Jewellery chains in expansion drive

At a time when gold demand in India is estimated to decline to 650-700 tonnes in 2016 thanks to measures adopted by the government to discourage sales of the metal, organised jewellers are, in fact, busy ramping up their presence across the country, and even abroad. This is because the industry expects demonetisation to drive jewellery demand towards the organised sector. 

Sample this: Malabar Gold and Diamonds, which ranks fifth in India in terms of a number of retails stores, is pumping in Rs 620 crore to open 24 new stores in the next three months. Of this, around Rs 220 crore would be spent in India for opening seven outlets, while the remaining would be spent in opening nine outlets in the UAE, five in Saudi Arabia, two in Bahrain and one in Kuwait. Post expansion, Malabar Gold would have 82 outlets in India and 86 overseas and add another 1,000 people to the Group's existing manpower strength of 9,000 people by March. 

Asher O, managing director, Indian Operation of Malabar Group said,"Malabar Gold & Diamonds in one of the top five companies in the world and our aim is to become number one by 2020."

This also means enhancing production capacity; Asher said,"Right now we manufacture around 22% of our requirement and aim to touch 40% in this year. Factories will operate at various places like Hyderabad, Mumbai, Kolkata, Bengaluru, Coimbatore apart from Kerala."

Mehul Choksi-led Gitanjali Group is planning to double its shop-in-shop outlets in 2017 as it has seen 40% growth in demand from modern trade while its business in traditional stores, which are primarily driven by cash sales, shrunk 25%. 

Choksi said that they plan to add at least 300-400 shop-in-shop stores during the next few months."We plan to focus on brands like  'Nakshatra',  'Sangini', 'Diya' and 'Princess' as we expect demand in these segments," Choksi said. Gitanjali would add another 350-400 people to man its retail expansion as well as increase production by 25-30%. 

Another leading jeweller PC Jeweller has informed the Bombay Stock Exchange (BSE) that it opened two showrooms in January. Relatively smaller player Orra Jewellery is planning to enhance its store count by around 40% from a current 33 stores. It would add another eight stores over the year.

Vijay Jain, chief executive and director of Orra Jewellery, however, pointed out that instead of adding new high-street stores, Orra would focus on opening standalone stores in malls. The investment would be thus lesser by 30-40% compared to opening new high-street stores. 

"The liquidity crisis that had hit the economy is almost normalised and we expect demand to come back in the system. With statutory compliance related issues coming to the forefront, it is actually going to be a good time for organised jewellers," he said. 

Analysts feel that the focus on increased compliance has shifted the demand from traditional cash driven gold buying to these organised players. According to experts, the fresh expansion will help organised jewellers to get new consumers in even small towns and cities.

“Lot of stringent norms has been implemented by the government regarding purity, hallmarking and grading for jewellery sector. For small jewellers it may not possible to fulfil all the compliances and also awareness in buyers has diverted demand from unorganised players to organised players,” said the Karan Mehrishi, lead economist SMERA Knowledge Centre.

Somasundaram P R, managing director, India, World Gold Council (WGC) said that the demonetisation move by the Centre would actually drive demand towards the organised jewellers and that it why the organised chains are now in an expansion mode so that they are better prepared for the demand. "As such 30% of the trade is organised and remaining is in the form of family business. While the existing players would not lose, they would increasingly become more organised," he said. 

Moreover, he felt that demand coming from the wedding sector (with around 10 million weddings every year) is going to be steady. "Jewellers cannot expand when the demand sets in; the impact of demonetisation are short-lived," he added. 

WGC in its latest report India’s gold market: evolution and innovation have said that demand for gold is triggered by an increase in income. "When the system is in equilibrium, a 1% increase in income results in a 1% increase in demand. However, a 1% increase in price, reduces demand by 0.5%," it said. 

In 2015, India bought 663 tonnes of gold jewellery, second to China, but comfortably ahead of the US, Europe and the West Asia combined. Over recent years, it has consistently been one of the world’s largest gold jewellery consuming countries.

Overall, the country’s gold demand would average 850-950 tonnes every year till 2020 transformational changes in the system to curb black money and increasing focus on transparency, WGC said.

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