After a terrible 2008, the diamond industry is anticipating only a slightly better 2009. More than 1,000 jewelry stores have closed since the recession began. Bankruptcies are up 60% in the first nine months of this year. Prices of diamonds have come down 15%-20%. But there is a bright spot in this otherwise struggling industry. Blue Nile Diamonds is the nation’s largest on-line retailer and it’s sales are actually increasing as it takes a bite out of the brick and mortar jewelers.

In 2008 the company turned an $11.6 million profit on sales of $295-million. It now controls 4.5% of the $5-billion engagement ring industry. Blue Nile just had its best cyber-Monday in its 10-year history and expects December sales to be 26 percent higher than last year’s. The key is price. The company’s C.E.O. Diane Irvine says Blue Nile is able to offer comparable diamonds for 15% to 50% less than competitors because it doesn’t have the crushing overhead costs of the traditional stores.  Blue Nile has recently hired 90 workers, most of them seasonal employees needed to help with the all-important engagement season. Officials estimate that some 500,000 men will pop the question in December, the vast majority will be holding a diamond ring. That’s about 20-percent of the annual engagement ring business.

The biggest challenge has been to get diamond buyers to purchase those rocks sight unseen.  The Blue Nile educates buyers on diamonds offering a tutorial on the c’s: cut, carat, clarity, color and cost. Traditional retailers say Blue Nile can not provide the same customer service and their price advantage is dwindling as they cut their margins to compete.  Jewelry store owners are also changing their business models by offering on-line shopping but they argue there’s no substitute for seeing the diamond you’re buying in person and having a store to go back to if there are problems.