The lockdown may have partially dented the jewellery business, but it has not dented the confidence of those in the jewellery trade. On July 2, the price of gold (per 10 gm) breached the Rs 50,000 mark, virtually jumping 55 per cent since March 2019. If experts, traders and those directly involved in the business of gems and jewellery are to be believed, gold is still ruling the hearts and minds of investors/buyers.
In order to better understand the phenomenon of rising gold prices and the related optimism, let us rewind back a year ago. Fiscal year 2019-20 witnessed a high double-digit growth in the jewellery business, at least for the initial three quarters. The last quarter was a bit sluggish though and then came the lockdown. “In terms of sales for 2019-20, it was one of the best years in the past 10 years,” says Amarendran Vummidi, Managing Partner, Vummidi Bangaru Jewellers (VBJ), an iconic jewellery brand from Chennai.
Agrees Aditya Pethe, Director, Waman Hari Pethe (WHP) Jewellers, an iconic jewellery name from Mumbai with over 20 stores across Maharshtra, Goa and Madhya Pradesh: “In the last couple of years, there was a major shift in consumer’s interest. From focusing on heavy bridal jewellery to everyday light wear jewellery. The younger generation has been buying wearable pieces and not the heavy pieces for their lockers or for investment purposes,” says Pethe.
But what about the soaring prices? Snehal Choksey, Director, Shobha Shringar Jewellers says in the latter part of FY20 the price rise was quite steep which hit the jewellers, vendors by up to 12 percentage points. “Globally, the gold prices have gone quite high in the last one year which has impacted consumer sentiment to a great extent,” says Choksey from Shobha Shringar, a South Mumbai based four-storeyed jewelry boutique with clientele ranging from business tycoons to celebrities.
Vaibhav Saraf, Director of Gorakhpur-based Aisshpra Gems and Jewels, a third-generation jeweller terms 2019-20 as ‘a very good year’. “Sales were up nearly 15 per cent in volume terms on a year-on-year basis. The sudden spurt in gold prices increased the consumer confidence which further fuelled the sales,” he argues.
Lockdown Impact?
With the pandemic-induced lockdown, the import of gold fell drastically. Those in the business say only around one per cent bullion was actually imported during the initial days of lockdown while retail business came to a grinding halt. “In March, we worked till 23rd and it was looking like one of the best months of the year 2019-20 but unfortunately we had to close. For April and May, it is a complete washout and there is no reason why we should even do a comparison with the previous year,” says Vummidi of VBJ.
Saraf from Aisshpra is more candid. “On a month-on-month basis for March 2020 we lost around 8 per cent of our sales. In May, only half the stores were opened, however, sales were down to 20 per cent for May 2020 over May 2019,” he adds.
Choksey of Shobha Shringar Jewellers terms the lockdown as ‘quite a challenging period for the business’. “We started integrating digital to connect with our consumers. ‘Shop at Home’ service via virtual tour of the jewellery on video call is one such solution,” he says. Saraf says, “At Aisshpra we enrolled most of our employees for ‘virtual training classes’ focusing on personal growth and selling skills.”
Retailer-Manufacturer Relations?
Has the pandemic impacted the relationship between retailers and those involved in the manufacturing of jewellery? Vummidi of VBJ says it may be difficult to predict this relationship. “It will become stronger because most manufacturers depend on the retailers and they depend on our clients. These are unusual times and ‘we need to take care of each other’,” he adds.
Agrees Pethe: “It is a very old relationship. I don’t think an unexpected situation like the pandemic will affect business relations. Of course, demand is low and the manufacturers have not been producing jewellery, hence the payments and supply chain cycle has been affected. But post-lockdown, things will start getting adjusted gradually.”
Choksey says like retail, B2B business will also see integration of technology in the order placement and selection process. “We have supported at least 30 per cent of the rural artisans and retained them in the city by providing them financial aid,” says Choksey. “By the time the demand increases, rest of the karigars will be back to work,” he hopes.
Saraf from Aisshpra Gems and Jewellery says that the relationship between the retailers and manufacturers used to be a very hands-on with either of the parties visiting another for physical selection of goods. “Post-pandemic all this is going to change and become digitized,” says Saraf.
Has the reverse migration of labour impacted the business? “Yes, the work force from other states will take some time to return and this will affect the business,” says Vummidi. Agrees Saraf of Aisshpra. “Artisans and labourers going back has posed a major challenge as the production cycles have been broken.” So what is the solution? Creating a safe environment at the production units and artisan housing complex will certainly give confidence to the work force, jewellers say. Pethe of WHP Jewellers is confident. “We are positive that when the demand picks up, our artisans will be back,” he adds.
Soaring Prices
The constant change in gold prices leave the consumer in doubt, say Jewellers. But once the price stabilises, consumers automatically start shifting their investment to gold, says Pethe, a seasoned jeweler. But why is that? It is the fear of missing out on better returns, perhaps, he adds. “Lockdown has once again proven Gold as a safe haven for investors as it was the only asset performing in positive,” says Pethe.
Agrees Choksey: “By now the customers have realised that the rapidly rising price of gold is actually positive. It is going to be working in their favour and they won’t be shying away from buying the commodity as they would not want to be left out considering the rising prices. Increase in gold prices tends to give more confidence to customers to acquire that commodity,” says Choksey.
But at the same time, with a large number of job losses/salary cuts across industries, people have been left with limited disposable income. “Even if gold is giving higher returns compared to other investment options (equity, mutual funds), there is going to be a resistance that will be seen until the job market starts recovering,” adds Pethe.
But the picture is not all that rosy just because gold prices have been in an upswing. “The biggest downside of rising gold prices is the reduced sales in term of weight,” says Saraf. Which means that with limited funds and rising prices, customers will end up buying lesser gold. But they would invest in gold in anticipation of better returns on a future date. “Only need-based purchasing is happening now. But we are promoting jewellery as a safe investment instrument and trying to pull sales based on that,” adds Saraf of Aisshpra Gems & Jewels.
Vummidi of VBJ has a different take on reducing weight of gold due to rising prices. “Agreed that people’s purchasing power has gone down so the overall purchasing capacity will go down. But most of the other expenses like travel, entertainment and eating out have virtually stopped. So, there is some amount of saving with the people. I think this saving will probably come to the gold sector as it is seen as a better investment alternative,” says Vummidi.
What about the recovery? By when can the business expect to recover? “The recovery from pandemic is going to decide how the rest of the year is going to be so we are in a wait-n-watch mode,” says Pethe of WHP Jewellers.
Vummidi is confident that in the next six-months or so the gems and jewellery business will recover. Till then he has some practical suggestions for those in the business. “In terms of design offering, we should be working to make the jewellery lighter. We should work to give the customers more options -- like one necklace can be made into three necklaces; a pendant can be transformed into a ring or a ring can be made into a bangle. I think we need to look at these measures so that the client gets more value for whatever they are buying,” he says.
Choksey expects the recovery process to begin by October-November. But he wants the government to support the recovery process. “The gems and jewellery industry is around 7 per cent of GDP. We expect the government’s support in expediting the process of this revival. In the longer run, it would certainly benefit the economy,” he says. We hope so too, fingers crossed.
This article was first published in the print issue of (25 June- 09 July) BW Businessworld. Click Here to Subscribe to BW Businessworld magazine.