India Jewelry Industry Adjusts to U.S. Economic Woes

When an economic downturn disrupts the buying habits of the world’s largest consumer economy, its effects ripple far and wide. India’s jewelry market has been hit especially hard.

Sanjay Kothari (left), former chairman of India’s Gem & Jewellery Export Promotion Council, said that jewelry exports from SEEPZ (the special economic zone in Mumbai that promotes rapid economic growth using tax and business incentives to spur exports) to the United States fell by 30 percent during the first six months of 2008. In a country where jewelry accounts for 15 percent of exports and SEEPZ accounted for more than 40 percent of jewelry exports, that’s a grim figure.

More recently, the demand for diamonds has dropped so dramatically that in October Vasant Mehta (pictured in forefront with Kothari at IIJS press conference), the newly elected chairman of GJEPC, made a plea for the country’s diamond manufacturers to reduce their supplies.

“They are suffering,” Kothari said to reporters during the India International Jewelry Show (held Aug. 7–11). “Business with the USA is going down because of the economic condition in the U.S.”

In response, Kothari said, some manufacturers that were exporting to the U.S. market have moved out of SEEPZ and set up shop in other areas to take advantage of the burgeoning domestic market. “Big companies started operating outside SEEPZ so they can do business with the India market,” he said.

In addition, Kothari said, manufacturers are entering other export markets, primarily neighboring countries, the Middle East, and Europe. GJEPC is working to attract trade with other countries, particularly China and Thailand. And GJEPC continues to encourage more business with the United States through its annual Indo/US Jewelry Business Relationship Development Conference, which brings U.S. retailers to India to show them the breadth and depth of India-made jewelry.

Manufacturers interviewed by JCK at IIJS confirm Kothari’s view, noting that companies can find good deals for manufacturing sites inside SEEPZ. Almost everyone said they expect the economic problems in the United States to run until 2010. These opinions, however, were based on economic conditions prior to the near collapse of the worldwide financial markets in October.

But these manufacturers, as of August, are not fretting. Instead, they’re quickly changing strategy and focusing on domestic other international markets. This was evident at IIJS, which enjoyed plenty of foot traffic throughout the show, particularly during the weekend, and where most exhibitors reported good business from their domestic and regional customers. The show also has a waiting list of nearly 400 domestic and international exhibitors.

In addition, the country continues to diversify its jewelry product by augmenting mass-market jewelry with designer jewelry, offering small-scale production of high-end products for the international market. GJEPC supports this effort and set up a show for design-oriented jewelry called IIJS Signature. The second edition will be held Feb. 20–23 in Goa. 


One of several fashion shows at IIJS featuring deigner jewelry.

High-end design was also evident at IIJS through its annual ABN Amro Solitaire Design Awards, a jewelry design competition that culminated in an awards presentation and fashion show.
 


Winners of the ABN Amro Solitaire Design Awards. From left:
Black and white diamond-studded roses from Krsna placed first.
Studded concentric bracelet, ring, and earrings from Ansaa placed second.
Gold necklace, bracelet, and earrings set from Vasupati Jewellers placed third.
Neckwear from Chain Plus crafted in different textures of yellow gold accented with mother-of-pearl and color gemstones. It received honorable mention.

The industry also is taking on a larger role in the Indian business community. In June, for example, the Federation of Indian Chambers of Commerce and Industry set up a National Gems & Jewellery Committee to address the challenges faced by the domestic gem and jewelry industry. Chairing the committee is Mehul Choksi, managing director of Gitanjali Group (left, celebrating his company’s 75th anniversary at IIJS). The committee also includes JCK India sales director Kaushal Shah, who owns and operates Kaushal’s Media Pvt. Ltd.

Choksi and Kothari both discussed plans to open direct-to-consumer regional shows in India and promote India as a brand to the rest of the world.

Such plans should help India’s jewelry and diamond manufacturers, but some at the show said it wouldn’t make up for the lost U.S. business. And most believe that much of the business won’t return to the levels of just a few years ago.

“People are going back to basics,” said Alkesh Shah, vice chairman of Gold Star Jewellery. “They are controlling expenses.”

Gold Star, a diamond and jewelry company, was founded in 1959. In 1990, it became one of the first diamond manufacturers to produce diamond jewelry. About 70 percent of its business is done with the United States. Until five years ago all of its business was in the U.S., but the company made a decision to compete in other markets, which now include Italy, Japan, and the United Kingdom.

“We did the right thing,” Shah said. The company does about $140 million in business per year. Helzberg Diamonds, J.C. Penney, and Wal-Mart are among its customers.

Shah predicted the U.S. market wouldn’t recover until the fall of 2010. “We’ll see the market come back but … this time it’s going to be slower growth.”

Unlike other manufacturers interviewed by JCK, Shah has doubts about the growth of the India market. “The hype is bigger than the reality,” he said. “India is going to grow, but not the way people are saying.”

Arvind Sanghvi, director of KP Sanghvi, predicts “a lot of pain” in the U.S. market for the next 10 to 12 months. He doesn’t expect to see growth in U.S. consumer spending for jewelry before the second half of 2009 and believes economic recovery won’t begin till 2010.

The company, which supplies rough diamond, polished diamonds, and diamond jewelry throughout the world, does about $300 million worth of business annually, with $100 million coming from the U.S. market. Three years ago the company did about half its business in the United States. Sanghvi said the company is well diversified, so the slowdown in the United States hasn’t hurt much. It has been augmenting its jewelry and polished diamond business in India (where it owns retail jewelry brand ACE) and its other markets.

Romy Mehta, president of Bapalal Keshavlal, has, since the early 1990s, been in an area of the international marketplace where India wants to be a bigger player: luxury designer jewelry. About 25 percent of his business is in the United States. In August, he told JCK there hadn’t been a significant drop in his business.

The company’s U.S. clients include Lux Bond & Green, Lee Michaels, Borsheims, and other independent jewelers. It does about 25 percent of its business in the Caribbean. Its products also sell in Brazil, Europe, the Far East, and the Middle East. Bapalal Keshavlal’s finely designed white and yellow gold jewelry augmented with diamonds and color stones can be found at high-end retailers, luxury hotels, and resort locations.

India’s growing wealthy class presents new opportunities for Mehta, particularly for large diamond jewelry pieces. He explained why: “Only 1 percent of the people in India can afford my jewelry, but that’s 10 million people.”

Above: White gold and diamond necklace and earrings from Bapalal Keshavlal.

Shree Ramkrishna Export is a traditional diamond manufacturer that began making diamond jewelry in 2003. Managing director Rahul Dholakia told JCK that about 25 percent of his company’s annual business is with the United States. That’s down from 75 percent four years ago. But he said business is growing, with lost U.S. sales offset by new markets in Europe, the Far East, and Middle East. 

Above: Diamond bangles from K. Girdharlal

Dholakia said he expects business and profit margins to continue to grow as a result of a business-to-business Web site (Srkexport.com) the company recently launched. “Eleven percent of our goods are already being sold without personal contact,” he said.

Piyush Shah, director of diamond and jewelry manufacturer K. Girdharlal, also said his company is focusing on the domestic market, Asia, and Europe. The product line at IIJS included gold and diamond bangles for the India market. The company has been in the diamond business for more than 40 years and began manufacturing jewelry in 2002.

Shah told JCK that, in addition to the economic problems in the United States, there’s too much competition in the market.

One Indian company bucking the trend of reduced U.S. presence is the Gitanjali Group. In fact, the vertically integrated international company has seen the struggling U.S. economy as an opportunity to increase its presence.

Gitanjali is an international powerhouse. The company is a diamond and jewelry manufacturer and retailer, with vast holdings that include approximately 15 retail brands in India and approximately 175 retail outlets in China, Japan, and the Middle East.

Each brand in India is represented by a Bollywood star. Many appeared on the catwalk at Gitanjali’s 75th anniversary fashion show on Aug. 7, including Bipasha Basu, who was introduced as the new brand ambassador for Gili, one of the country’s first and most popular jewelry brands. 

Caption: Bollywood star Bipasha Basu is the new brand ambassador for Gili, a popular jewelry brand in India that’s owned by Gitanjali.

In the United States the company is in the acquisition mode. In 2006 it acquired the Samuels jewelry chain, and a year later it purchased Rogers jewelry chain. Its attempt to buy 150 to 250 stores formerly owned by bankrupt Whitehall Jewelers failed during bankruptcy proceedings. As of September, it was trying to buy about 100 former Whitehall store leases through the liquidation process.

Gitanjali managing director Mehul Choksi told JCK during IIJS that he is in a “shop to buy” mode in the United States. “At the same time, we are not in a hurry.”

He’s not in a hurry because he expects the decline in the U.S. market to continue, which will bring more opportunity for retail store gains. In particular, he said he expects two more retail chains to enter into bankruptcy. He views the U.S. jewelry industry as highly leveraged.

“I feel that it will be six months to one year [for the bankruptcies to occur],” he said in August, adding that the U.S. jewelry industry is facing “very difficult times.”