New Angolan diamond marketing policy helps lift rough prices – Wetherall

The Angolan administration of President João Lourenço introduced technical regulations for its new diamond marketing policy in 2018 whose objective was to improve the attractiveness and competitiveness of the national diamond industry and grow outside...

Today

LGDs will continue to be an option for consumers, from the high-quality bridal market to the fashion market

Richard Garard is a founding member of the International Grown Diamond Association, which was established in 2016.  He serves on the Executive Committee of IGDA as President and Secretary General. IGDA was created to represent, promote and...

10 january 2022

Everything is design and design is everything

Born in the Basra pearls family, the first private jewelers to royal families, Ashraf Motiwala is the fourth generation to carry forward the legacy of A S Motiwala. Spearheading the prestigious family legacy, Ashraf Motiwala felt the need to breathe...

03 january 2022

Typical Jeweller is the initiative to promote the Russian jewellery industry

Typical Jeweller is one of the largest websites on the Russian Internet for the new generation jewellers. The total audience, including social media, is over 100,000 people per month. Every day, the latest news from the jewellery industry, educational...

27 december 2021

Johan Erikson: Demand for Natural Diamonds will always remain strong

First Element is a fully independent Diamond Services Company registered in Belgium and South Africa which has become one of the premier diamond valuing, marketing and cleaning companies in the industry. First Element is committed to providing a world-class...

20 december 2021

Russian jewellers were fostered by impecunious buyers

10 january 2022

The news that the Russian Ministry of Finance set out to create a marketplace focused on the export of Russian-made jewellery to the global market (https://www.kommersant.ru/amp/5117787) was widely discussed among the Russian jewellery market players.

What the Russian jewellery industry can expect from such a marketplace?

Who influenced the development of the Russian jewellers?

On average, the Russians are poor. According to Rosstat (Russian Federal State Statistics Service), the average consumer spending per a household member in 2020 was just 18,578 roubles a month ($257 at an annual average exchange rate of 72.32 roubles per $1). At the same time, all spending for “other goods and services related to the recreation and cultural events” averaged just 7.1% of the spending per month, that is, 1,319 roubles per month (about $18.2). It makes 15,828 roubles per person per year. In other words, if a statistically average Russian woman would like to spent all her disposable money left for entertainment to purchase jewellery pieces during the year, she would be able to buy jewellery for a total of $219. That’s not much…

In the “pre-pandemic” 2019, the average purchase size in a jewellery store, according to various statistics, ranged from 6,500 roubles ($100) to 15,600 roubles ($241). The first half of 2021 inspired hope in the Russian jewellers as after the recession in the previous year, the jewellery sales soared, reaching 129 bn roubles over six months. But not due to the higher unit sales that dropped, but due to an increase in the average purchase amount by a third. The average purchase size in 2021 grew by 30% to 35%, but in any case, it can be argued that about 90% of all sales today account for jewellery of under $500, given that the “premium” jewellery segment starts today approximately from $5,000.

When making a purchase in the mass jewellery segment in the developed countries, the priority is to achieve the best value-for-money ratio, the priority for the Russian jewellery buyers is the lowest price, moreover, the price per one gramme of the jewellery piece, as in the Soviet times. The maximum value-for-money ratio in the mass segment is secondary in the Russian market and is typical only for the lower level of the premium goods consumption.

Naturally, the Russian jewellers became good at satisfying the population’s low effective demand. For the most part, the buyers of the Russian jewellery are very modest people, and by world standards, these are poor people.

In recent years, the rouble price of gold and silver has been growing, and almost simultaneously, the Russian jewellery has been “losing weight” becoming lightweight jewellery. The Russian jewellers did their best to keep the jewellery prices and they adjusted the prices to the low purchasing power of the population.

What’s there to say about gems - they are all imported to Russia and bought for dollars that were becoming more expensive. There is no reliable statistics on the percentage of supposedly natural diamonds on the Russian jewellery market that are actually polished synthetic diamonds. It is unlikely that the jewellery manufacturers know this, because their choice is not really based on the principle of the best value-for-money ratio when purchasing the goods, but on the principle of minimizing the price with the best imitation of quality...

Of course, you cannot speak for everyone. Some buyers are very responsible when purchasing loose diamonds. But in the Russian jewellery market real situation, such buyers - as rare as “white ravens” - have minimal chances of remaining competitive. After all, the poor buyers willingly want to delude themselves and make supposedly cheap purchases of high-end goods. The Russians don’t find the idea of ​​ buying cheap jewellery pieces absurd, the customers easily convince themselves that they are very good at shopping.

However, over the past two years, the pandemic has made some changes in the jewellery consumption in the Russian market. Quite unexpectedly, thanks to the pandemic, the wealthy Russian shoppers have lost the opportunity to spend money and make purchases while travelling abroad and began to pay more attention to the Russian retail than usual. In 2020, the Russia’s outbound tourism declined by 77.5%. But the share of the Russians whose traditional spending instead of overseas countries went into the Russian economy during the Covid-19 pandemic is not large, as only 30% of our citizens have foreign passports, no more than 40 mn persons. Although the number of affluent people is not high, it was their money that remained in Russia and improved the Russian jewellery market in 2021.

Moreover, the money of the “Russian tourists” showing good effective demand who did not go abroad was able to compensate for the jewellery market losses due to the lack of demand from foreign tourists. After all, the Russia’s inbound tourism just collapsed due to the Covid-19 pandemic, down 96.8%. That is, almost none of the previous 5 mn tourists (2019) came to Russia in 2020. But these tourists, especially Chinese travellers, made a very significant contribution to the Russian jewellery sales in the previous years.

However, it is obvious that the pandemic will be over one day or another, or people will get used to it and simply pay no attention to it. The outbound tourism will resume, and the Russian wealthy buyers’ money will start flowing out from the Russian stores. The outflow will be very substantial as the Russians yearned for shopping abroad during the pandemic.

Is export an alternative to the domestic demand?

But the pandemic is not over yet, not all borders are reopened. The wealthy Russians have not yet managed to forget the “way” to the domestic jewellery stores (retail or online). It is necessary to keep these affluent customers at the domestic jewellery stores by all means - this is the current task for the Russian jewellery industry survival in the post-pandemic period.

However, instead of focusing all the efforts on keeping these new jewellery buyers who have switched to the domestic market due to the Covid-19 pandemic because of the closed borders, the industry’s jewellers today cherish the idea of increasing the exports. To export the goods where? To the Eurasian Economic Union countries? To the Eastern countries? To the Western countries?

There’s no debate that it is necessary to reduce the administrative barriers existing for the jewellery export. Not just reduce them but make a radical revolution in managing the jewellery export, especially B2C. No arguments are required as everything is clear. Rather, the question is, should the jewellery production seriously rely on the export? And not on a wholesale export, but on an online retail export?

After all, not just an abstract competitive product is required to enter the retail foreign market but a product that is competitive in the market that you are going to enter. What are the Russian jewellers’ strengths?

First of all, good craftsmanship. Really, it has traditionally been high since the Soviet times.

And what else? Individual jewellers were awarded the prizes at the international competitions. But the jewellery pieces made by these jewellers are not mass jewellery for online stores!

Usually, advanced technological equipment is mentioned, especially the one used by large jewellery manufacturers. Well, they have it, but the foreign competitors also have up-to-date equipment...

What are the weaknesses?

First, the stones. There are practically no high-end and good quality stones on the Russian market. And the available stones are prohibitively expensive because of import duties, VAT, and very low competition in the domestic market. By the standards of the leading countries in this sphere, Russia offers so low supply of stones that there is no point in discussing it.

Second, high production costs. Historically, the assay supervision was not free, but with the introduction of the SIIS PMPS (State Integrated Information System in the control over the circulation of Precious Metals and Precious Stones), it will become incredibly expensive. Well, all other costs also increase, the main of which, according to the jewellers, will be the expected lack of VAT-free gold (today, it is obtained through purchasing the old jewellery from the population) and the elimination of special tax regimes for small businesses. It should be noted that the costs of medium and large jewellery businesses will not decrease, but they will definitely increase for small ones. And all this will happen against the background of a gradual increase in the interest rates on bank loans and against the background of our Russian habit to have high profit margins (it is impossible to do otherwise as the lending rates of the Russian rouble are not the same as those of the dollar or the euro).

So, the share of the value added to the price of jewellery components (metal, stones) in the price of the Russian jewellery can hardly be considered competitive.

Third, the problem with the status of the Russian jewellery - there are still no world-class jewellery brands in Russia. There are no global pace-setters in jewellery. Some of our jewellers will be offended to hear these words. But honesty is the best policy for improving the business.

Human vanity still exists. If there is no globally recognized brand, the thing does not have a high status, the vanity is not quenched.

Fourth, the image of the country of origin, in many ways is too politicized abroad. All this, of course, has no direct relation to the jewellery, but buying a piece of jewellery is largely emotional.

As Yuri Shelementyev, Head of the Gemological Centre of the Moscow State University, likes to say, you need to sell not the goods, but emotions! Especially, when trading online. When customers walk around a store, they see the goods at random. But people do not get to any Internet website by chance - they go there with a purpose. And they open pages with a purpose. Will they want to open the “Russian page”? This is another question.

Fifth, it is the specific mentality of the Russians and their idea of ​​beauty. The best-selling is the emotionally filled item created by the people who are in sync with the customers. I think, here lies the rub.

Of course, export includes the deliveries not only to the non-CIS countries, but also to the EAEU (Eurasian Economic Union) countries. But over time, the EAEU countries have become a lot less like the republics of the USSR, no matter what the politicians say. The divergence in the cultural preferences of the people combined with an even lower level of income in the EAEU countries than in Russia, is not the best condition for considering these countries as the sales markets for the Russian jewellery. The people who once lived in one country are now pensioners, and “jewellery pieces” are not their essential needs.

One can, of course, hope for the immigrants from the former USSR living in the Western countries today. But nostalgia will get you only so far - its potential is not great at all, and again, mind their age...

Sixth, the lack of a success history in the previous jewellery sales. You must admit that when shopping online, the choice is also based on the previous buyers’ feedback. And if it simply does not exist, people wouldn’t like to risk being the first.

And seventh, (this is the most important) - the huge financial costs and time required for export procedures, from the export customs’ clearance and state control to the logistics costs. In total, the costs are sometimes more than the cost of the jewellery piece itself. And the delivery time is so long that when the customers receive the goods they can forget what was ordered...

So, why “seventh”, if the above is the most important thing? It is because it is in this area that a great breakthrough can be made at once, if there is a good will of the Ministry of Finance, the Russian regulator of the PMPS market.

What can the Ministry of Finance's marketplace become?

First of all, it can be a tool - in addition to the SIIS PMPS - for the state control over the jewellery market and to increase the tax collection.

The idea of ​​the PMPS market regulator to start its commercial activities in the field of “digitalization” coincided with a similar idea about the public-private partnership that another regulator - the Ministry of Construction - has​. The Ministry decided to strengthen tax collection also by creating its own online platform - for renting apartments - “the state information system for recording renting agreements (SIS)”. Real estate owners and their leaseholders shall be obliged to provide the information to the SIS about their terms and the amount of payment within 30 days from the date of concluding contracts or amendments to them, and the payments will also be carried out through this system. A refusal to place data in the SIS or providing false data threaten citizens with a fine of up to 5,000 roubles, and legal entities - up to 50,000 roubles.

Russia has the Russian Export Centre (REC) authorized to organize and support export activities. It works, but the Ministry of Finance has the regulatory function, and not the REC. Can there be any doubt that, by analogy, all the Russian jewellers wishing to export their goods will eventually be asked to do this through the Ministry of Finance’s marketplace?

Well, I have already expressed my opinion about the prospects of the jewellery export for our jewellery manufacturers. As it happens, there are exceptions to any rule, and some jewellers, no doubt, will succeed. You can even guess who it will be. But it is unlikely that other market players will feel happy about this...

Vladimir Zboikov, Rough&Polished