dna Conversations: Gemstone studded jewellery: A Rs.350,000 crore industry in India, and growing

Barely 15 years ago, India was known only as the centre for cuting and polishing diamonds. It was known also for making gold jewellery, but mostly for traditional jewellery. Indian diamonds and gemstones then got embedded in gold as studded jewellery and got sold through retail stores overseas. India thus remained only a process house – the source of diamonds was controlled by others, as was the retail of branded jewellery.

But during the past 15 years, Indian jewellers have begun making quality gemstone studded jewellery. Suddenly, India has begun to become the bargain centre for such jewellery. Is this a flash-in-the-pan achievement, or is there a bigger, brighter future for Indian jewellery?

To discuss this dna colled togethwer a panel of experts comprising (in alphabetical order) Ishu Datwani - Partner, Anmol Jewellers; Sachin Jain - MD, Forvermark; Prasad Kapre - Director, Opulence Jewels; Shailesh Sangani - Director, Priority Jewels/Aspen; Pallavi Sharma - Platinum Guild International; and Rupak Sen - India Head, Gemfields

Given below are edited excerpts of the discussion moderated by dna's R.N.Bhaskar (with editorial support from Shraddha Shirodkar).

On the industry

Sharma: Platinum has been able to carve that niche with the younger audience, which is almost 60% of the population.

India is a young country and our TG [target group] is largely a younger audience, which buys platinum and is driven by design. It makes them feel different. It is something entirely individualistic. It’s about them and it’s about their relationships.

Platinum is a premium offering, which can be with diamonds, or without diamonds. It’s totally driven by design. I think over last year we had a 30% growth.

It’s 30 times rarer than gold.

According to the Director-General of Statistics the market absorbed apoproximately four tonnes during the financial year 2012-13. So the platinum market has been growing from where we’ve been, So, since 2000 when platinum accounted for sales of some 500 kg, we have come a long year.

Jain: India was a very gold dominated market. But, over the years, that has changed. We can see the pendulum shifting towards diamond and other rare stones quite dramatically. And what we now see coming true is – while consumers look at value investment, we are now also seeing expressions — expressions of love – which are becoming more meaningful. As a consumer, she wants to express her sentiments; she wants to wear the jewellery for 365 days than keeping in the locker for 360 days.

I think “useable” will be the defining characteristic.

What we also see happening is that a design is also now turning to a story. So the meaningfulness of a design category becomes important. Say, for example, as Forvermark we have the design line ‘Millemoi’.which tries to to capture the woman who stands for various aspects in her life. So she represents 'family'—she is a child, she is a mother, she is a lover and in the centre of it is the diamond.

Datwani: Basically we are a retailer. We do fine jewellery. We do have gold jewellery. We have diamond jewellery. We have platinum. We have Forevermark. We have gems, emeralds.

The last one year was a little bit of a challenge. But this year we see it reviving.

But the segment growing the fastest is studded jewellery. However, I think the geographical significance is important in this market. For example, in the south, gold does very, very well. For us, you know our outlet is in Bandra [a tony suburb iof Mumbai] we deal with the more upscale area and the more elite class of customers. So for us diamonds has always been the driver.

Sangani: Basically, I’m a jewellery manufacturer. And I also run a brand called Aspen. So from a manufacturer's point of view, we work all over India.

Business was not so good last year, because of governmental issues, excise duty related issues – some new rules were to be introduced – and the market had gone on a strike…

Kapre: Took away one month from us.

Sangani: And we were not able to catch up in the remaining eleven months, so that has slowed down the industry a little bit.

Kapre: And actually just to add there, losing one month business is actually losing your entire gross margins.

You typically make about 8 to 10% on gold jewellery. So when you lose one month of business, the whole profits for the year are gone.

Sangani: But the first quarter of this year – in fact from January to May – has been good. But again I think we are forecasting some problems. Anyway the marriage season has just got over, all across the country.

Sen: Well, I think we are the newest among all the people here. We are into mined and very old [gem]stones…

Gemfields has been in existence since 2008, so fairly new compared to our partners and De Beers or the Platinum Guild or the World Gold Council. We're miners for gemstones. And unfortunately for us most of the gemstones were found in areas which had conflict.

And as a result there was a dampener on marketing diamonds [lest diamonds from conflict areas would also benefit]. And it was only in 2008 that Gemfields got the whole thing organized in Zambia – listed itself on the London Stock Exchange – and started mining for emeralds from that country. And since 2009 we've come a long way. I think the prices of such stones have gone up by about 10 times in the last four years, which has translated into retail prices going up by about 150% in the last four years.

Thus, the market has been growing at about 100% year-on-year for us. Coloureds are coming back into fashion.

Yet, when we sell a piece of jewellery we're not selling a coloured stone, we're selling diamonds, we're selling platinum …

Kapre: This is a huge industry.

The domestic market for jewellery is close to $30 billion, it's anywhere between $30 billion and $35 billion. So that's about Rs.1,75,000 crore plus. Add to this exportswhich are close to $40 billion. That makes it a Rs.350,000 plus crore industry.

Secondly, over the last seven years – except for 2011, '12 and '13 when we experienced a bit of a slowdown – till about 2011 the industry has grown at a CAGR of around 18% that too on a large base of almost $60 billion. This is phenomenal.

Moreover, the entire jewellery market accounts for 300,000 retailers across the country - the largest number in the world, anywhere.

In 1995, the diamond jewellery domestic market was only $400 million – I cannot recall the exact figure then of the total gold jewellery market. The diamond jewellery market is worth around $7 billion in India. . So there's a phenomenal jump in just the last 15-20 years.

And, currently, it’s India and China driving the jewellery market globally.because consumers are definitely getting more affluent, they’re getting more educated.
And so it’s all about endowment, it’s all about indulgence. It’s definitely something which is not going to be kept in the lockers. Every woman wants to adorn herself with whatever she buys.

Sangani: The industry began to change in 1991.

There was the Gold Control Act in our country, which got abolished in 1991. So gold became free in the country. Otherwise only if you had a gold license could you do gold business. So, a new generation of jewellers came into the picture with new ideas, and bigger plans.

Datwani: I have a take on this. We run a first generation jewellery store.

We started in 1986 and of course, initially, we went through that same process where there was the difficulty of a gold licence, because we are not traditionally from a jeweller family. So we used to sell silver to begin with.

Subsequently when the Act was abolished, we started doing gold. And my jewellery can be quite different from what other family stores offer. Today, 80% of our sales being diamonds, and less than 20% is gold. From 75% gold – today its 20%.

In the past, purchase of gold jewellery was value-for-money. Today, the girl will tell her parents, “No, I want this because this is what is looking good, It might be more labour intensive [hence higher making charges], but it doesn't matter.” So the whole approach has changed.

Kapre: There has been a wealth effect; there has been a marketing effect. There has been a lifestyle effect.

And yet you have a polarized market. If you go to down south, what Shailesh said is absolutely true, 90- 95% of the market is only focused on gold. But go north, and you will have maybe 70% in diamonds and 30% in gold.

This also points to cultural differences – obviously. The north has more of a flash culture.

Sangani: You come to Bombay the emphasis is on quality and looks. But you go down south, the quality is even better. The design is not as important, but the quality is important. And the price ranges can be fantastic. So, you look at a standard small diamond, just to give you an example. So in the north that same thing could be sold at Rs.75,000 a carat. Carat is weight. Over here [in Mumbai] we would sell it at Rs.45,000-50,000 a carat and in the south it could be sold at Rs.20,000 a carat. So that’s the disparity.

Kapre: For gold, it’s much easier for a woman to justify its purchase at home; she can say she is investing. But for a diamond she has to justify its purchase a lot more and that’s where it gets tricky; it gets very difficult; because the justification for gold is that it’s an investment, so it’s for the entire family. Whereas when she buys diamonds it’s only for herself.

That’s the barrier which marketing has to address.

Challenges

Sangani: The finance ministry's restrictions on gold imports are going to create some problems eventually – maybe two, three months down the road. You will see some tight issues on that. So businesses will be in a kind of a limbo.

As of today, the government wishes that this industry does not exist in India because according to the Finance Ministry of India, the current CAD problem has occurred because India is importing so much of gold.

The answer should be to encourage exports.

This is happening because of several reasons.

First, India’s love for gold is not dying. It is ever increasing. Second, I think, somewhere in there is the declining confidence of Indians in the Indian currency and, therefore, people are not investing into anything else but gold. It is a hedge against inflation.

But the answer is not to stop gold. Currently, the government has banned loans on gold. In a business cycle you get gold on loan, which the government has stopped. You can now buy gold only against cash. The government is trying to squeeze supply. It could see a full stop to the trade.

Kapre: We are just one step away from Gold Control Act. The fact is that of the gold imported into the country, only 60% of that is going into the gem and jewellery industry. The remaining 40% goes into either ETFs or bullion holding.That should be discouraged. Not the industry; because jewellery is part of our culture, part of our nature. I mean, any girl who got married and has not received gold from her parents or in-laws, it’s not possible.

Jain: And employment as well.

Kapre: We employ more than 1 crore people.

Sangani: India’s position in the gold markets is tremendous because of the parallel economy. It is estimated that India has approximately 25,000 tonnes of gold somewhere or the other, if the total of every single household is taken in totality.

It is an estimate.

Suggestions

Sangani: There is a white paper just now with the government where we are saying that if the government can come up with a policy or scheme which allows you to declare your gold holdings, no questions asked, just put your gold with the government for three years, five years, pay a 10% tax on that and leave the gold with the government, you will get back an equal amount of gold after the stipulated period. Volume-to-volume five years down the road.

We have assured the government that if you are able to do this thing, we as an industry will tell you that you don't need to import gold, one ounce of gold, for the three years.

Prasad: We get a feeling that this industry is being targeted. For example, today, I have to give my PAN card if I buy worth Rs.5 lakh plus jewellery. But if I take the same Rs.5 lakh if I go and buy furniture, nobody is going to ask me for a PAN card. Now either you have this across the industry, or forget the rule.

Kapre: Systems and Processors, you know. That is a big barrier. We need skilled people as well. These are the two big barriers. Now if the government can come up with some institutes, on the lines of Paris-based Essec or other institutes in Singapore who want to set up office in India as well. We don’t have a luxury school in India at all.

And once we have a luxury school, once we have these people graduating from there, I’m sure people like Ishu would be more than happy to welcome them in stores, or in the entire industry.