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Blue Nile (NILE) is the world’s largest online retailer of independently certified diamonds and fine jewelry. Based in Seattle, the company was incorporated in 1999 by Mark Vadon, whose online search for an engagement ring led him to Internet Diamonds, which he later acquired and renamed Blue Nile. Since going public in 2004, Blue Nile has expanded its operations to include more than 40 countries and developed websites in the U.S., Canada and the U.K. It also recently launched a local website in China, its first in another country’s native language.

The company poses the unique idea that high-ticket items can be purchased online—sight unseen. Indeed, Blue Nile has no retail stores and all transactions are carried out online or via phone. Though the notion of buying diamonds online may make some uneasy, the company has profited from its ability to offer guidance without overwhelming customers. Designed to simplify the process and enhance the customer experience, Blue Nile’s website boasts over 50,000 diamonds, provides educational materials and even allows consumers to design their own jewelry with its “Build Your Own” function.

In order to compete with other more traditional retailers, such as Tiffany & Co (TIF), which offer customers the ability to “romance the stone”, Blue Nile focuses its marketing efforts on the consumer’s need for a simple and non-intimidating experience when buying a diamond. It has positioned itself as a no-frills alternative to the conventional process.

In addition, Blue Nile employs a lean business model that allows it to hold little or no inventory. When a customer makes a purchase, Blue Nile contacts its suppliers and acquires the stones, which are then set by jewelers at its facility in Seattle before being shipped to the customer, enabling the company to keep operating costs lower than other retailers.

Traditional retail stores, with brick-and-mortar business models, have been struggling to stay afloat as a result of weak consumer spending. Online retailers with just-in-time models, like Blue Nile, have an advantage in this kind of economic climate because their lack of inventory enables them to keep costs and, therefore, prices significantly lower than their competition.

This model, however, makes the company quite sensitive to prices in the diamond market when compared to its competitors. In fact, recent spikes in the price movements of diamonds have led Blue Nile to struggle a bit as it adjusts to higher costs. Shares have slipped as investor confidence in the business model has waned, but recent pricing issues appear to be a temporary blip. As diamond prices return to normal levels, the company will likely benefit again as it expands its market share. Even as the economy recovers, the company’s ability to put downward pressure on prices should allow it to continue to assert itself as a major player.

Overall, Blue Nile has a strong position in its industry and its long-term growth prospects are clear. We expect both revenue and earnings to continue to increase as rebounding consumer spending, coupled with the company’s expanding market share, gives Blue Nile an advantage over competitors moving forward.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.