Losing Diamond Luster - CBS News

Last Updated Nov 12, 2008 12:51 AM ESTOnline jewelry retailer said Tuesday that new buyers to its website for the third-quarter of 2008 fell 2.4% to 54,072, as potential customers shied away from discretionary purchases of luxury goods in the current economic environment. Conversion rates (visitors to buyers) were down slightly, too, although the company would not break out specific metrics. is becoming increasingly dependent on wholesalers for its income, as disclosed in its third-quarter 10-Q regulatory filing:During the three months ended September 30, 2007 and 2008, we purchased approximately 11.6% and 21.3%, respectively, of our merchandise from LA Jewelers, Inc., where one of its managers [Saied Aframaian] is a stockholder who beneficially owns 1,228,000 shares of our common stock as of September 30, 2008. During the nine months ended September 30, 2007 and 2008, we purchased approximately 12.2% and 9.1%, respectively.In the three months and nine months ended September 30, 2008 we earned approximately $164,000 and $777,000, respectively from LA Jewelers relating to co-op marketing contributions and $222,000 was unamortized as of September 30, 2008. [The company started to bill and collect from its inventory vendors co-op marketing contributions in the third-quarter 2007, as an incentive to market and sell their merchandise on the Bidz website.] In the three months and nine months ended September 30, 2007 we earned approximately $134,000 and $134,000, respectively in co-op marketing, which offers its products through a live auction format as well as a fixed price online retail store, earned seven percent of its income from its dealings with LA Jewelers in the nine-months ended September 2008, up from four percent in the last quarter of 2007. Total net income fell 8.3 percent year-on-year to $3.3 million for the third quarter of 2008.Two suppliers -- one being LA Jewelers -- accounted for approximately 29 percent of total purchases for the 2008 quarter, up from 17 percent in 2007.Chairman and Chief Executive Officer David Zinberg said on the third-quarter earnings call that the online retailer's operating model is flexible enough to reduce variable costs in response to changes in consumer demand, without sacrificing long-term opportunities in the jewelry trade. "We are keenly focused on executing on our initiatives that will continue to enhance the customer experience in all areas," he added.Nonetheless, building a strong foundation to take advantage of the economic recovery -- whenever it occurs -- means capturing share from online competitors, such as Blue Nile and eBay. As such, longer-term the company will need to boost marketing and promotional efforts, including search advertising, affiliate marketing, and display ad marketing-all activities which will require an increase in advertising spend (a variable cost). 2008 CBS Interactive Inc.. All Rights Reserved.