only growth segment, rising 10%, while brick-and-mortar sales were down 0.7%.

By comparison, in fiscal 2022, e-commerce sales reached $1.5 billion, nearly 20% of total revenues and more than double over fiscal 2020.

“The investments we have made in our Connected Commerce capabilities and differentiated banner assortment and marketing have driven meaningful share gains, with all categories and all banners outpacing jewelry industry growth,” Drosos said in announcing the company’s fiscal 2022 results.

The Blue Nile acquisition will bring valuable insights, expertise and resources to continue Signet’s push to fully realize the company’s Connected Commerce capabilities. And it will give Signet access to a younger, more affluent and ethnically diverse customer base that is comfortable shopping in the evolving omnichannel shopping environment.

The Blue Nile acquisition is particularly timely since economic headwinds are already blowing in Signet’s direction. Along with this announcement, Drosos revised the company’s previous guidance downward, now expecting fiscal 2023 revenues to fall in the $7.6 to $7.7 billion range, down from $8.03 to $8.25 million.

“We saw sales soften in July as our customers have been increasingly impacted by rapid inflation,” she said in a statement. “That said, I am pleased that revised guidance positions us up ~25% in revenue versus the FY20 pre-pandemic period.”

She also noted that the Blue Nile acquisition will not be accretive until the fourth quarter fiscal 2024, adding that “synergies are likely to start materializing as early as the fourth quarter fiscal 2023.”

Shortly after joining the company in 2017, Gina Drosos instituted a three-year transformational plan entitled “Path to Brilliance.” Its benchmarks achieved, the company launched an even more ambitious next phase called “Inspiring Brilliance” in March 2021.

“Inspiring Brilliance” hallmarks were to expand and differentiate the company’s big banners, grow service revenues, build its Accessible Luxury and Value Segments and accelerate digital e-commerce.

The acquisition of Blue Nile checks all those boxes. In a word, it is “brilliant.”