In recent years, the Russian jewelry market is marking vigorous development of specialized sales networks, which in future will encourage the jewelry retail market turnover. According to the RBC survey “Retail Jewelry Networks”, the quintuple of leaders is composed of Yuvelirnaya Set 585, Yashma Zoloto, Almaz Holding, Adamas and MJP. The most widespread business model is to create a jewelry network “from the manufacturer” on the basis of a separate enterprise or production holding.
Manufacturers having their own retail outlets are not only able to shorten the shipment – payback period but also to increase their margin. One’s own retail framework is also facilitating faster turnarounds. According to the RBC estimates, more than 70% of such networks are being established at the expense of one’s own production.
The survey says that currently the share held by the eight largest retail companies amounts to about 12% of the total jewelry market turnover. In future, this situation will change and market consolidation will result in shifting competition to the level of major market players.
According to the RBC estimate, in midterm the share of the largest jewelry retailers will account for 20-22% of the aggregate jewelry sales turnover.
The 585 sales network was the major newsmaker in the past month. It was reported that it planned to increase the number of its stores in the Nizhni Novgorod Region six times, bringing it to 30 outlets. Investments into its development will amount to $5 million. Experts note that the democratic price segment where the 585 network is operating is the most sizeable in the local jewelry market, but the jewelry network is unlikely to find the declared number of facilities in places with guaranteed demand.
George Pobelyanski, CEO of the 585 network, told to the “Kommersant-Nizhni Novgorod” that after opening 30 stores in the Nizhni Novgorod Region by the end of 2010, his company was going to take over not less than 15% of the local jewelry market (as of now the 585 share by their own estimate is not exceeding 3%). Investments into launching new sales outlets will amount to about $5 million without stock in trade. According to Mr. Pobelyanski, the company has already started seeking trading facilities and considers both offers to rent and buy.
According to Vladimir Teslenko, Press Secretary of the Russian Jewelers’ Guild, rising prices for gold and gold products are facilitating the development of the Russian jewelry market: in recent years, the market is growing 25-30% annually in terms of money. According to this expert’s estimate, in 2007 the jewelry retail sales amounted to $4 billion, while the Nizhni Novgorod market volume reached $100 million. Mr. Teslenko says that the democratic price segment where the 585 network is operating is the most sizeable in the Nizhni Novgorod market. Denis Gorev, an analyst of the Finam Investment Company, confirms that the economy segment occupies up to 80% of the local market and is growing faster than the premium segment (not more than 4% of the market).
On this background, experts are sceptical about the large-scale projects devised by the 585 network. “Evidently, the 585 network will implement its business plan stage-by-stage and corrections will not be excluded,” Mr. Teslenko assumes. Denis Gorev believes that having 30 stores and taking into account the predicted market growth rates the network may reach a turnover equal to 15% of the market, but only in case their competitors will be idle. At the same time, Mr. Gorev assumed that the declared investment amount would be sufficient to launch not more than 25 boutiques of 150-200 square meters each: “If the project will stall, which may occur to the scarcity of appropriate facilities and the long period needed to build new, the amount may prove insufficient.” Dmitri Volodin, a businessman from Nizhni Novgorod, owning several jewelry stores in the province, is not sure the company may find the declared number of facilities in places with guaranteed demand. He believes that the 585 company owners are building up their presence in Russian provinces gearing their network for sale.
“We are too-aggressively-active” – this was the tongue twister fired off by Alexander Tarasov, heading the promotion group of Yuvelirnaya Set 585, upon meeting the correspondent of the “Sekret Firmy” monthly. According to him, every company vendor is obliged to meet customers with a “sound track” announcing current actions at the store and doing it by heart.
Two and a half years ago, when the company had 22 outlets in Saint Petersburg, marketers were sceptical about it. Now the 585 company is leading by the number of opened stores having more than 400 of them. By the end of 2009, it plans to bring their number to 1000 and starting from the last May, as Mr. Tarasov assures, it is moving at a pace of 30 sales outlets a month.
The 585 jewelry network is the only one in this country not backed by a manufacturer. In 2007, Adamas, being the largest producing company, launched more than 100 stores. The Moscow Jewelry Plant (MJP) is going to expand its sales network to 250 outlets. Choron Diamond, an Indian jewelry company, intends to complete its own network consisting of 40 stores by 2010 bringing its investments into the project to $65 million. Taking into account that on the average one newly opened store costs from $500,000 to $1 million, the $1.6 million per one outlet declared by the Indians look like a very decent budget.
In the U.S. market ($60 billion) the share of sales through networks is equal to mere 10%, the monthly says. In Great Britain, where the retail sales amount to about $7 billion, the five largest networks managed to nip off no more than 15%. However, if in the West the majority of singly operating stores belong to private jewelers in their fifth generation, in Russia private entrepreneurs are only engaged in teaching business. According to Valeri Budnyi, General Manager of the Restek Junwex industrial media holding, large-scale players are already discussing a possibility to lobby a restriction making the area of a jewelry boutique equal to no less than 20-30 square meters. If it will come into force, small jewelry sections will have to be closed.
Besides single stores, there are many small-size networks emerging in provinces, but their positions, says Olga Mironova, General Manager of the Rosyuvelirexpert Russian Information Agency, are not very stable. Some of them though are looking for their own niches and they manage to find them. Thus, jewelry group Roskosh in Primorje owning nine stores has decided to make them specialized: one is selling wedding rings only, while the other is offering men’s jewelry and the third one is vending items of natural stones, etc.
Until now, large-scale players similar to Yashma Zoloto were buying only small stores, while there were no conspicuous mergers or acquisitions in the retail jewelry market. The “Sekret Firmy” found out that recently the Fianit Network of Chelyabinsk wished to be sold out to Adamas and the latter was now evaluating this regional player.
The role of an aggressive icebreaker in the jewelry market was assumed by the 585 network, which borrowed promotion methods from retailers of other industries. “Now we are running a “Two things for the price of one” action.” There has been no such a thing in the history of jewelry retail sales! This is borrowed from quite another market – from the garments market. But if the trick is working we cannot reject it,” Alexander Tarasov explains. The network development standards and general ideology were cribbed from the Pyaterochka Network; open positioning of “low prices” (“We are breaking the prices down!” or “Get back 150% for gold”), differentiated discounts and change of advertising campaigns once in a month or a month and a half – from Auchan and Eldorado; territorial takeover strategy for provinces and dislocation of stores near the metro stations – from Euroset.
“The fifth point from Eugene Chichvarkin,” Mr. Tarasov cites by memory some of the concepts used for launching stores and formulated by the head of Euroset, “boils down to involvement of customers into a game where they are major players.”
However, the first company, which started to involve its customers not only into the game, but also into local commodity-money relations, was Altyn – a small but boisterously progressing network consisting of eight enlarged discount stores (200-250 square meters) owned by the namesake factory in Kirghizia. As far as two years ago, Altyn hired a team of promoters, who pursuant to the ways of the “Eastern bazaar” were bringing customers to the counters literally by hand. “The Asian format of selling jewelry was a great discovery,” Mr. Tarasov recalls. “Having tried it out at our outlets, we were convinced it was working.”
Traditional players are hardly able to conceal the annoyance caused by the promotion onslaught from Altyn and 585. “Their inventiveness does not go beyond a 50% discount,” smiles Pavel Sidorenko, Marketing Director of Adamas. “While doing this, the mark-up of their initial price is raised by the value of this discount.” Tarasov is insisting: “All the players, except Altyn and us, have their own stereotypes in jewelry sales. Everything is done the same old way, the emphasis being put on jewelry and nothing else. However, the customer needs a surprise.”
Nevertheless, according to experts, there is no tough competition between the jewelry networks so far - the parties are too enrapt in their own growth. But the territorial takeover of the market will be ended in two or three years. Then the eyes of “gold” retailers may acquire baleful sparkles.
On the eve of March 8, the “Komsomolskaya Pravda” asked its readers, which of the enumerated sales networks (Kristall Mechty, Adamas, Altyn, Yashma Zoloto and Yuvelirnaya Set 585) they would recommend to their friends and acquaintances as an ideal place to buy jewelry.
Yuvelirnaya Set 585 and Yashma Zoloto occupied the last places in the readers’ rating, the “Komsomolskaya Pravda” said. However, this was because these networks lagged behind their competitors by the number of stores they had (the paper was mistaken about the 585 network).
The opinions were dramatically different about the jewelry sold by Altyn. Some were berating its low quality saying that they would not take gifts from Altyn even if they were offered free. Others, on the contrary, were praising “wonderful service and offered opportunities to choose jewelry suitable for any taste and pocket.”
Adamas was a surprise. The surprise was that there had been not a single comment addressed to this company by the wrap-up time. Nevertheless, this jewelry network confidently won the second place. According to the “Komsomolskaya Pravda”, Kristall Mechty was declared the absolute leader.
