Think about what you really like about Italian jewels: creativity, exclusivity, uniqueness? Italian jewellery is renowned for its high quality and attention to detail. But this relevant and historically important slice of national culture and craftsmanship is under threat. After the boom of the roaring 1990s, the goldsmith sector entered a long phase of stagnation followed by a grave crisis. Today the industry is giving mixed signs: while many enterprises are still closing for business, some others are managing to stay afloat in the perilous waters of global recession. But to do so they have had to undergo profound changes and open their doors wide to international buyers and investors.
The decline of the goldsmith sector in Italy can be summed up in a few figures released by Federorafi, the Italian federation of goldsmiths and jewellers. Between 2000 and 2013 almost one third of the workforce went lost. In 2013, Italy could count on around 9,000 producing companies, down fr om 12,500 in 2000. Those activities that managed to survive had to pay a heavy toll in terms of production output. Jewellery production declined a whopping 80% in the last 10 years, according to some specialised reports. The main reason for that is the uncontrolled rise in gold price, but the contraction of the Western markets, traditional outlet for Italian jewels, also played a relevant role in such collapse.
The national retail sector suffered fr om the crisis as well, but contained the decline to a more modest -7%. In order to limit losses though, jewellery retailers had to lower the quality of their stocks consistently. Large volumes of trinkets are now on display in jewellery boutiques, in an attempt to attract more parsimonious buyers. As a result the distinction between jewellery and costume jewellery shops in Italy has become thinner, with many retailers selling both goods indiscriminately.
Access to Finance and Bureaucracy
One of the gravest results of the austerity measures introduced in Western Europe has been the difficulty for entrepreneurs in gaining access to financing services. Italian companies are desperate for credit fr om banks to invest in production and restart their activity. In the jewellery sector, many businesses came to a halt simply because they cannot obtain sufficient capital at reasonable interest rates to buy raw materials and gemstones or to pay the first rounds wages to their employees before revenues start pouring in again.
The jewellery sector also had to face the negative impact of a series of choices at the government level on fiscal issues. Recently, the country has seen two adjustments of the consumption tax, which was raised fr om 20 to 22% in 2011 and 2013. This controversial decision, taken in an attempt to reach a balanced state budget, further depressed the luxury goods market. Additionally, with an idea of fighting tax evasion, the Italian government introduced in 2012 a ban on cash payments for purchases above 1,000€. While fighting tax evasion is a commendable act, the requirements set by the law proved to be excessively strict, especially in relation to other European competitors. Few other countries in Europe have implemented similar legislations, and those which did so, like France, set the lim it at above 3,000€. The jewellery retail sector was particularly penalised by this provision. “How can the government ask us to refuse a 1,000€ payment only because it is done in cash?” complained the owner of a jewellery shop. “We should incentivise customers to buy our products and instead they ask us to treat them like potential criminals”. The lim it on cash payments is valid not only for Italian residents, but also for all the citizens of the European Union. Extra-EU citizens are allowed to make cash payments worth up to 15,000€, but to do so they have to undergo a series of bureaucratic measures which ultimately can discourage them from buying.
In the Global Market, Small is not Beautiful
The obvious consequence of the contraction of the internal and European jewellery markets has been a relative growth in export shares. In 2013, 75% of the jewellery production was destined to foreign markets, an all-time record for Italy. Yet, in absolute terms, Italian products are suffering the competition of emerging countries. While in 2000 Italy satisfied 40% of the Western demand for jewellery, in 2013 this figure went down to 10%, for the benefit of countries like China, India and Thailand. The result is a 50% decline in the export of golden products. On the other hand, Italian goldsmiths has been specializing in haute jewellery and top-range products, which allows it to compensate the decline in sales numbers with a higher value per single product.
According to this picture, it would seem natural for Italian companies to orient their efforts towards the export business, but in reality this is proving rather arduous. There are a series of structural constrains that prevent the industry from operating at full efficiency in the international market. The main constraint is size. Despite its global fame and diffusion, the jewellery industry in Italy does not employ as many people as one may think. The total workforce operating in the goldsmith sector is just above 32,000 units. This means an average of 4 workers per company, including the owner. Jewellery making in Italy is still largely a family business.
For small-scale goldsmiths, investing in direct export to non-EU countries is not an option, as costs would be unbearable for them. How could a small producer make his way by himself in markets located thousands of kilometers away, squeezed between different regulations, import duties? Companies are therefore increasingly relying on international distributors, who then sort and sell products on overseas markets. But the larger the number of intermediaries, the fewer is the mark-up for the initial producer. Furthermore, most of the goldsmith industry is now compressed into a limited number of selling channels –mostly Switzerland, Hong Kong, United Arab Emirates, the United States– wh ere the pipeline is safer and the buyers trusted. As a consequence, Italian craftsmen end up competing with each other in the same markets instead of spreading their products in areas wh ere there is no competition. At the same time, many potential markets, such as Russia, India, Brazil, and all the tier 2 cities in Mainland China are left largely unexplored.
Import duties imposed by overseas countries, starting from China, are also a big issue for small producers. So far, only major brands such as Bulgari and Damiani have been able to land in China. Companies have been lobbying Italy and the European Union in an attempt to make them review international commercial agreements on jewellery, but so far with limited success.
Looking for International Partners
This situation is generating a rather unique paradox: the Italian goldsmith industry is one of the most advanced in the world, both in terms of aesthetic taste and production technology. Singularly taken, this industry would be fit enough to survive the tides of the international crisis. And yet, due to the perilous economic decline of the country, it is unable to grow at a satisfactory level and has its hands tied against the aggressive competition of new players in India, China and South-East Asia.
This is why recently the Italian jewellery industry has been looking for new ways to internationalize its horizons through partnerships aimed at ensuring proper financing, and promoting a better diffusion of its products in underexploited markets. So far, several arrangements have been signed in the areas of production and sales. Among those, there are agreements on brand exploitation, design and production of specific collections and, in some extreme cases, even the complete cession of a company to foreign investors.
“Think globally, act locally”, is said to be an imperative in modern business. Looking at the Italian jewellery industry, this has never been truer.
Matteo Butera, Rough&Polished, Italy
