An Interview with Blue Nile CEO, Harvey Kanter

Join the Fool for a conversation with Harvey Kanter, who took over as CEO of online jewelry retailer Blue Nile in March of 2012. Harvey came to Blue Nile from Moosejaw Mountaineering and other retailers including Backcountry Travel, Michael's, and Eddie Bauer. Based in Seattle, Blue Nile specializes in engagement rings, and prides itself on educating first-time buyers about diamond quality.

Harvey talks e-commerce, capital allocation, the future of Blue Nile -- and of retail in general -- brand identity, the price of gold, and what he's learned about offering high-end retail to Chinese consumers.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Austin Smith: Hey Fools, Austin Smith here, and I'm joined by Harvey Kanter, CEO of Blue Nile. Thank you so much for taking the time.

Harvey Kanter: Austin, it's great to be with you. Thanks for the opportunity.

Austin: It's fun to be here.

First, let's just jump right in. Blue Nile, obviously kind of a unique model in the space. I'm wondering if, for those people that are unaware, if you could just give us the 30,000-foot view. What's different about you guys as a business model in this space?

Harvey: That's a great question. Blue Nile has been around for about 14 years. We brought to the market a disruptive model that is most efficient -- more efficient than traditional brick and mortar stores.

We offer the highest-quality diamonds. We provide education, counsel, and guidance in a non-commission environment which is really compelling. Our sales associates really communicate just an incredible wealth of knowledge, and we do all this at 20-40% below traditional brick-and-mortar jewelry store prices.

It's a really compelling model. It's a great place to buy a diamond. Actually, today, I would say that I don't know why you would buy a diamond anywhere else.

Austin: That's a pretty bold statement.

Harvey: It is. It is.

Austin: Is it that lack of overhead that gives you the competitive advantage, or is that just part of the puzzle here?

Harvey: That's just really part of the puzzle. We have 130,000 diamonds on site, so we have a really big scale, number one. Number two, we have these supply relationships that are exclusive to us, and that allows us to really work hard to bring to market the best products available.

The lack of overhead -- to your point -- we don't have sales associates, we don't have brick-and-mortar stores, and then we actually work a little shorter. We don't have the carrying costs of many of the traditional brick-and-mortar stores.

When you put it all together, it allows us to offer just an incredible level of value.

Austin: To put this in context for other investors out there, you are like Amazon to another, maybe, Zales, Best Buy, right?

Harvey: I guess that's one way of thinking about it. I think probably the only difference really, the way you described it, is that our focus is exclusively really on core engagement. We extend into fashion jewelry, but really we are very focused on what we sell, as opposed to the two other retailers you talked to; they're more broad-based general merchants.

That focus allows us to really create scale, and we are literally the world's largest online retailer of core engagement.

Austin: Obviously a disruptive model. That's where the biggest growth investors are going to find, is in a disruptive model like this. Where do you see the jewelry space in five years, given where you guys are going?

Harvey: What's real exciting is there's really three critical elements, I would say, that are evolving in retail, not only in the jewelry space.

One is the consumer's preponderance to want to shop where they want to shop, when they want to shop. The Internet provides access to that, and mobile is the next forefront, if you will, for providing that consumer's ability to do it where they want. That's a really big deal. Conversely to brick-and-mortar stores, if you think about it, we're not constrained by that.

Second is really international. For us, international is a huge opportunity. Just one data point; China, the country marketplace, is about twice the size in our core engagement business in the U.S. We already have two offices in China. We're really trying to extend our relationship there. We have a good brand awareness overall, but that opportunity is really meaningful.

Then the third one is just the overall marriage rate and the desire for jewelry, which will never go away. Since the economy has started to rebound, more people are getting married once again, and over the next three to four years, that horizon looks pretty rich. We expect to continue to grow market share, and really tap into that growth trajectory which is really meaningful.

Austin: Three pretty big changes that are definitely going to be affecting you over the next few years. You mentioned your stores in China. What other things is Blue Nile doing to address or run at those serious changes that you talked about?

Harvey: The first one is our orientation around technology. We launched a really unique way to shop online. We were the first jewelry retailer to have an app.

We have an M.dot site today. We're actually evolving that site to be more responsive and bringing channel-agnostic interaction to the consumer over the next six months which, in layman's terms, means no matter what device you come to interact with us on, you will have the same experience.

We will offer all the feature benefits of our PC on a tablet, an iPad Mini, on an Android phone, or an iPhone, or whatever. That is one of the critical elements. To leverage that even greater, we're actually bringing new technology and new advancements to how you interact.

For instance, a band matcher is something we'll launch in the next couple of weeks. It's the ability to actually envision what the band would look like on the ring by actually showing it.

We'll show that in-store experience, and we'll show you multiple number of bands that match an engagement setting, and allow the consumer to not just envision it in their imagination but see it real-time. That's somewhat disruptive. No one does that today at the level that we'll bring it to the marketplace.

Relative to technology, we're really continuing to push ourselves to interact with the consumer in the way they want to interact, and to be offering... kind of dimensionalize an experience in spite of the fact that it might be on an iPad.

Austin: Obviously doing what you can in the mobile world. Then I have to ask, maybe as a devil's advocate here, are people really going to make a purchase as big as an engagement ring on a mobile device?

Historically it seems like something that people want to interact with before they make that big decision.

Harvey: Two data points there. One, if you look backwards at real results, we've sold over a $200,000 engagement ring off of a tablet, and we typically sell $100,000 stones off of iPhones. It's somewhat mesmerizing to me. I would have said maybe the same perspective you had years ago, which is, "Is that a realistic expectation?" But reality is, it is.

The second element, which I think is really unique is the way people interact with mobile devices today. Typically, most people get up in the morning, immediately on the iPhone or Android. They look at email, they link to what they want to, and then they go to work or they get on a PC.

Sometimes they explore, sometimes they don't, but the next place is they go home on the couch. Instead of being tethered to a PC, they're literally on their iPad, sitting on a couch. What we're bringing to market is the ability to have all the touch and feature functionality on that iPad so they can literally have a "PC experience" on an iPad as they sit on that couch.

Typically, that core engagement sale that we create is the soon-to-be husband and wife looking at it together. They're searching and browsing, and it's very fluid.

The long answer to your question is yeah, people are absolutely shopping on an iPad. Our counsel, our education, our guidance, are the levers we have to define all the elements of what makes a diamond great and all the unique ways to evaluate the purchase are all available soon, either on an iPad, or even today on our M.dot mobile site.

Austin: As a buyer out there, there's obviously a lot of options for them to buy an engagement ring -- or any jewelry for that matter. There's Zales, there's Costco, there's Tiffany. Why would somebody in this space be going to Blue Nile?

Harvey: Great question, equally great answer; I would tell you, easy answer.

Number one, the environment we create. Our sales associates, as I mentioned earlier, are non-commissioned. They are trying to give that consumer the best ability to make a great decision. We spend a ton of time on education, counsel, and guidance.

It's interesting, but I sit in on phone calls every other week. I sat on one yesterday, and we as often sell them down as we sell them up, because we provide the ability to make the best decision. When I say "sell them down," I'm specifically referring to actually not necessarily making the biggest sale in dollar value, but giving them the best quality product. We're helping them navigate that.

That's a really big difference in the context, to be able to thoughtfully go through it. Typically, a customer will come back two and three times before they actually make a purchase. They'll think about the information that we provide them, and then come back and ask more questions.

The fact of the matter is, the quality of the stones we have are unequalled. They are as good as anywhere in the world today, literally. The level of assortment we have... if you go to a brick-and-mortar store -- and you've mentioned some of those, without renaming them -- they might have 100 stones in their store.

We would have 100 stones in one specific caret size, like 0.52, we have 100 stones. The depth of our inventory is really astronomical. It is the broadest assortment available today, exclusively available at Blue Nile.

Then we already mentioned the fact that 20-40% below traditional brick-and-mortar stores. That's kind of the icing on the cake. You get great quality, feel really confident, trust that you made a great purchase with a great retailer, and oh, by the wa,y get a great price.

No better place to buy, I would say.

Austin: A lot of compelling reasons for a user to look at Blue Nile.

What about an investor? As an investor, I look at the space and you guys are a bit more expensive than maybe your peer group. I believe you're more expensive than Tiffany and Zales. Tiffany certainly has a storied tradition and heritage to them.

Why would, as an investor, I look at a slightly more expensive company like Blue Nile?

Harvey: From an investor's perspective, if you buy into -- and my hope is that they do -- all the things that we've spent some time talking about this morning, the reasons consumers buy from us; those are defendable.

We have contractual relations with our suppliers. Not only contractual, but they're embedded in 14 years of back-and-forth. That's a really big deal -- 130,000 diamonds? You can't get those diamonds anywhere else. Those are only available at our website.

Our entry into China, which is now three years in the making. We do a really meaningful part of our business there today, but we expect it to be exponentially more meaningful in the future. It creates a growth trajectory that's really exciting.

Then we talked about the general trends of the marketplace -- more consumers getting engaged, better economic times -- all those things would project growth for Blue Nile domestically as well.

It's just a great opportunity to see market share growth, revenue growth, and with that EPS growth. We've talked about our success in many elements relative to the customer, but if you look at the last four quarters we've had double-digit growth each of the last four quarters, and we've actually had five quarters of sequential growth.

That says that we're on the move. We've got our mojo, for lack of a better way to say it, and we're growing.

Austin: Looking at, maybe, today to five years out, what's the biggest profit driver for Blue Nile today, and do you expect that to be the same five years from now?

Harvey: We expect it to evolve. We expect, number one, that the profit driver today in dollars is core engagement business. It is a really meaningful part of our business. The opportunity to create repeat purchase and lifetime value will grow that and extend that to what we define as "life moments."

Today, our core business is driven around the engagement setting and wedding band but our opportunity is to extend that into many more life moments. The extension is into places that are more profit-rich margin opportunities.

Fashion jewelry is the farthest extension, and then as you peel back to our core business we have wedding bands, which not only do you get a wedding band when you get married, but a five-year anniversary is typically an eternity ring or a diamond pendant or diamond studs.

Then in between is diamond jewelry, and our opportunity in diamond jewelry is pretty meaningful. Our Build Your Own business, which is one of the better build your own practices out there, is really meaningful.

Customers can come onto our site, pick from our 130,000 diamonds a stud, earrings, a pendant, and a lot of different ways to build jewelry; whether it's which metal, which diamond, the size of the stone. Then we have an upgrade program, which allows them to upgrade to a bigger stone if they want, down the road.

All of those are opportunities to grow margin, and grow margin dollars, most importantly, so we look at the next five years as pretty meaningful.

Austin: What sort of a margin dynamic are we looking at there?

Harvey: Our core margin is around 20%. That's our company rate. Our non-engagement margin is higher than that. We typically talk about that being twice the margin rate of our core engagement loose diamond business.

We ended up at 20; one's slightly south, one's slightly north, but that's part of our model. Our margins are, in a good way, significantly less than our competitors, but that brings that transparency of our pricing to market, and the value that we create.

Austin: A lot of the companies that we've looked at in the consumer goods space are looking to Asia, particularly China, for growth in their big-ticket items. Companies like Apple, General Motors, Coach, all making a big push there. You're no different.

I'm wondering if you could discuss maybe the opportunity that you guys see there, but also the difficulties that come with it?

Harvey: Great question. The opportunity is, as China's economy really comes online and the investments being made in that country really allow the consumer to "upgrade" so many elements of their lives; what they purchase, the lifestyle they live, the westernization, if you will, of China is really demonstrably moving and exponentially we expect it to move faster.

That, for us, is really about the ring. Historically, Chinese consumers weren't oriented around a single-stone, center stone, larger rock. Today, they really are. They're much more interested in the quality and the westernization, and the engagement setting being a traditional American style setting.

That's our core business, and that's where they're headed. That, as I mentioned, is twice the addressable market of the U.S., so that's really exciting for us from a "Why do business there?"

In terms of doing business there, the economy and the way consumers interact today with retailers is actually distinctly different. Some elements are in how they pay for things. They don't use, as pervasively as we do in the States, credit cards.

We have a partnership we launched almost a year ago now with a partner in China, and he has storefronts. We don't actually have storefronts; we are part of his storefront, but Blue Nile is on the door. We actually create the ability for the consumers to come in and make payment in his storefronts.

That partner also does fulfillment for us, so we manufacture the stone and we create that opportunity to pick it up in-store. That's another place that -- in China it's just not as pervasive, FedEx's ability to get everywhere -- so many consumers feel the need not only to make payment in-store, but to come in and pick up in-store.

Those are some of the challenges that we face as we go into China. Today we have storefronts in Guangzhou, Shanghai, and Beijing, and the expectation is that as we grow there will be more storefronts available for pickup and delivery, and we will continue to see the westernization of that consumer, and the middle-market to better than middle-market customer becoming more affluent.

Austin: I'm wondering if you could comment on the collapse of gold recently and how that could impact you guys positively or negatively as you move from this engagement business toward a non-engagement ...?

Harvey: Yeah, that's a great question, as well. The reality is, two days after gold hit a low, we revised our prices down across all of fashion and core gold product by 10%. For us, it was really important to do that. It fits the value creation of why people shop at Blue Nile.

What's real exciting is, our turnover -- we typically turn our product, which means we sell through each item -- typically three to four times a year. That same item we might buy and sell, buy and sell, buy and sell three or four times. Traditional brick and mortar stores might sell it once, or every one and a half years.

We took our prices down, customers got better value. We'll go back and buy that same item three months from now, and buy it at the new low price, and then we'll sell it again and again. Within the span of one year, we'll sell it four times and that other retailer that exists out there might only sell it once.

We're bringing to market better value. We took our prices down to create that opportunity and it was, if you will, "germinated" by the reduction in gold overall.

Austin: Obviously you guys are very online dependent. Right now, depending on how you calculate it, online purchases are only about 10-15% of bricks and mortar purchases, domestically at least. I'm wondering if you have any sort of thoughts on the trajectory of online purchases, and if there is a point on the near horizon where they eclipse bricks and mortar purchases.

Harvey: Broadly speaking, we believe that customers' proliferation and movement to digital-based space, to practice commerce or to buy things, is going to continue to accelerate.

Our category is a place where what they're buying is very understandable, and we're providing a level of education, counsel, and guidance that they can truly appreciate what they're buying. There's a lot of mystery that's taken out by our website.

The expectation is that the consumer will recognize that there are categories like ours, that they can buy online, and accelerate overall. They're not thinking, "I'm going to accelerate my purchases," but they're going to continue to shift to the online environment.

Mobile only accelerates even farther. We've talked about mobile openly, as 30% of the customer traffic came to us from a mobile device in the fall. It's accelerated to 40% in Q1 and we're expecting it to be 50% by the end of the year.

When you add all of that up we expect, whether the market goes to double or triple what it is today -- to your point, let's say it's 10% -- 20 or 30% is very reasonable.

There will always be a place for brick and mortar stores. We think that that experience is important, but the movement to the Internet environment we think will continue to accelerate and become more meaningful.

Austin: Obviously there's a big push for online sales tax. Amazon seems to support the measure, and they are the world's largest online retailer. I'm wondering how something like that would impact your business, should it pass or fail?

Harvey: The Marketplace Fairness Act, it's hard to know what will transpire. There's a lot of conversation in the government today about whether or not that should pass. It's made it through certain hurdles, but it has a long way to go.

We'll manage appropriately through that. We continue to believe, and know, that our model is so much more efficient than traditional brick and mortar stores that the overhead they're burdened with -- the staff and the brick and mortar itself -- is something that we'll never have, so we continue to believe we'll bring great efficiency to the market and ultimately give that consumer value regardless of what happens with the sales tax initiatives that they're currently lobbying for.

Austin: Now, looking forward, what would you say is the single biggest growth driver for Blue Nile in the future? Is it international? Is it non-engagement? Is it some combination?

Harvey: It's really taking our core business and growing both share of the market, as well as extending the Blue Nile awareness and the share of market worldwide. That is, and has been, our core business and will continue to be.

Austin: I'm wondering if you could walk investors through the sort of high-level decisions you make when you think about capital allocation. It is such an important decision that's going to impact shareholder return in the future. How do you go through that process?

Harvey: We really look at it from two distinct avenues.

One, what will grow the business fastest, quickest, in the most meaningful way? Because obviously that provides the greatest level of shareholder return.

Then, in addition to that -- you probably are aware we have a buyback program in place -- because if there's not a great opportunity to achieve that through some means using the cash that we create, then we continue to buy back stock.

The first one -- what will grow the business quickest -- we've oriented ourselves around technology. As a digital player, and as we've talked this morning, the level of mobile as a proliferating channel, the level of movement to the digital space as Internet commerce, those are places that we need to continue to be a leader in the industry so we continue to invest capital in that regard.

Then the second one is our buyback program, which we've bought well over $200 million of stock because we believe investing in ourselves is as good as any other use of capital for our shareholders.

Austin: Now, what would you say to doubters of your model who are just like, "You know what? People aren't going to buy expensive rings on mobile devices. It's too intimate of a purchase." How would you respond to something like that?

Harvey: The proof is in the pudding, so to speak. We regularly sell stones and settings that are well in excess of most traditional stores, period, end of story.

As I mentioned earlier this morning, we've sold over a $200,000 stone off tablets. We traditionally, regularly with some degree of -- not necessarily a weekly cadence -- but cadence, sell $100,000 stones off of iPhones and Androids.

The customer seems... the younger customer is very, very accessible and, even more importantly, has grown up with the phone, to the point where their phone is actually their PC and they don't go to a normal PC.

The older folks may still look at the PC as the number one place to go, but younger folks today, and our core customer -- who is about 30 years old, buying engagement settings -- really goes to a mobile device first.

Austin: Do you see different dynamics between Apple or Android products in terms of purchase price, or mobile comfort level making that big purchase?

Harvey: Without getting into specifics, what I would say is that our core customer seems to gravitate more toward the Apple products; iPhone and tablets seem to be something they're very comfortable with. The Android we do a lot of business on, as well, but definitely the core millennial consumer, the 30-year-old consumer, seems very comfortable with iPhone.

Austin: I wonder if you could talk a little bit about the mobile experience. You mentioned you obviously have a lot of traffic from mobile, but are you also seeing a commensurate percentage of purchases or is it more complementary to the experience?

Harvey: The purchase process for the customer buying a core engagement ring is such that they come back multiple times. They most often come back to a mobile device, but they typically end up purchasing, itself, on a PC. We still see that today. We can see that because we see the average revenue on a PC versus a mobile device being materially higher.

Our expectation is that as more and more consumers go to mobile devices, and as we continue to lead technology in terms of developing things that work on a mobile, that we will raise the level of average sale transaction, and get more customers more comfortable with actually making the transaction fully on a mobile device.

Our expectation is that it will grow over time. Today, to the point, it is more about traffic than actual sales, but over time we expect more sales and the average price to continue to go up.

Austin: Are there any other retailers -- bricks and mortar, or online only, or some hybrid -- that you guys really admire, or you think do the retail experience right?

Harvey: The brands we most admire, either we emulate them or we like to think they emulate us. It's really around creating trust with the customer, having a relationship with the customer, educating the customer, and really having authenticity.

It's not created by glitzy marketing, but by actually creating a real, authentic relationship. The credibility that we have is probably ... A perfect example, our Net Promoter Score -- are you familiar with Net Promoter Score?

Austin: Yeah.

Harvey: Our Net Promoter Score is typically in the low 80s. That is an incredible retail number. It's really about consumers being advocates for the brand, and then telling a lot of people. You earn that. You can't prognosticate that.

We're really excited about the experience we create. Folks like Apple is a great example, Starbucks is a great example, Anthropologie is a great example, J.Crew. Those are brands that people want to be involved with.

Really, advocacy for the experience they have here creates conversations offline that people really are encouraged to want to come experience, themselves.

Austin: Have you thought about an Apple iRing?

Harvey: The Apple iWatch is interesting, but no. We haven't thought about the Apple iRing.

Austin: OK, you guys should look into that. It could be big.

Obviously, a big growth driver for you guys going forward is going to be China, and there are such different dynamics in domestic versus international consumers, particularly China.

I'm wondering if you would talk about what differences you've seen in the Blue Nile experience in China, and what you're doing to adjust your strategy for that.

Harvey: That's a good question. The Chinese consumer; actually, one of the greatest examples is how distinctly different they are in how they want to engage. We actually have in China now two offices, which I mentioned. We also have an office in Dublin, and then we have our call center here.

One of the things we find is that Chinese consumers literally want to talk to someone. They are not comfortable leaving voice mail. They don't execute, actually, as often online today as the American consumer, and they literally want to pick up the phone and call you.

We find a lot more consumers actually making a bigger transaction relative to that, but we also find that the amount of "hand-holding," and educating, and talking them through, is really much greater than in the U.S.

Without providing specific numbers, the level of consumers making a purchase with us in China is really driven by the level of call interaction, whereas in the States there's a much greater number of consumers very comfortable with executing the entire transaction, whether it be on an iPhone or on a PC.

That's one data point.

The second one, probably really unique, is their perspective of what they're looking for. The Chinese consumer is just starting to really be driven in the middle class and the more luxury products. They have an orientation that they're learning about what it is that they're seeking.

Part of the call -- not just the call, but the product we offer and the product we actually see selling more -- is not the same product that's selling in the U.S. at this level.

We expect that will evolve. Smaller stones, more gold; although interestingly enough, platinum is the number one metal -- China is the number one user of platinum in the world -- which is an interesting data point relative to our business.

There are unique peculiarities, and our expectation is as we continue to grow and develop we'll understand more and more about that and the cultural differences, and really evolve our business to maximize that opportunity.

Austin: You mentioned that the Chinese consumer seems to want a bit more education and learning as they make these big luxury item purchases. Are there any other retailers that you think are doing that well in China, or anybody you see stumbling?

Harvey: There are several specific Chinese-based companies that we "shop" regularly. Without naming the specifics, we think they do a pretty good job.

The difference, probably, between them and us is they're still based in some form of brick and mortar entity. As I mentioned, our partner has storefronts and we really leverage those storefronts so it minimizes our overhead and maximizes the value that we create for that consumer.

That's probably the biggest difference between the competitors that we look at. We also recognize that they have years in the marketplace, so when we look at them we try and understand what they're selling, but the way we sell it is actually resonating really well with the consumer in China, just like in the U.S.

Austin: Recently there was a collapse in gold prices, and you guys reacted almost instantly by lowering your prices by 10%.

I'm wondering how you guys manage the expectation for precious metal prices. Do you try and forecast gold prices? Do you expect them to remain low? Obviously, you probably want them to stay low, but I'm wondering how you manage that dynamic, or if you just have to let the market deal you a hand?

Harvey: It's interesting. It's a great question. The reality is there's a great deal of volatility in many of the core products that are the inputs to the product we actually sell. Gold or silver or diamonds, there's a lot of volatility, but if you look over the course of time, there's a relatively small but consistent movement up. It's inflationary.

We build some level of expectation that those products will continue to go up, to understand how it might change our pricing strategy, but then the flip side is things like gold's deterioration and really big drop was an unexpected surprise in a really good way. It lowers prices, it allows the gold to be much more accessible, and we're reactive in that way.

There's not really an answer that we have a crystal ball and really try to project, but we do have an expectation that, based on history, the products will continue to increase, and we build models that actually think about that as we understand unit price, sales, margins, and retails.

Austin: You guys have a very innovative model, a very disruptive company. A key part of that in the most successful companies we've seen is strong cultures and a fostering of creativity and the desire for growth.

You're trying to disrupt a very entrenched industry with very entrenched players. How do you guys foster that culture to keep that drive going?

Harvey: That's a really good question. The reality is that our people, our associates, our team, is the single most important asset we have.

The fact of the matter is we have an incredible selection of diamonds, and relationships in place a long time, but none of that would matter if we couldn't bring it to market and feel really good about what we're doing.

What ultimately that equates to is trust and loyalty. We look at the consumer marketplace and the associate marketplace kind of as the same thing. Our culture is one of empowerment, trust, leadership, teamwork, family.

It sounds kind of trite on some level, but the reality is it's really critical. Our consumers trust us, our associates have to trust us. To the degree that runs from the consumer all the way to the associates and vice versa, it's a really meaningful relationship.

We really challenge ourselves to be as forthright with our associates as we are with our customers, continue to bring that to market. We have a lot of fun, quite honestly. One of the things that I love about the organization is we have a lot of fun. It's work hard, play hard. We work really hard to be successful, but we play as hard as well.

Maybe a great example of that is we have half-day Fridays in the summers. We think it's as important for our associates to be able to actually go out and enjoy their family and have some downtime, as much as uptime.

When we say "work hard, play hard," you have to actually do something. Actions speak louder than words. As much as we're working really hard, we think it's important to take some time off.

That's just kind of one data point of how we try to create that opportunity.

Austin: What about you, as an individual? What sort of things do you, as a leader, do to keep that culture going?

Harvey: That's a really good question. My days are pretty busy, but there's three things I do an awful lot. Number one, I walk around a ton. I'm kind of an antsy guy. I don't sit at a desk very well, so I literally walk around the building a lot.

It's amazing, when you just engage and ask a question, what you learn about the business. You know that reality show where the boss goes undercover? Our culture is one that the openness and the level of sharing has become really a great data point for our associates to be able to share what's happening.

When I walk around, it's amazing what I learn. That's number one.

Number two, being present. I go to a lot of meetings. It's important for face time. Even if I don't say anything, it's just important that people know something's important enough that I'm actually trying to sit and learn.

I ask a lot of questions, but I also am very quiet, often, and I just learn. The more you know about the business, the more you can understand their pain points. For me, that makes me a better leader and a better part of the team.

Then last but not least, I spend a lot of time communicating. I literally hand write -- I guess hand type -- an email every Friday. I was in Asia in March and it was "Harvey's Travelogue." Literally, I told them what I did for the week.

We had a board meeting two weeks ago, and I recapped what the board's perspective was on what we presented, because transparency with the consumer is important, but transparency with our associates is important. I really believe, like a great marriage, communication is really critical for our associates.

I walk around a lot, I try to observe what's happening by sitting in meetings, and then I communicate a lot.

To the extent we are, as a group, aligned and have a singular vision, we'll be as efficient in how we get our work done as we are with the product we bring to market. That, to me, is a really critical element.

Austin: We, as an investment shop, put a huge premium on strong leadership, visionary leadership, passionate leadership, but not every retail investor has that experience to interact with management; particularly for you guys, who are web-based.

How, as a retail investor ... do you have any suggestions for how they may go about evaluating those characteristics in leadership?

Harvey: We spend a lot of time, actually, in market. We go out and literally, whether it's with investors, potential investors, with the analysts, or with suppliers, and quite honestly those interactions are very public.

People can ask a lot of questions and there's a lot of ways to triangulate on what's happening. We find it really important to spend time out there in the marketplace, talking about what we're doing.

Again, the proof is in the pudding, right? One of the data points I'm really excited about, our turnover wasn't terrible when I got here, but in the last year and a half our turnover was cut the first year by 20% and this year we're tracking to a 50% reduction in turnover.

That is a data point, a real data point, that says people seem to be really happy and engaged with being part of this team.

The article An Interview with Blue Nile CEO, Harvey Kanter originally appeared on Fool.com.

Austin Smith has no position in any stocks mentioned. The Motley Fool recommends Blue Nile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Asset Allocation

Learn the most important step in structuring an investment portfolio.

View Course »

Behavioral Finance

Why do investors make the decisions that they do?

View Course »

Add a Comment

*0 / 3000 Character Maximum