Global Perspectives, Part 2

Global shifts in the jewelry industry were the focus of a session called “Business Perspectives: Charting the Globe,” held during GIA Symposium, Aug. 27–29. A panel discussion moderated by Anna Martin, senior vice president and the New York regional manager of ABN AMRO Bank’s International Diamond & Jewelry Group, and featuring industry leaders from Europe, Japan, India, and Dubai, United Arab Emirates, highlighted issues faced by emerging markets versus declining markets. Part 1 of this report discussed the market in Japan and the Gulf States (see Upfront International, JCK, October, p. 80). Part 2 examines India and Europe—again, one market on a fast growth track, and the other struggling to hold its position on the world jewelry stage.

Rajiv Mehta, chief executive of Dimexon Diamonds and director of Eurostar Diamonds, both based in Mumbai, presented the Indian market analysis.

Mehta calls India the jewel in the crown of the world jewelry market. Its economy is enjoying a compound annual growth rate (CAGR) of approximately 8 percent, and its 2006 gross domestic product is on track to hit $600 billion, he said. The diamond and jewelry sector posted a 20 percent CAGR in 2005, with exports totaling approximately $17 billion—a 19.3 percent increase over 2004 figures.

India’s stable political environment, independent judiciary system, strong banking structure, and well-regulated capital market are just some of the factors making it an attractive business destination, he said. Additionally, it has a highly skilled, English-speaking workforce with lower-cost wages than the United States or Europe.

In terms of jewelry production and demand, both the domestic and export markets are on the rise, said Mehta. Domestically, diamond jewelry sales growth climbed 20 percent in 2005. Rapid urbanization and industrialization and increased literacy have driven changes in growth, taste, and demand patterns, he explained. Indians also have a cultural affinity for jewelry, which is bought for both adornment and investment—especially as disposable income increases.

India is also a player in every segment of the diamond pipeline, including mining, trading, manufacturing, finished jewelry manufacturing, and jewelry retail, said Mehta. In the mining sector, there are diamond deposit prospects in five Indian states. In terms of trading, India’s banking structure and a large captive market are appealing, and the government is currently considering removal of the 5 percent import duty on polished diamonds.

India is already a global leader in diamond manufacturing, accounting for 55 percent of the value, 80 percent of the carats, and 90 percent of the pieces of the total global diamond- manufacturing market. Its output in terms of value more than quadrupled in only two years, from $0.84 billion in 2003 to $3.5 billion in 2005.

Finished-jewelry manufacturing is a growth area, said Mehta. Currently, India accounts for less than 2 percent of the global output of finished jewelry, with its main expertise in mass-market product. But considering its skilled labor force and competitive wages, he expects this to change.

Domestic jewelry retailing is another area poised for explosive growth, said Mehta. Jewelry is sold in boutiques, shopping malls, online, and even in convenience stores, and often the same company has multiple retail formats, he said.

He cited a McKinsey & Co. report on the Indian branded jewelry market that predicts India’s branded jewelry sales to top $2.28 billion by 2010. Additionally, the market of high-net-worth individuals—those with the ability to invest at least $1 million—is growing at about 15 percent per year. Increased foreign investment and the entry of multiple jewelry brands into the market round out the retail picture.

All these factors combined, said Mehta, position India for continued rapid growth and success in the market.

Europe, on the other hand, faces a number of challenges. The European report was prepared by Leopoldo Poli, head of jewelry manufacturer La Nouvelle Bague, based in Florence, Italy, but he was unable to attend. Paolo Novembri, chairman of the board of the TJF Group, a trend-forecasting company, presented the report on Poli’s behalf.

The European jewelry market is in transition, said Novembri. The past five years have seen a fall in production caused by economic crises, increased foreign competition, and a shift in consumer demand resulting from gold’s diminishing status. The main players in the European jewelry industry today come from four sectors: the historic jewelry brands, emerging steel and silver brands, fashion companies, and artisan companies.

The historic brands have tradition, culture, and, typically, the capital to invest in communicating their message—but, cautioned Novembri, they must make sure their brand has a strong identity. The steel and silver companies focus on design and emotional connection rather than intrinsic value. Their strength lies in design innovation and the ability to evoke strong emotion in the consumer. The fashion companies entered the jewelry market with products that complement their apparel collections. Their strength is the ability to offer a total look in tune with the fashion trends of the moment. The small artisan companies offer extremely high craftsmanship and a unique look.

The historic jewelry brands have been the most vulnerable to competition from places like China, Turkey, and India, said Novembri, even as large consumer markets like the United States have seen the growth of homegrown brands like David Yurman. The future of these historic Italian and European brands essentially lies in marketing, he explained—building a brand identity, spotting trends, and creating a connection to the consumer.

The steel and silver brands have already used marketing, especially to younger consumers, to create their brand mystique. Novembri said the future opportunity for these companies lies in continuing to emphasize design over intrinsic value and creating that emotional bond with the customer.

Fashion companies, with their strong marketing budgets and a proven track record of business management, are seizing market share from traditional jewelry companies, especially those that don’t know how to react, says Novembri. But those jewelry companies that already have a strong marketing presence aren’t being terribly affected, he said. In terms of artisan brands, some have disappeared in the face of competition, while others have thrived by offering something unique, distinctive, and of extremely high intrinsic value.

The growing general trend of accessible luxury is significant in Europe. The companies that will flourish in this market are those that can communicate their message and image. It will be easiest for the fashion and steel jewelry companies, said Novembri, and hardest for those with no public recognition. He referred to a segment of the industry he called the “purple cow”—innovative companies that respond to trends but without the means to market it. Companies like this are critical to the survival of the jewelry industry in Italy and Europe, he said. Italy in particular has a strong tradition of fashion and design, whereas its competitors don’t. They traditionally copy rather than create.

Novembri concluded by saying that there’s opportunity for European jewelry companies to achieve growth and success. Differentiation and specialization will allow Europe to survive. Echoing a message that’s been trumpeted loudly over the past few years, Novembri said the key is to adapt and adjust their businesses to a changing market, redefine themselves to appeal to the modern consumer, and seize opportunities.