During the last months, the situation on the Russian jewelry market underwent an essential change. Jewelry stores registered a sales peak last September-October. At that time, jewelry companies posted results reflecting fantastic growth. Citibank analysts, who in their recent survey also documented a wonton rise in Russian consumers’ spending on jewelry, interpreted it as an attempt to protect their savings. November 2008 gave a start to recession with thinner foot traffic to jewelry stores, while in December there was almost a chorus of jewelry industrialists warning about early signs of crisis. On the whole, the December and January press reversed its attitude and evaluations.
The world jewelry market was heavily hit by the economic crisis, the Rossiiskaya Business-Gazeta says. At first, there was nothing uncommon in the slow-response diamond jewelry production: in the first six months of 2008 it was at the same level as one year ago. However, starting with last September when the Western financial markets’ ill-being turned too conspicuous bringing down price quotes on the Russian stock trading floors, Russian jewelry retail commenced its smooth descent. In September-October 2008 retail sales in all jewelry categories across Russia went down 5% in money terms. According to the Russian Assay Chamber, during 11 months of 2008 the number of Russian-made assayed gold jewelry decreased 3.1% and that of imported gold jewelry by 0.8%. Silver displayed an opposite trend. The number of silver jewelry pieces brought by Russian manufacturers to the state assay inspectorate grew 31.7% in the course of 11 months 2008.
However, the overall situation across the country looked differently. Moscow was the first to get the feel of crisis: the city harbors quite a lot of service businesses (insurance companies, banks, advertising agencies, etc.) and medium-level managers who used to be major buyers of diamond jewelry were not bling-tempted any more struggling to keep their jobs and salaries.
On the other hand, for those who were smart enough in their business, according to the weekly, the situation was not that critical since demand was getting flat gradually in the course of six months and there was enough time to adapt to the environment. Those who were acting headlong running too high a risk are now facing a hard time. Nevertheless, everyone has to adapt to new conditions. There is no talk about any project to expand one’s business, the weekly says. The projects already launched are being brought to their completion if they are 50% fulfilled. At the same time, serious inflationary expectations of the Russian population affect trade, while accumulated jewelry stocks permit to trade without new wholesale purchases.
Major diamond manufacturers turned to be in the most complicated situation for their backlog of business got perceptibly leaner and some of the factories are even contemplating a part-time working week. They were mainly hit by tolling which flourished here in recent years. According to the Guild of Jewelers, in 2007 out of 120 tons of jewelry hallmarked by the Assay Chamber the items made from Russian gold abroad accounted for about 35-40 tons. Under this scheme the 20-percent customs duty was levied not on the cost of imported goods, but on the cost of labor only. Turkey, Italy and Hong Kong were the major partners of Russian jewelers in processing their gold.
Tolling was weighing hard on small semi-homespun workshops. The number of jewelry manufacturers in the first six months of 2008 decreased from 1464 to1283, or by 12%. The number includes both manufacturing and repair firms having legal licenses and special seals, or brand marks. Simultaneously, the number of individual jewelers slumped from 3479 to 3164.
Last November, the government issued a decree forbidding tolling in precious metals. Although the decree will come into effect 90 days after its official publication it is anticipated by jewelry factories as a promising act. “The Russian jewelry industry does not plan any decrease in production. This is also due to cancelled tolling, because companies now will place their orders inside Russia,” Valery Radashevich, General Manager of the Jewelers’ Guild of Russia believes.
What is the outlook for 2009? According to the weekly, it is predicted a further 5-to-15-percent drop in sales, down to about $4.5 billion. The diamond group will be affected most of all: it is expected to gradually crimple by 15-20%. There will be a probable graphic plateau in the “no-gems” gold jewelry with a + 5-percent corridor. Silver jewelry may even boost by about 30%.
Jewelry companies operating in the North-West of this country (as is known Saint Petersburg is the second-largest jewelry market after Moscow in Russia) are also giving rather tough evaluations and outlooks, sometimes even bleaker than those provided by their Moscow counterparts.
Jewelry trade is frozen, the RosYuvelirExpert news agency reports. Jewelry networks are reluctant to buy goods being aware of meager demand. The Delovoy Peterburg daily says that according to Andrey Ananov, President of ZAO Russkoye Yuvelirnoye Iskusstvo, large jewelry network sales slumped two times by the end of 2008 compared with one year ago.
Industry experts believe, the Yuvelirnaya Rossiya daily says, that networks will continue to melt down. In the first place, this will hold true for stores offering an expensive product range and luxury items. According to Sergey Dokuchayev, CEO of OAO Russkiye Samotsvety, jewelry networks are ready to put up with lower profit margin (it is usually 5-12%) not to lose their turnover rate. Dokuchayev estimates the Saint Petersburg retail market at 10-30 billion roubles. The Russian market, according to RosYuvelirExpert, is worth 250 billion roubles. Andrey Ananov expects that growth will start only in the autumn of 2009.
