Branded jewellery: That 'gold'en touch - Views on News from Equitymaster

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Branded jewellery: That 'gold'en touch

Sep 21, 2007

India is the world's largest consumer of gold and third largest consumer of diamond jewellery after Japan and USA. The jewellery market in India is estimated to be around US$ 15 bn, second only to the US (US$ 40 bn) and is followed by China (US$ 11 bn). The jewellery market in India is second to the fast moving consumer goods market. Globally, branded jewellery accounts for only 8% of the total market of US$ 70 bn. While in India of the total jewellery market, the branded segment accounts for a minuscule 2%. Further, it is very fragmented and dominated by the unorganised sector. The trend so far and the potential ahead...
Branded jewellery has been a relatively recent phenomenon in India, with most jewellery retailed in the unorganised sector. While there are more than 2.5 million jewellers in India, the number of jewellery brands can be counted on one's fingers. As mentioned earlier, organised or branded jewellery accounts for merely 2% to 3% of the total jewellery retail market in India, which underlines the fact that there is huge potential. The jewellery sector in India has grown at a CAGR of 9% in the past two years as against that organised jewellery sector has showcased over 30% CAGR during the same period. This is mainly on account of jewellery retailing in India undergoing a slow transformation from a largely unorganised sector to a more organised one. The majority of traditional jewellers cater to the local population and most purchases are made on trust and on the basis of the reputation of the local jewellers. However, with the growth in retail sector and introduction of new formats such as boutiques and supermarkets etc, Indian customers are displaying growing preference for quality, designs and branding.

Factors driving growth of the jewellery market...
Storehouse value to fashion accessory: The growth of the jewellery market in India is spurred by factors such as occasions of wear and purchase. The entire way that people buy jewellery is changing, and younger women - who are buying for fashion, rather than investment - are driving the change. In India till three to four years back, jewellery purchases were made on few traditional occasions such as Diwali, Aksahy Tritiya etc. However, with the increase in the number of working women and changing lifestyle, jewellery is gaining importance as a fashion accessory.

Government initiatives: The Government of India has taken initiatives to stimulate the growth of the gems and jewellery industry given the industry's critical importance in Indian exports. SEZs and Gems and Jewellery Parks have been set up to promote investments in the sector. Also, 100% FDI is permitted in the sector through the automatic route and increased investment by industry bodies (DTC, PGI, WGC) is spurring rapid growth of the branded jewellery market in India. The Foreign Trade Policy (2004-2009) has exempted service tax on services (related to exports), which are rendered abroad. Cutting and polishing of gems and jewellery is treated as manufacturing for the purposes of exemption under Section 10A of the Income Tax Act. It has also made the import of polished diamonds completely duty free. All this has fuelled growth within the sector.

Value added services: The introduction of value added services such as the certification of gold and diamonds, and lifetime return and buy-back scheme has further fuelled the growth of the organised jewellery segment. Such trade practices have resulted in the perception of superior quality associated with branded jewellery.

Emerging trends: On account of media proliferation, overseas travel, customers being more exposed to western lifestyle, changing attitude, increasing disposal incomes, there has been a shift in demand from mere traditional handcrafted jewellery to branded machine made jewellery. Earlier jewellery was considered as an investment, however, now it is looked upon as a fashion accessory or an everyday wear product. The occasions of purchases have also witnessed a change. For instance, previously purchases were made during marriage or festival seasons, while nowadays wearability and gifting dimensions have led to demand throughout the year. Traditional designs have been replaced by fashionable and lightweight jewellery. Further, growing interest in white gold and newer precious metals and the like is also generating significant interest.

To conclude...
The jewellery purchase is sensitive to both income growth and price increases. However, healthy economic growth, increasing disposal incomes, changing attitude and lifestyle changes have led to the growth of the retail sector and jewellery segment in recent years. While the branded jewellery industry is still in its infancy, it is expected to benefit from the current retail boom and is expected to growth at a CAGR of 40% in the coming three to four years. Thus the expected growth rates indicate that this segment will corner a significant share of the jewellery market going forward.

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