The year 2012 is closing with a mixture of positive and negative notes for the Italian jewellery business. According to a study by Altagamma, the global luxury sector grew around 10% in the last 12 months. Despite positivity at the global scale, sales in Europe are barely in equilibrium, and mostly thanks to purchases made by tourists. The crisis struck the Italian luxury sector particularly hard, mainly as an effect of tight austerity regulations, which discouraged customers from buying expensive products.
In analysing this year’s trend we took in account the three markets that typically characterise Italian jewellery: the domestic market, the offshore market (non EU customers buying tax-free jewellery in Italy) and the foreign market. We completed the general statistics on jewellery with data and information coming from one of the most prominent Italian jewellers, Damiani, in order to offer a concrete example of the present situation.
Declining Domestic Market
The first component of the Italian jewellery trend is a declining domestic market. The decline of the Italian economy hit hard on luxury products and on high-end jewellery in particular. People in Italy have started buying jewellery products again after a consistent drop in 2009-2010, but a generally negative economic climate is causing them to purchase moderately. In hard times jewellery is also challenged by alternative and more discreet luxury offers, such as spa treatments and holiday resorts.
In its financial review, Damiani confirmed a negative trend for the domestic market (-13.9%), in particular due to a drop in wholesale retail. Stagnating economy and a recent decision by the Italian government to ban cash payments over €1,000 are thought to be the main factors responsible for this situation.
Jewellers are taking countermeasures by expanding their offer in terms of price and material. As an example, Damiani recently launched the silver and diamond jewellery collection “Damianissima 925” (typically 0.03 to 0.07 carats) and the ceramic, gold and diamonds “D.Icon”, which were positively received by customers.
Rise of Offshore Tourism
Recent studies have reported that offshore tourism is playing an important role in the European luxury market. Earlier this month, Rough & Polished asked Bain & Co analysts about this new trend and received confirmation that a significant portion of sales in Europe and America were driven by tourists, in particular from Russia and Asian countries. This is especially true for diamond and high-end jewellery. One of the most important criteria in luxury purchases is the guarantee of authenticity furnished for such goods, and many tourists still perceive this authenticity is easier to acquire in the traditional markets.
The Damiani financial review seemed to attest to this trend for the first semester of the 2012-2013 season: boutique and retail stores, which are mainly concentrated in touristic cities, present positive results, thus mitigating the overall negative trend for the domestic market. Director of Damiani Florence retail store Filippo Gosi confirmed us the importance of foreign customers for the Italian market. In particular Russian customers, thanks to the attention given to style and design by consolidated European markets, represent the most important segment in this field.
Foreign market crucial to sustain the economy
The third component is a large expansion of foreign markets in East Asia. Altagamma reported that luxury in Asia grew 17%, which prompted all the high-end jewellery brands to land on major Chinese cities, as well as on other emerging capitals in the area. Between 2011 and 2012 Italian jewellery export to China grew a stunning 28%.
Mr. Gosi confirmed that Damiani is consistently looking East with new flagship stores in Singapore and New Delhi. A new boutique has been opened in Chengdu, China, to flank the ones in Hong Kong, Macau and Ningbo. The company is also planning to expand deeper in Mainland China, even though this kind of landing should be carefully studied. In August, Damiani opened a trading office in Shanghai, which will be in charge of import and distribution in China. Mr. Gosi also confirmed that Russia is one of the strongest markets for the Damiani Brand, and that even though Japan is experiencing a decline in jewellery sales it remains crucial for the marketing of some collections, such as “Belle Epoque”.
Perspective for the coming year
The economic trends that characterised the year 2012 are unlikely to reverse in 2013. According to the Italian Central Bank’s forecasts, national economy will shrink 0.7% next year, after bottoming at -2.4% in 2012. The prolonged recession will probably determine further contraction of the domestic luxury market. This will not necessarily mean further drops in jewellery sales because the business is already adapting its offer to match the customers’ preferences in terms of style and price.
While jewellery export to Asian countries is still expected to grow at double-digit rates, it is likely to slow down after the big boom of the last few years. This means that, while there will still be plenty of investment opportunities in China, Italian jewellery brands will have to bring to perfection their penetration strategy in the area. Opening a boutique in the so-called tier-1 cities (Bejing, Shanghai and other major centres) is not enough to intercept the full potential of the Chinese market. In its last diamond report Bain & Co suggested that it is in smaller, but fast-developing tier-2 and, in particular, tier-3 cities, that the best selling opportunities will arise in the future.
“We are sailing our ship through perilous water,” told us a jeweller when asked what he expects from the coming year. “We know that there are dangers ahead, so we sail by sight and catch all the opportunities to lead the boat out of the storm”. There is no better way to sum up the current situation in Italian Jewellery.
Matteo Butera, Rough&Polished
