Gold News

Branded Gold Jewelry: The Next Big Thing in India?

Jewelers in the world's largest gold market are expanding...

THE NEXT big thing is taking shape in the smaller towns and villages of India. The rural districts of India are set to host around two-thirds of the new gold jewelry outlets that are being planned in the country, writes MineWeb's Shivom Seth in Mumbai.

According to a new study, the demand for gold jewelry in these centers is strong and growing, buoyed by increasing affluence and preference for branded jewelry. Crisil, a rating agency in India, has predicted that Tier-II and Tier-III towns are set to drive growth for the branded gold jewelry retailers over the medium term.

On Monday, Gold Prices in the domestic market surged by $3.40 to regain its record level of $536 per 10 grams on brisk buying by stockists and investors, driven by a firming global trend. Silver followed suit and jumped by $13.61 to $1,329.68 per kilo on fresh buying by speculators and industrial units. 

Traders said trading sentiment was bolstered as gold climbed amidst mounting concerns about the United States debt impasse and signs of a faltering global economy.

Despite the high Gold Price, retailers maintain that growth for gold jewelry is strong from smaller villages. "Intensified competition in the large cities has led to stagnation in growth for players in the branded jewelry segment. Most are, therefore, increasingly pursuing opportunities, and expansions into Tier II and Tier III centers,'' said Gurpreet Chhatwal, director, Crisil Ratings, in a note.

The report adds that gold jewelry retailers are therefore, expected to derive over half of their revenues from such small towns by April 2012 to March 2013, as against the 40% recorded in 2009-10. The rating agency had studied 63 gold jewelry retailers rated by it, which collectively account for 20% of the gold jewelry retailed in India in 2010-11. 

The jewelers rated by Crisil include some big players like Tribhovandas Bhimji Zaveri, Tanishq, Thangamayil Jewellery, Malabar Gold and Josco Jewellers, among a host of others.

Through 2010-11, Crisil has observed that some of the rated players have grown from being one or two-outlet retailers, and expanded significantly in the metros and Tier-I cities. In the process, they have established a distinct identity through brand-building initiatives that have further fuelled their growth. 

"However,'' adds Chhatwal, "competition too has grown, which has led to branded jewelers pursuing opportunities in the remotest towns.'' Chhatwal added that the wide variety of designs, aggressive marketing and promotional strategies, including hallmarking, and innovative offers such as gold deposit and buy-back schemes, are further set to bolster the growth of branded players' in these smaller towns.

Branded gold jewelry retailers are bound to expand, which in turn will strengthen the business risk profiles of many players, supported by the increasing scale of operations, enhanced geographical diversity, and improved cost efficiencies, says the Crisil report. 

The agency has noted that players that efficiently manage their working capital requirements, and successfully ramp up operations in the Tier-II and Tier-III outlets early, will witness rating upgrades in the next 12-18 months.

Citing some examples, the agency has said of the 14 stores to be opened by Joyalukkas over the next two years, 13 will be coming up in tier II and III cities. According to Nandakumar T, chief financial officer of Joyalukkas, these smaller towns contribute 55% of the revenue for the firm, which could go up to 65% in two years.

Similarly, majority of the new stores of Malabar Gold are coming up in towns like Kakinada, Belgaum and Kottakal.

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Founded in 1999 as part of the Johannesburg-listed MoneyWeb media group, Mineweb is one of the world's leading sources of mining and metals-investment news, comment and analysis. Managed since 2003 by professional mining engineer Lawrence Williams – formerly of Mining Journal, and with more than 30 years' technical and financial experience in the sector – MineWeb provides thorough, international coverage of the natural resources industry.

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