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The World Gold Council launched a report titled ‘Jewellery market structure’ recently, as part of a series of in-depth analyses on the Indian gold market.

According to the report, supported by the changes in consumer behaviour and government regulations, a paradigm shift has occurred in India’s gold jewellery market over the past few years. While small independent retailers still dominate the landscape, chain stores, both national and regional, have increased steadily over the last decade thereby increasing their market share.

However, compared to the retail jewellery trade, changes at the manufacturing level have been relatively slower.

Somasundaram PR, Regional CEO, India, World Gold Council, commented: “The Indian retail jewellery market has seen several structural changes over the last decade, some driven by regulations and some by a shift in consumer behaviour. While mandatory hallmarking, implemented in its final shape as defined, should provide a level playing field, national and regional chain stores are nevertheless set to gain market share in the current trend because of their access to credit and the large inventory they carry. Small players need to become more transparent and adopt technology faster if they have to gain similar access to credit and protect market share. On the other hand, the manufacturing sector is only at the beginning of its much-needed transformational journey. Jewellery parks, some of which have already been established, will help address concerns about ethical standards and working conditions. The same can help eliminate barriers impeding the growth of the manufacturing industry, further supporting demand positively. Bottom line is - the sector has grown but the wave of change facing the industry due to tech adoption and broader tax compliance in the economy can be a boon for those who are willing to transform and a significant risk for others whose business models continue to rest on legacy practices.”

About the retail market structure of India, the Report says that over the last few years demonetisation and the introduction of the Goods and Services Tax (GST) have helped the industry to become more organised and therefore more transparent. Moreover, shifting consumer preferences have aided industry organisations as customers seek better shopping experiences, transparent pricing, buyback policies, and increasingly purchase via bills and online transactions.

Due to the above, chain stores have grown over the last 10-15 years, gaining 35% market share as of 2021. Also, the demand for better designs and consumer experience, a growing awareness about hallmarking, better pricing structures and competitive return policies, have all accelerated the shift towards chain stores.

Chain stores, with national operations, focus on daily wear and fast-moving jewellery items (such as chains and rings) and these items account for 50-60% of their business.

The report estimates that over the next five years, chain stores will continue to expand, and their market share will surpass 40%. The top five retailers alone are likely to open 800-1,000 stores during this timeframe.

The report also points out that the Indian ‘online’ jewellery market has grown rapidly in the last few years as millennials’ demand increased. Most sales are driven by consumers aged between 18 and 45. The report projects that the market share of online jewellery could increase to 7 to 10% in the next five years.

The challenge that the Report sees is that the Indian gem and jewellery industry still struggles with securing bank credit. More than 20% of loans given to this sector have become non-performing assets (NPAs), resulting in the gem and jewellery industry gaining just 2.7% of India's total credit issuance. Financing is even more troublesome for smaller independent jewellers who tend to rely on the monthly gold scheme for funding or act as money lenders.

The report surmises that national and regional chain stores will continue to gain market share because of their access to credit and the large inventory they can carry. Conversely, if smaller players are not able to meet accepted standards of transparency their access to credit will be limited, as banks and financial institutions remain wary of lending to the gem and jewellery sector.

A valid observation in the report is that despite being one of the world’s largest fabricators of gold jewellery, India’s manufacturing industry is still highly fragmented and unorganised. The report states that only 15-20% of manufacturing units operate as organised and large-scale facilities which were less than 10% about five years ago.

The report attributes this growth to three distinct factors: the expansion of organised retailing; growth in exports; and a clampdown by authorities. The manufacturing industry is still dominated by small jewellery workshops and artisans. While there is no official estimate on the number of manufacturers in India, and many operate independently as freelancers, industry estimates suggest there are 20,000-30,000 manufacturing units across the country. While the artisans form the backbone of the Indian gem and jewellery industry, many still work in extremely poor conditions and are underpaid as compared to other industries.

However, the government and industry are focusing on shifting manufacturing from congested centres to jewellery parks and this will aid organisations within the trade. These integrated industrial parks will provide access to facilities for artisans under one roof, including manufacturing units, commercial areas, residences for industrial workers, commercial support services and an exhibition centre.

The Indian government, through the introduction of mandatory hallmarking, has attempted to create a level playing field in terms of purity and enable retailers to focus on differentiation. These moves by the government will support demand and eliminate barriers in the manufacturing industry.

Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough&Polished