Diamond retailers take a shine to the Web

Gem dealers in recent weeks have turned to the Net, realizing that if consumer trust can be gained, they could grab a slice of the $22 billion U.S. diamond market. The proliferation of online diamond jewelers on the Internet comes just as merchants of pricey, luxury goods are discovering a new market online.

Investors seem to understand the potential of diamonds, too. Just last week, hot Net firm CMGI's venture capital arm @Ventures was the lead investor in online jewelry store Mondera. The company plans to use the $13 million in financing for its marketing campaign. David Nerrow, a partner at CMGI's @Ventures, estimates there are between $2 million and $8 million in diamond sales per month over the Net.

Also this month, Internet giant America Online signed a deal with Zales, further legitimizing the online efforts of the United States' largest fine jewelry retailer. And, at least five other diamond retailers are trying to bring their sparkle to the Net, including DiamondTrade.com, Daimonds.net, and DiamondCutters.com.

DiamondTrade's chairman Leo Fields said his company pulled in $300,000 in diamond sales for the quarter that ended in August--an increase of more than 25 percent compared with year-ago figures. He added that the company, which is gearing up to start a marketing campaign, is on track in its current quarter to double revenues.

Michael May, an analyst at research firm Jupiter Communications, said these jewelers need to spend aggressively to legitimize themselves, as well as the entire sector.

"Once the company shows consumers that it is safe and reliable to buy diamonds online, the next player only has to sell the customer their products," May said.

But no matter how much is spent, the advantage may still lie with prestige jewelers such as Tiffany and Company, which have developed reputations over the decades, but have yet to make any online moves.

"When you think of jewelry on the Net, there is no one yet with a strong brand, and I think it is vital that we build a brand name," said Mondera chief executive Fred Mouawad. "That is exactly where Mondera intends to move in very quickly to build a world class brand--one that people will trust on the Internet," he said.

But even if consumers came to trust the Net for their diamond purchases, there are several intangibles to overcome that consumers don't face when buying computers, music, or books on the Web.

"I like to touch, feel, and see them," said Amber Michelle, industry publication Rapaport Diamond Report editor in chief. "Each diamond has its own special message and mysticism and you need to gage whether it meshes with you," Michelle said.

Nearly all diamond jewelers on the Net offer 30-day money-back guarantees, and experts say consumers buying diamonds via the Net should ask for authenticity certificates from the Gemological Appraisal Association or other such industry groups.