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16 september 2024

pilyushin_vladimir_xx.pngVladimir Pilyushin is editor-in-chief of Russian Jeweler, a leading magazine about the jewelry industry in Russia. He is a recognized expert in jewelry, the author of many ideas and successful creative projects, including the jewelry marketplace Goldnet.Market.

Vladimir Pilyushin told Rough&Polished about his view on the evolution of the jewelry industry in Russia and touched upon some of its problems.

 

I would like to start our talk with the history of the jewelry industry in the Soviet Union. What is your opinion about it?

In the Soviet Union, everything was organized clearly and competently despite heavy regulations and a strong gold and currency regulatory legislation.

The state held jewelry industry exhibitions in September every year in Sokolniki where wholesalers concluded deals with jewelry manufacturers. The Comdragmet (Committee of the Russian Federation for Precious Metals and Precious Stones) and the NII YUVELIRPROM (R&D Jewelry Industry) located on the basis of the Leningrad factory Russkie Samotsvety (Russia’s Gems) worked actively, the system of vocational secondary education trained specialists for the industry, and refining, cutting&polishing and jewelry manufacturing state enterprises worked. Several regional centers manufactured jewelry to supply it to the Soviet people. The entire ‘chain’ was created for the jewelry industry, from education to the R&D institute dealing with statistics, new developments, the elaboration of a legislative base and amendments to it, as well as forecasting the demand and jewelry production.

Then the time of 1990s came when ‘everything collapsed everywhere’, including the heavy and the consumer goods industries, production of manufacturing equipment, and so on.

Anyway, the jewelry industry made a colossal progress and showed a growth. And there were pre-requisites and conditions for this.

Firstly, the legislation on gold and currency did not change, and Turkey’s and China’s jewelry (primarily cheap gold from Turkey) was not imported to the country in large quantity. Secondly, the privatization was held, and thirdly, the highest ‘school’ of jewelry manufacturing that gave rise to setting up a large number of private jewelry manufacturing companies satisfied an insatiable demand and ensured the incredible growth rates for all these organizations even amid a total deficit and the population’s understanding of the investment component of gold in the time of galloping inflation. Worthy of mention is the setting up of numerous joint ventures following the example of the Russian Gems - Diamant, which followed China’s model and left most of their profits in the country.

New players appeared on the market, private exhibitions were organized, and competition arose between them; the previous organizations regulating the jewelry industry are annihilated, the Guild of Jewelers of Russia was set up to defend the jewelers’ interests in the engagement and interaction between government agencies and regulators. By the way, the state historically supported the participation of Russian jewelers and state-owned factories in international exhibitions, primarily in Basel. (Now, Hong Kong has become the main jewelry center instead of Basel, which is another evidence of turbulence and changes in the world).

Later on, the state began introducing its own laws and regulations, and in the time of digitalization, it strives to calculate and regulate everything to collect more taxes. Our state made efforts to introduce general rules in the jewelry industry, but it is a complex industry because even in the stoneless jewelry, there is a huge number of items and varieties - depending on the jewelry items’ composition, weight, and materials used... Officials, apparently, did not expect it to be so difficult. Therefore, the digitalization that began in Russia a little later than in other countries, was of an unprecedented scale and faced difficulties in its implementation in the jewelry industry due to postponing the deadlines, active disputes and discussions, with all the inherent consequences ...

And the global circumstances also had an impact - after a period of rapid growth, the Covid pandemic period started. It’s possible to look at the statistical data on hallmarking, production and sales of jewelry items, and based on this information published in open and closed sources it’s possible to see what was happening to the jewelry industry. Here is a simple example - Russian Jeweler had almost 25 thousand subscribers to our news. After the Covid pandemic was over, the subscribers’ number dropped to 20 thousand. After the introduction of the State Integrated Information System in the Sphere of Control over the Circulation of Precious Metals and Precious Stones (SIIS), the number of subscribers declined to 16 thousand, and after the introduction of VAT with all the consequences - to 12 thousand. These figures indirectly show the state of the jewelry market.

The jewelry market is not stand-alone, it moves by the same laws as other markets. The SIIS, VAT, the abolition of the VAT on gold bars - all these changes didn’t have a positive effect on the industry. But when the statistical data is given showing the increase in hallmarking, the jewelry manufacture and consumption, and if the data is in rubles, it’s necessary to look at gold prices. When the quantitative data is given, it should be understood that the share of large enterprises consists of a large part of the market due to the liquidation of small companies that could not withstand all the turmoil, from the Covid pandemic period to the present day.

Today, almost all jewelry companies have their own wholesale sites, online stores, pages on social networks. Wholesale marketplaces have appeared, including those selling jewelry. How promising are they?

I have already mentioned that the jewelry business is developing according to the same laws as other businesses. There is an evolution of consumption associated with the emergence of e-commerce. The task of any business is to sell as much as possible, and a variety of sales channels are used for this. In the Soviet Union, there were factories that received orders on the markets once a year, the jewelry items were sent to retail stores, and all the goods were sold to consumers. Today, there are factories, stores - actually, the classic model that continues working.

But exhibitions keep on playing an important role in the development of the jewelry industry?

Sure! Today, exhibitions are a driver of the jewelry business to a certain extent! But along with this, the Internet appeared. Quite large volumes of goods, especially those made by small businesses and jewelry artists and designers, were sold through Instagram, first of all. But due to the fact that this network is banned in Russia, this sales channel collapsed, many jewelry manufacturers set up their own online stores and websites, although many of them have problems with websites due to the general chaos in the IT market.

What are the problems exactly?

If a company wants to create or redesign its website, this work is done by its marketing department or Chief Commercial Officer’s one, time and money are spent, including the money for translator’s services who translates the ‘IT lingo’ into the Russian language that everyone understands; then it’s necessary to work out technical specifications, give an update, so as a rule, this work takes six months, and 50,000 to 200,000 rubles are spent on this (depending on the complexity of the development work). Often, the development team doesn’t meet the deadlines, money is paid, so both parties are unhappy with each other, developers sometimes disappear, all the work should be started from the beginning, etc.

The websites of many companies have a product mix that is posted, and the pictures of jewelry pieces are of poor or good quality, then negotiations are held and photos are sent using WhatsApp ... the companies just forget about their website or it is constantly ‘updated’.

And despite the fact that jewelry manufacturers sell through online stores and have good sales, it is worth noting that the frequency of purchases in online stores by one buyer is from six months to a year and a half. Even an audience of a hundred thousand people does not mean that purchases are made very often.

In addition, there is a completely ready-made channel used to communicate the information to the consumers, which includes marketplaces having the widest audience, the ability for promotion and pricing... But there is a negative downside in this: many of them force sellers to set lower prices, and a conflict of interests arises between manufacturers, marketplaces and retailers because of pricing. This has a negative effect on the margins of jewelry businesses.

It is necessary to understand that when consumers enter a large shopping center, there are different types of goods, including jewelry stores, as part of this line.

Accordingly, the jewelry business could not ignore marketplaces, so it has gone to these marketplaces where the sales are usually good, and it gradually ‘eats away’ at the share of offline trade and small businesses. This is the general evolution of business, including a jewelry one.

Doesn’t the specific nature of jewelry add more problems like insurance and delivery?

Let’s approach this issue from a different angle. Marketplaces are not used for exclusive items: standardized goods, quite inexpensive jewelry items like gold chains, engagement and wedding rings, the Russian Orthodox symbols, pendants, and studs are sold in mass-market... The price of the jewelry items is not high in mass-market, so if any jewelry piece costing three thousand rubles is lost, all pieces are insured, and it is immediately found out what has been lost and where.

How is Goldnet.Market progressing?

The platform created by Russian Jeweler is not a classic marketplace, it is rather a permanent showcase where small manufacturers can display their jewelry line without the need to invest in their own websites, and present their jewelry to a wide consumer audience.

Today, statistics show that there are over 100 jewelry items in the consumer basket every day - and we understand that two or three jewelry pieces a day are bought from our platform by some consumers, and 2-3 percent of jewelry items are sold via e-commerce. Additionally, a new opportunity is offered because several companies have a customized page for a small monthly fee, practically, their own websites on our platform with all the services and features. We are making now a customized page for several companies that is a branded one, with all the services and a feature set. We additionally buy a security certificate for this, because in this case, a company doesn’t need to change its domain name, everyone who wants can get directly to its page. From this page, consumers can go to the general catalog of jewelry companies where they can simultaneously look at the additional jewelry items. This option has a synergy effect. In general, we are happy with the project, and most importantly, the participants are happy!

E-commerce is just one of the sales channels, and more attention is paid to it now. Active companies perform well cooperating with Ozon and Wildberries marketplaces.

By the way, a number of Chinese companies entering the Russian market have conducted marketing research in the country and do not work offline at all: they have one Russian person and two Chinese ones working in a tiny office and receiving jewelry parcels from abroad; then, they complete customs clearance for these parcels and place items on the websites. They don’t need to sell the goods offline at all - after all, they compete with the Russians on price in this case.

The Federal Assay Chamber (FAC) advocates for introducing restrictions on selling the jewelry on online platforms. Is the law on marketplaces, which has been widely talked about, under development or has it already been adopted? Is it true that the plans are to tighten the requirements for selling jewelry items on marketplaces in Russia?

According to the current legislation in the sphere of the PMPS, “jewelry items belong to the category of goods subject to mandatory marking, and their circulation must be tracked in the SIIS by the Unique Identifier of Charges”. Marketplaces strictly adhere to this rule, all jewelry sellers are specially registered in the SIIS.

But the law on marketplaces is under development, the jewelry trade regulations are expected to be tightened, because everything and everywhere is expected to be more stringent. These are the realities of our time. But at the same time, there is unnecessary duplication of functions, in my opinion. The jewelry industry is already over-regulated because of the requirements introduced by the Federal Assay Chamber, Federal Service for Financial Monitoring (Finmonitoring), SIIS, marking, labeling, etc. ...

There were no counterfeits in jewelry, which are often talked about on the TV. Does any of the responsible jewelry manufacturers, who are in the public eye and have their own websites, as well as engaged in wholesale and retail trade and participate publicly in exhibitions, want to be in the dock because of an extra 50 grams of gold? Of course, nobody wants to. When anyone works using illegal or quasi-legal schemes, they are shady operators having nothing to do with the jewelry business. They are criminals.

Due to the proximity and integration of marketplaces in the IT industry, it is easier for the marketplaces to comply with the laws than for a small-scale company with a staff of IT specialists, lawyers, insurers, and other service personnel.

At the end of September, the next edition of Junwex Moscow will be held at the All-Russian Exhibition Center. Will you take part in the exhibition?

The fact that exhibitions are held indicates that the jewelry industry continues to live and develop despite all the challenges. I would like to express my gratitude to the Guild of Jewelers of Russia, which continues to develop the industry, and its efforts play a huge role and forms a common group of business-jewelry advocates, who defend jewelry industry’s interests, despite changes in the legislation.

I would also like to thank Valery Budny for establishing the Junwex exhibition, he has raised it to the highest level and still continues this challenging work.

I would also like to give credit to Artur Salyakayev for organizing an excellent training program for the jewelry market players.

Galina Semyonova, editor-in-chief of the Russian Bureau of Rough&Polished