Jewellery industry trends

According to the World Gold Council, in the second quarter of the current year the demand for gold in the jewellery industry hit its record high. It grew by 37% compared with the same period last year and reached $14.5 billion. The identified demand was 922 tons or $19.8 billion, rising by 19% in terms of quantity and by 27% in terms of value against the previous year.
As compared with 2006, the demand in the investment segment grew by 51% up to 132.9 tons and it went up by 60% to $2.9 billion in terms of money. There was a slight rise in the industrial demand (by 2% up to 116.5 tons; in terms of money it increased by 9% reaching $2.5 billion).
The total demand for gold in the Middle East (including Saudi Arabia, the UAE, Kuwait, Bahrain, Oman, Qatar and Egypt) surged by 20% up to 97.5 tons. The regional demand for gold in the jewellery industry grew by 21%.
The demand for gold in India was equal to one half of the total world output for this period – 317.2 tons. The demand for gold in China levelled at 75.9 tons, which means a 32% growth as compared with the last year.
In physical terms the demand for gold in the USA dropped by 4% (down to 52 tons), but in terms of money it grew by 2%. Besides the Indian market, the participants and experts of the gold industry forecast a great future for the Chinese market. This country has already joined the team of gold mining leaders and in the coming years it is expected to become not only one of the leading jewellery consumption markets but also a major jewellery manufacturer.
The flow of information coming from China in August – September was conspicuously smaller than that from India but it may be suggested that this situation will change in the nearest months. Recently there was a trade fair in Hon-Kong. And among the coming events is the conference in Shanghai dedicated to the diamond industry.
For the first time, an exhibition of jewellery and watches will take place in Macao (Aomin) on January 10-13, 2008. The organizers are having in their view to turn Macao into an “Asian Las-Vegas” for jewellers. For this moment, over 300 exhibitors acknowledged their participation in the forthcoming event.
The trade fair in Macao, which, along with Hon-Kong, is a special administration province of the People's Republic of China (“one country – two systems”) is going to attract exhibitors and visitors by mild climate, which will please people coming from Europe. It may be assumed that having chosen January for this exhibition its organizers will be able to lure a significant number of participants since major events in the jewellery industry take place in another period of the year.
In the end of August, Eurostar, which is a DTC sightholder, announced its new strategy aimed at further consolidation of its positions in the retail network of China and its intention to render assistance to jewellery companies of this country in their development.
An Antwerp based company invested $30 million to develop its representation office in China to improve its marketing and operating activities and to help local retailers in creating their own jewellery brands.
Cho You, Eurostar’s Marketing Manager, says his company will start a “Diamond Wedding Anniversary Ring” marketing campaign in September at the Shenzhen Jewellery Exhibition. Eurostar allocated $300 000 for this purpose and $100 000 came from DTC. The aim of this campaign is to facilitate sales of diamond rings for special occasions and for wedding anniversaries.
Within the frames of cooperation with an unnamed Italian jewellery manufacturer, the company is going to make jewellery in China, told You.
Last year the company already invested $4 million to set up ten TESIRO brand jewellery stores in China and a flagship store in Shanghai.
Eurostar says that by 2015 China will catch up with Japan as far as the retail diamond sales are concerned and that the Chinese will soon start spending more than 25 billion yuans (approximately $3.3 billion) per year for jewellery.
Singapore, China’s neighbor in the South-East Asia, is also laying great hopes on the jewellery industry.
The Singapore International Jewellery Show with participation of exhibitors from 27 countries took place on August 23-26.
It is expected that in the coming years jewellery will become a most fast growing retail market segment in Singapore.
At present, jewellery industry wares in the Singapore retail trade account for 7% or about 1.5 billion Singapore dollars. Trying to obtain greater income from foreign trade, Singapore jewellers realized that it was necessary to concentrate on design and branding. To leave their cash registers no chance for respite, jewellery companies have to spend time and money for innovations as well.
“The local jewellery business started to pay more attention towards design. Of course, this year it influenced the trade turnover in a favorable way”, said Van Shun Min, President of the Singapore Jewellers’ Association.
Jewellery articles became one of the most favored goods for tourists and 13% of their spendings fall just on this sector.
According to a recent study, Australian buyers are concerned with certification of diamonds and their price. The study was performed by the Diamond Certification Laboratory of Australia which found out that about 70% of consumers do not trust jewellers they are dealing with and think they are charging too much.
This alarming statistics capped the recent studies proving that false certificates issued by unauthorized laboratories were used to raise prices for stones.
One case turned out to be the most scandalous when some buyer paid $20 000 in excess for his diamond due to the wrong evaluation of the stone based on such a “laboratory certificate”.
The Diamond Certification Laboratory reckons that in this situation retail sellers are the last to blame and that it is the laboratories, which perform such stone certification, are to bear major responsibility. According to DCLA, though this practice is spread around the world it is becoming quite unbridled in Australia probably because until recently there was a diamond exchange, which was able to regulate the local industry.
The jewellery industry mass media inform that cheap labour in India and China has actually left Israeli Ramat Gan out of business. Now there are only a few workshops polishing medium-size and large-size stones. In the result, Israel ran into an unexpected problem: the best gem-cutters in this country are getting ever older.
It is noted that upon visiting Israeli diamond cutting workshops after an interval of several years one may see there the same people whose average age is growing and meanwhile there are actually no young people working at their side. “Training new personnel is one of the challenges of our time”, says Udi Sheintal, the new Managing Director of the Israel Diamond Manufacturing Association (IsDMA).
According to Sheintal, to withstand competition in the global diamond industry the Israeli participants of this industry should exert more active efforts and to invest into education and professional training of new personnel.
Last month as compared with the previous one, the flow of financial reporting was conspicuously smaller. Large retail selling networks, which used to publish their financial reports more often than others did not highlight diamond trade indicators in their reports, while the majority of jewellery companies published their reports on the first six months or the second quarter of the year a bit earlier.
As promised, Tiffany & Co. did it on August 30.
The company’s sales in the second quarter of the financial year grew by 19% and reached $662.56 million. According to the company, this growth is the result of good diamond jewellery sales.
The company’s net profit decreased by 10% down to $63.21 million mainly due deduction of $23.58 million from its profit after taxes in connection with the ongoing sale of its business in the Small Switzerland Company.
Michael Kowalski, President of Tiffany & Co., told that these figures exceeded his company’s expectations.
There were some problems related to the company’s sale of its store buildings in Tokyo and London.
Tiffany bought this real estate in Tokyo’s posh district of Ginza in 2003 for $140 million. According to informed sources, Goldman Sachs is buying Tiffany’s buildings for $318 million. It is expected that after the deal is done this US investment bank will lease Tiffany’s buildings.
In the nearest future, the similar pattern may be followed in London where the company intends to sell the building of its flagship store in Britain. According to Bloomberg, James Fernandez, Chief Financial Officer of Tiffany, addressing the participants of the Goldman Sachs Group Inc. Conference in New York declared, “It is reasonable to expect that this is happening some time soon.”
Simultaneously the company announced opening of its fourth Italian store in the prestigious commercial district of Bologna in November 2007 and a new boutique in the plush Westfield Topanga shopping mall of the Kanoga Park (California, USA) in April 2008, which will become the fourth sales outlet of Tiffany in Kanoga Park in Greater Los Angeles.
James Fernandez, commenting these events told that the only asset, which could not be sold, was his company’s store building in New York. According to Michael Kowalski, all, which was going on, was one of the measures “to revamp the investments portfolio”.
Besides, it should be kept in mind that earlier Kowalski mentioned increased dividend payments as one of the priorities of his company. According to analysts, the sale of stores in Japan and London will help the company to move along this way. Tiffany plans to pay out quarterly dividends on October 10.
What else may be expected from this US company in the nearest future? Michael Kowalski told that Iridesse, its division dealing in pearl decorations, which had opened three new stores during this year, did not plan to expand its network until 2008 but planned to launch a range of new collections in the nearest six months.
Special attention will be paid to wholesale watch trading.
Having achieved success in selling expensive jewellery in recent years, the company intends to get greater gains from wares belonging to other price categories. In this connection, they give more consideration to design of silver items produced by Tiffany and to their “aggressive” promotion.
Swatch may be singled out from other large-scale companies and well-known brands. The Swatch Group trade turnover in the first six months grew by 17% reaching $2.3 billion; its profit rose by 39% up to $382 million. The trade turnover of the company division selling watches and jewellery went up by 20% due to sales of Omega and Breguet top-class watches in China and Russia.
Abazias.com, an Internet store selling diamonds and jewellery articles, disclosed that its revenue in the second quarter of this year as compared with the same period of the year past grew by 58% from $1.1 million to $1.7 million. The gross margin of this company was 21%, which is by 61% more than in the last year.
Oscar Rodriguez, General Director of the company, believes that this success was the result of the company’s web site innovation technology, the top-class service rendered to clients and the broad range of products.
Canadian Aber Diamond Corp., which owns the Harry Winston retail jewellery network, informed about a profit drop in the second quarter of the financial year by 41% and told this was because the strong Canadian dollar cancelled out the gain from increased sales turnover.
The net profit for the quarter ending on July 31 dropped down to $20.1 million (as compared with $34.3 million one year ago), declared the company registered in Toronto. The sales turnover rose by 24% and reached $173.3 million.
Aber believes that the growing demand in retail trade in Asia will help to compensate the high costs provoked by the strengthened Canadian currency, which during the quarter grew by 4.5% in relation to the US dollar.
During the second quarter, the corporation opened 15 new Harry Winston brand stores in Peking and in the third quarter it will open new selling outlets in Hon-Kong and in the Japanese city of Nago.
“In the second quarter the prices for rough diamonds were significantly growing due to the continued disagreement between demand and supply”, noted Aber. “The prices for diamonds rose due to the increased consumer demand actually in all global markets, particularly in Asia.”
The sales turnover of Harry Winston went up from $48.4 million to $68.2 million.
Finally, it is worth mentioning the scheduled opening of the first two jewellery stores of De Beers in Moscow.
As reported by the polishedprices.com web portal, some people in Moscow questioned the De Beers’ choice of its Russian partner. The site refers to commentaries published in the Moscow mass media, which noted that Jamilco, the partner of De Beers, had insufficient experience and expertise to work in the top-end jewellery market.
Guy Leymarie, Chief Executive Officer of De Beers Diamond, said that the first De Beers store will open on October 31 in the building of GUM Trading House and the second will be opened on December 1 in the Stoleshnikov Lane.
Two years ago, De Beers attempted a marketing research for the Russian diamond jewellery market and reviewed bids from several companies engaged in market research business. However, at that time it refused to perform such a study. Leymarie expressed his confidence that there is a potential for demand growth in Russia as far as the expensive jewellery is concerned; at the same time he noted that for the moment it was not yet decided where and how many stores would be opened. He said that development of De Beers brand in Russia had been assigned to Jamilco taking into account its record in introducing top class brands to the market.
According to Leymarie, Jamilco has already secured support from LVMH, one of the joint owners of De Beers Diamond Jewellers. He also added that the procedure of selecting a partner was similar to those practiced in other countries: “If we choose this partner, it means that we are confident it is a reliable partner.”
Rough&Polished