Pearl Paradise makes Internet a paradise of pearls

[Kenji]

From Jewellery News Asia - April Edition

Part One (Too big for only one post)

PearlParadise.com, a specialist pearl jewellery retail website established in 1997 in the US, reported sales growth for the 8th consecutive year. Its sales in 2005 were nearly US$11.8 million, more than double the figure for the previous year.

The man behind the online pearl empire is Jeremy Shepherd, 32, who discovered the multi-million dollar business when working the skies as a flight attendant. He is probably among the very few that benefited from the SARS epidemic, taking it as a golden opportunity to buy pearls and develop friendships with akoya and freshwater pearl producers in China. Now he travels to China almost every month, buying quality pearls from his farmer friends at reasonable prices, and secures reliable supplies of Japanese akoya, Tahitian and South Sea pearls.

In an interview with Melissa Wong of Jewellery News Asia, he shares his tips for success, his experience of buying in China and his dream – selling natural pearls online.

JNA: How did PearlParadise.com do in 2005?
Shepherd: Our sales increased from US$5 million in 2004 to US$11.8 million in 2005. It was the most incredible year we have recorded yet. Our sales for Thanksgiving were about 300 percent higher than for the same week last year. December sales were much brisker than usual and higher than anticipated.

JNA: What are your targets in 2006?
Shepherd: We have not yet determined our sales target for 2006 because we have not finalised our strategy. I can assure you it will be substantially higher than 2005's, and that we will probably shoot for a more moderate 50-percent growth. This should be accomplished without much difficulty as we intend to focus more on higher-end goods, which means Tahitian pearls and South Sea pearls. We started focusing on them in early 2005 and have seen a tremendous jump in revenue as a result. We just sold a triple strand of AAA golden South Sea pearls to an online customer for US$98,500.

We are working with a lot of celebrities this year to promote the high-end goods. The Academy Awards was one of the events. Last year we presented the celebrities with gift certificates, which require the recipients to pick up their jewellery at our showroom in Santa Monica. This year we presented them with jewellery in the “Luxury Lounge” at the Peninsula Hotel in Los Angeles. It was a high-profile event for the top-list celebrities only. We designed five special pieces for five of the nominees as well. This was a big investment for us, but the publicity was very good.

In addition, we may go into natural pearls this year. I have been talking to a natural pearl dealer for quite some time. We are discussing selling only the pearls themselves, not finished jewellery, and we will probably target collectors. If this goes well, we may design some pieces that can be replicated to sell on a larger scale. It is more difficult online because we must be able to make more than just one design to keep prices low.

JNA: If it happens, you will be the first to sell natural pearls on the Internet.
Shepherd: That is one of the main reasons for getting into natural pearls. There is just no other company providing a truly complete selection of pearls, especially on the Internet. The man I would be working with has been selling natural pearls for more than 10 years, and is quite well known in the industry. He tried to sell online at one time, but it did not work well for him. Making an Internet site successful takes a lot of dedication and concentration. This cannot easily be achieved when one is flying all over the world collecting natural pearls.

Buying in China
JNA: When was your first visit to pearl farms in China?
Shepherd: The first time I visited a pearl farm in China was in 2000. I didn’t have anybody with me, and I had to rely on the people from Beihai, an akoya trading centre in Guangdong Province, that I had come into contact with over the Internet. That was a very bad experience.

About a year later I started again. I contacted as many pearl farmers, or people who said they were pearl farmers, in Xuwen (an akoya farming and processing base, also in Guangdong Province) and Beihai as I could. I spent two to three weeks in the two cities, just visiting pearl processing factories and pearl farms, and I could tell immediately if they were merely traders or just wanted to be middlemen, or if they really had their own factories or their own farms.

Finally I settled on two suppliers. One of them is now my good friend. He has a decent-sized factory, and his processing skills are amazing. He saves all his higher-quality pearls, mainly 6mm to 7.5mm and some 7.5mm to 8mm, for me, and I help him sell his lower-quality pearls without commission. As we are good friends, I can buy 50 percent AAA quality and 50 percent AA+ quality for the same price every time. I have to trust him to divide them, 50 percent of each. Sometimes I find there's a mistake, and I just ask him to correct it.

JNA: How about Chinese freshwater pearls? Do you have good friends in that sector?
Shepherd: I have a good friend at a leading Chinese freshwater pearl producer in Zhuji, Zhejiang Province. She goes to different companies in Shanxiahu in Zhuji to find AAA quality 7mm to 8mm freshwater pearls for me. In turn I help her buy akoya pearls. Sometimes we go to Xuwen together. I also help her, and my friend in Xuwen as well, buy Tahitian pearls because I am a bigger Tahitian pearl customer and get better prices. Typically I charge them only 10 percent over my costs.

JNA: Where do you source Tahitian pearls and other “non-Chinese” pearls?
Shepherd: I have a good friend in the Cook Islands who supplies Tahitian pearls and separates the lots for me, just as though I am buying at auction. He brings me the pearls after fresh harvests if I don’t have time to go there. I pay a very slight premium.

I also use Hong Kong to supplement the Tahitian pearls when I need to, but only if the companies sell to me at a price I can agree to. Many Hong Kong companies have a high mark-up, almost 400 percent. You can get a 50-percent reduction if you are a big customer, but you still pay a high price.

For larger akoya pearls, of which there is little supply in China, I deal with a factory in Japan which is strong in 7.5mm to 8mm. We have a good relationship because I speak Japanese and have lived in Japan, and they know me and know the company. When they get the quality that they think I will like, they send the pearls to me. If I like them, I keep and pay. If I don't, I send them back.

I go to Kobe about four times a year. I don't need to go very often as our Japanese pearl business is not as strong as our business in Chinese akoya. However, I do go to Kobe to visit other factories to gauge the prices and make sure that my supplier is the best, or to look for specific sizes or qualities.

JNA: It seems that you buy pearls mainly from friends?
Shepherd: I like to work with people that want a strong, long-term business relationship. If I can get to know them on a personal level, if I can give them a fair price, and they can consistently give me a fair price and a fair supply, we can work together and they will know I am a long-term customer. I have had very bad buying experiences in China and even in Hong Kong in the last 10 years. If I don’t trust somebody or don't feel there is friendship between us, I will not do business with them.

[Kenji]

This is the 2nd part of it.

Reaping benefit from SARS
JNA: Looking at your previous sales record, I note that you posted the highest growth in 2003, when your sales soared tenfold to US$3 million from US$250,000 in 2002. The SARS outbreak occurred in 2003. Can it be said that the epidemic made a tremendous difference to your business?
Shepherd: SARS was a big factor in our success. One thing was that National Public Radio, a major radio station in the US, found out that I was in China during the SARS epidemic. They interviewed me, and the interview was played every day. This was very good publicity.

The other thing was that I got great prices and premium quality pearls. Before SARS I often came up against the problem that farmers didn’t want to sell me the best quality and wanted a premium price. However, during the SARS period, every company contacted me and asked me to visit them. They were harvesting and had to sell. It was like walking into a store and getting a 95-percent discount, and I bought as much as I could. That was when my business really started to explode, because I had no competition in prices and quality.

JNA: Weren’t you worried? It’s SARS!
Shepherd: People thought I was crazy, but I had spent a lot of my life living overseas – Japan, Mexico and Africa. There wasn’t anything that really scared me. There are many millions of people living in China, but how many had SARS? The fear was unwarranted. I was going to be careful and protect myself. In fact I was very excited, as I knew I would get everything I wanted.

How to sell pearls on the net?
JNA: Building a luxury business online isn't easy. How do you manage to get people to buy pearls they can't touch?
Shepherd: You need to have a brand name that people trust. To achieve this we blanket our website with educational materials on the cultivation and nature of pearls, and display our company’s membership in organisations like the Better Business Bureau, the Safe Shopping Network and the MJSA. In addition, we have grading scales for different pearls, and accompany all pieces with an appraisal and a 90-day money-back guarantee.

JNA: What is your return ratio like?
Shepherd: Our return ratio is less than 2 percent. Most of the goods that come back have been bought by husbands for wives who don’t want pearls. Almost none of the returns are related to pearl quality.

JNA: How do you deal with old inventory?
Shepherd: If we have an over-stock of particular items, we put them into our biannual customer-only sales held before Mother’s Day and Christmas. We send out emails to our past customers only, inviting them to a special web page, set up just for them, featuring items at prices less than 10 percent above cost. Response is very good, and we can sell all the pieces in one day.

JNA: In addition to presenting jewellery to celebrities at the Oscars, you appear frequently in the media, including The Wall Street Journal, Entrepreneur Magazine and Ocean Scene Magazine. Is a high level of publicity a major reason for the success of Pearl Paradise?
Shepherd: The press ask me for interviews, and they do help our business. WSJ did an article on us last July, and that one article caused our business to just explode. We advertise very occasionally, typically when the consumer press is writing a story about us.

Referrals and repeat business make up a huge percentage of our customers. We have a strong customer base because we provide quality pearls at reasonable prices.

Best sellers at PearlParadise.com: Tahitian, akoya
Tahitian pearls and akoya pearls are the best sellers at PearlParadise.com, Mr Shepherd said.

“Our Tahitian pearl sales are very strong right now. The most popular are gem-quality peacock pearls, and the retail prices are US$3,000 for a 9mm to 10mm necklace and US$3,400 for a 10mm to 11mm. We make necklaces only with A quality pearls and sell 150 to 200 Tahitian pearl necklaces every month. The public will not see most of them on the Internet because they are already sold to our waiting customers. It's simply that the prices are attractive. They cannot find such strands at these prices even if they come to jewellery fairs in Hong Kong.”

Top sellers for akoya are necklaces with 6.5mm to 7mm and 7mm to 7.5mm pearls, he said. For 6.5mm to 7mm, AAA quality sells for US$300 per necklace and the second tier, AA+ quality, for US$200; for 7mm to 7.5mm, the top quality goes for US$500 and the second tier for US$400.

“Meanwhile, our Chinese freshwater pearl sales are quickly catching up with akoya. I thought I had purchased enough Chinese freshwater pearls to last a year last autumn – not the case at all. The best sellers are 7mm to 8mm necklaces retailing at about US$86,” he said.

From flight attendant to million-dollar online pearl purveyor
Jeremy Shepherd visited the Hongqiao Pearl Market in Beijing for the first time more than a decade ago when he was working as a flight attendant for Northwest Airlines, flying to China on a regular basis. One day, he purchased a set of Chinese freshwater pearl jewellery at the market, and gave it to his girlfriend in the US. She had them appraised and told him the value: it was 20 times the price he had paid!

The idea of starting a pearl business formed in his mind. He bought pearls at the Hongqiao market and tried to sell them to jewellery stores and boutiques in the US, but very few of them wanted anything. Then, at the suggestion of a friend, he auctioned them on Amazon.com, and they sold. He cashed his entire savings and bought as many pearls as he could, selling them exclusively online.

In 1997, he established Pearl Paradise. He made use of his language talents – he speaks Japanese, Mandarin, Spanish and Chuuk (the language of the South Pacific Micronesian Islanders) – to buy pearls from different areas. Over the years his business has expanded from Chinese freshwater pearls to akoya, Tahitian and South Sea pearls.

In addition to PearlParadise.com, he operates Pearl-Guide.com, an educational website on pearls, and 13 websites in the US and Europe for pearl trading employing marketing strategies different from that of PearlParadise.com. The company has its headquarters and appointment-only showroom in Santa Monica in southern California, serving just one customer a day.

[Caitlin]

With a good balance of business, language, and people skills, hard work and luck, Jeremy Shepherd has positioned himself for leadership in online pearls.

I am so delighted to hear he is going into natural pearls.

He has a couple of books coming out, one of them on how to start your own online business. I would say he has the credibility to make the book worth buying and using if you have those ambitions.

I also think he is positioned to influence pearl growing trends and this forum is a good place to hash those out.

Forward thinking sellers, associates, and friends of JS can learn from what is going on in this forum too. Thanks, Jeremy!