Falling demand takes sheen off gold

It’s festive season, but 34-year-old Smriti Aggarwal is not content. An independent business consultant in Chennai, Smriti promised to treat herself with a ruby-studded gold necklace for Diwali, but the steep price of the yellow metal crashed her dreams.

“This is the second year in a row. Last year, I had set aside `1 lakh to buy gold but dropped the idea due to high prices and with the hope that prices will fall off-season. But they didn’t. This year too, it’s way beyond my means,” says Smriti, adding that she now prefers diamonds.

Like Smriti, consumers are either deferring purchases or turning away from gold. Jewellery sales account for over 70 per cent of the total gold demand in India and the falling consumer appetite seems to be taking the sheen off the metal regardless of the auspicious season.

According to Bombay Bullion Association, a body representing bullion traders, manufacturers and retailers, gold imports in 2012 are expected to drop nearly 25 per cent over last year. Poor liquidity, high inflation, fluctuating dollar, weak rupee and a hike in customs duty imposed in April are dragging sales.

As a result, gold demand dipped by more than a third to 383.2 metric tonnes in the first half of 2012. For the full year, gold imports are estimated to be between 650 tonnes and 700 tonnes, down from 933.4 tonnes in 2011. Incidentally, imports fell by 7 per cent in 2011 from an all-time high of 1,006.3 tonnes in 2010, reveals World Gold Council.  “Sales are a bit subdued but demand and consumption will increase now. We anticipate sales will touch a peak this festive season,” says Sandeep Kulhalli, Vice-President, Retail and Marketing, Tanishq.

Jewellers take comfort in the fact that gold continues to be one of the safest investments and despite soaring prices, sales won’t be adversely affected during festive season. “This investment-led demand is driving growth. People are still buying gold as it’s the only liquid asset. Other assets such as land are not easy to dispose of when in need,” reasons TS Kalyanaraman, CMD, Kalyan Jewellers.

Apart from the safe-investment appeal, retailers are doing their bit to attract reluctant buyers. From ensuring minimum use of gold to keep it affordable to discounts on making charges and wastage, free gold and silver coins, lucky draws and more.

For instance, Tanishq announced 20 per cent discount on making charges of select 22k gold jewellery and up to 20 per cent on diamond jewellery above `2 lakh. Similarly, Kirtilal, another premier jeweller, announced a host of offers besides giving away diamond-studded necklaces and cash prizes.

Jewellers are also ringing in the festive spirit with new collections.

“Our strength has been trust, transparency and attractive designs that attract our customers. Our new collection offers adorable designs and a complete brand experience adding to customer delight,” says Shrikant Zaveri, CMD, Tribhovandas Bhimji Zaveri Ltd (TBZ).

Suraj Shantakumar, director, Kirtilal, adds that during the festive season, the retailers will add more merchandise in diamond and gold jewellery collection, which will have timeless variety of bangles, necklace, pendants, earrings and rings ranging in contemporary lightweight collections, traditional patterns and latest designs. Tanishq, which enjoys about 5-10 per cent market share, also launched ‘Mia Collections’ of diamonds priced `5,000 to `1 lakh, for urban women. Growing inclination towards large diamonds also made Tanishq launch a range of solitaries starting at `75,000.

While designing products, jewellers are parallely discovering new locations to sell. Market research firm Crisil says, tier-II and III cities are emerging as the new growth drivers. Jewellers are expected to expand over the medium-term with two or every three new stores coming up in smaller towns. Revenues from these towns are also expected to contribute about 55 per cent in 2013-14, up from about 45 per cent in 2010-11.

“Smaller showrooms and lower rentals will help retailers save around 25 per cent on operating costs. The favourable demand and cost structures in the smaller towns will help them attain early break-even and maintain profitability,” explains Subodh Rai, Senior Director, Bank Loan Ratings, Crisil.

Then there are leading branded jewellery retailers like Gitanjali Group who partnered with online fashion and lifestyle retailer Myntra.com to capture online shoppers. Over 500 products from nine leading diamond jewellery brands of Gitanjali—Asmi, D’damas, Diya, G Divas, Gili, Nakshatra, Parineeta, Sangini and World of Solitaire—will be up for sale on Myntra. Gitanjali is targeting sales of up to `150 crore through this partnership by 2016.

Mehul Choksi, CMD, Gitanjali, says, “We have always strived to increase the accessibility of our products and develop new channels for reaching the consumer. We have taken many e-commerce initiatives over the last few years, with our own websites and e-marketplaces.”

Online jewellery retail in India is currently at $70-80 million, which is less than half a per cent of $30 billion global jewellery retail market. But is expected to cross $1 billion in five years. Gitanjali aims to capture 15 per cent of this online market pie.

In what could be termed an evolving concept, Kirtilal is creating a virtual imagery of a product based on customer’s designs. “Customers can give their designs and with the help of the virtual imagery, they will have an idea on how it looks on them. This is a first of its kind in the market,” explains J Muruganandan, Store Operations Manager, Kirtilal Jewellers.