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10 june 2019

In recent years, while reading the press, one can often come across opinions that the popularity of jewelry in Russia is plummeting, and the interest towards jewelry among the population is waning. Naturally, this issue is arousing concern on the part of jewelry trade and jewelry manufacturers.

In contrast to commodity markets trading in many other goods, the jewelry market in Russia, thanks to the statistics of the assay supervision service, is sufficiently clear and predictable. However, the data coming from the Russian State Assay Chamber (RSAC) are only a statement of facts that require analysis.

The peak of sales in the Russian jewelry market of the post-Soviet period falls on 2007, so we will consider the dynamics of the Russian jewelry market over the past 12 years. Jewelry for the purpose of the assay supervision service is viewed upon as precious metal, mainly gold and silver, without taking into account the presence or absence of gem inserts in jewelry goods.

The RSAC is keeping record of tested and hallmarked jewelry both in pieces and in tons (in ligature). Gold products usually have a 585-fineness mark, which means that on average the gold content in jewelry sold on the Russian market will be around 60 percent. Below are the data of the RSAC for 2007-2018 (Table 1).

Table 1

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The logic of analysis of the jewelry market in Russia will be as follows: If the aggregate of objective economic factors (including per capita incomes of the population, the value of gold on the world market in US dollars, and the US dollar/ruble exchange rate) will correlate with the sales of jewelry in Russia, then it will mean that jewelry preserves its status of a still desirable product for the country’s population. And if there will be no correlation and if the economic opportunities of the population will follow one trend, whereas the behavior of the jewelry market will follow an opposite trend, then those who claim that smartphones and the pleasure industry have already destroyed the love of Russians for jewelry are right...

The diagram of the Russian jewelry market dynamics in pieces of gold and silver jewelry given in Table 1 is shown below (Chart 1).

Chart 1

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It can be seen from the diagram that the Russian market for gold and silver jewelry often moves in different directions - when the volume of gold products declines, the volume of silver products goes up, and vice versa. This behavior of the market is due to the change in incomes of the population, the price of precious metals and the current ruble/dollar rate, which will be proved below.

In the period of 2007–2018, the Russian economy went through “storms” twice - in 2008 (echoing the global crisis), and in 2014 with the beginning of the sanctions policy against Russia. Due to the low cost of silver in jewelry, we will focus our attention on the gold market.

The price of gold in rubles does not always reflect the world price of this metal because of the national currency rates. It should be also kept in mind that the average per capita income of the population is equally important for the jewelry market. These metrics are summarized in Table 2.

Table 2

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To make trends more obvious, let us pool into a single chart the annual volumes of assayed and hallmarked jewelry made of gold and silver (in pieces), the relative market size of gold and silver products in rubles calculated by Table 3 and the relative ruble dynamics of per capita income.

Table 3

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As the normalizing factors for the market volume of gold and silver products and for the dynamics of per capita incomes of the population for all values of the period under consideration are taken to be the same, the correctness of trends visualization on Chart 2 is guaranteed.

Chart 2

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We see that the change in the volume of the gold jewelry market in rubles over 12 years (from 2007 to 2018) follows very accurately the dynamics of the per capita ruble incomes of the population, which makes it possible to state that the share of spending in the personal budgets of Russian jewelry buyers over the past 12 years tended to be unchanged! This means that jewelry remains popular in the Russian mentality. And over the past four years, there has even been a slight excess of gold jewelry purchases over the income of Russians.

During the period under review, gold jewelry had to “lose flesh” to a great extent to preserve sales in pieces - the average weight dynamics of hallmarked goods is shown in Table 4. The average weight of gold jewelry fell from 2.69 to 1.87 grams (by 35%). The number of gold goods sold per year decreased from 48.51 million pieces in 2007 to 31.85 million pieces in 2018 (going down by 34%).

Table 4 

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It seems logical to see an increase in the silver jewelry market when the gold jewelry market slumps: people wishing to buy a jewelry piece despite a shortage of money in the most difficult economic periods did not refuse to buy jewelry but shifted to less expensive things like silver jewelry.

In general, in terms of preserving the popularity of jewelry in Russia, the picture in the market looks pretty bright. If people had enough money, they would be eager to buy gold and silver goods! However, the situation is not so rosy as far as their income is concerned.

What is the situation with the income earned by Russia’s population today?

Overall, it is depressing. According to the Federal State Statistic Service, the Russians have become poorer by 8.3% over the past five years. The problem of “erosion” in the middle class is becoming more and more acute, and in fact it becomes clear that the country’s population is becoming easier to divide into conventionally “rich” and unconditionally poor.

And the decline in the purchasing power of the population occurs not only because of decreased incomes and inflation, but also because of the not always reasonable use of loans and borrowings. The influence of debt load reduces the purchasing power of the conventionally “rich” and especially of those who are poor.

In recent years, there has been a boom in lending and mortgage programs in the country. According to the United Credit Bureau (UCB), banks issued 37.41 million loans to Russians totaling over 8.61 trillion rubles. According to other data, the total debt of Russians to banks at the end of 2018 was estimated at 14.9 trillion rubles. The latter figure coincides with the World Bank (WB) estimate of 210 billion euros.

According to the data released by the Bank of Russia, the population took more than 3 trillion rubles’ worth of mortgages in 2018, up 50% over 2017. According to the National Bureau of Credit Histories, the number of car loans in 2018 increased by 10.7% compared with 2017. The leader in terms of growth in lending in 2018 was also the segment of credit cards - their number went up by 40% closer to 2017, while the average card credit limit increased by 37%, from 46,000 to 63,000 rubles.

Of course, it is good that the wellbeing of people will improve, including through loans, but in the end, the current purchasing power of the population is even more curtailed – people will have no money for news purchases, because their incomes will be used to repay loans already taken. And they will be unable to repay even those loans.

But if some people take a mortgage loan or a loan to buy a car, others take loans to live to get their monthly paycheck and then re-crediting again and again, which is not surprising – according to Russia’s Federal State Statistic Service, the real disposable incomes of the population continued to decline by another 0.2% in 2018. In 2017, the decline was 1.2%, in 2016 - 5.8%, in 2015 - 3.2%, and in 2014 - 0.7%.

According to the United Credit Bureau, the amount of bad debts owed by Russians to banks reached nearly 1.6 trillion rubles in the first quarter of 2019 rising by 5.3% compared with the same period in 2018. Currently, the share of problem loans in their total amount in Russia is more than twice the world average. According to the Higher School of Economics (HSE), citizens from the lowest income group (42% of all borrowers in the group earning 11,000 rubles per month) and citizens belonging to the middle income group (43% of borrowers earning 27,000 rubles per month) turned out to be among the most excessively credited. And the World Bank is even sounding the alarm pointing to excessive debts of the Russian population due to high rates on micro-loans, while its experts see risks of a financial bubble in Russia.

Over the last 10 years, the number of appeals to the court to recover loans from citizens has increased by a factor of 10 reaching 5.68 million claims (33% of the number of claims to courts of general jurisdiction in 2018). Moreover, the recoverable amounts for the most part turned out to be quite small - 3.1 million of claims heard in courts obliged the defendants to repay up to 50,000 rubles (more than 18% of the total number of claims to the courts of general jurisdiction in 2018).

The least well-off citizens more and more often face lawsuits for failing to pay for housing and communal services. Out of 17 million of all claims filed with courts of general jurisdiction in 2018, almost 6.7 million (more than 39%) were claims for dodging housing rent, as well as utility, heat and electricity bills. That said, it should be noted that 5.7 million (34%) claims for neglecting payments for housing and utility services were associated with debt of not more than 50,000 rubles.

The fact that 52% of lawsuits in 2018 concerned amounts not exceeding 50,000 rubles is disheartening. This means that the population did not even find such a small amount of money in order to avoid the status of a debtor and a court hearing ...

Summing up

The above-mentioned data on the incomes of Russia’s population and their debts to banks lead to sad conclusions for the jewelry industry: in the coming years, the population in its bulk will spend their discretionary money mainly to pay back bank loans. Additional revenues will also go to this end, if people will have them from a possible economic growth.

On the other hand, it is impossible to make jewelry cheaper. The average weight of gold products, which were hallmarked by the Russian State Assay Chamber in 2018, already looks extremely low (1.87 grams). This article is not devoted to gem inserts, but it should be noted that a similar “drying out” process also affected the size of diamonds in jewelry goods containing them. A gradual, but massive replacement of colored gemstones in jewelry goods sold in Russia with their synthetic counterparts and then with cheaper synthetic simulants (ceramized glass, etc.) has already taken place.

The transition of the entire market from jewelry made of gold to silver goods on the backdrop of an even greater decrease in discretionary money among the population is hardly realistic. Still, many people like to wear exactly gold. So, the most likely scenario for the behavior of Russians is to reject new purchases of jewelry in favor of using their old stocks. However, to please yourself with something, you will probably have to limit yourself to buying imitation jewelry...

Does it mean that the jewelry industry in Russia is dying? No, it is rather stagnating. The question is who of the jewelry manufacturers and merchants will be able to survive. But there is another question, or questions: What does the State do to help the jewelry industry survive? What do jewelers and their industry organizations do for their own survival? Let's talk about this in the sequel.

Vladimir Zboikov for Rough&Polished