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10 may 2012

Valery Budny, CEO of RESTEC JUNWEX, who is also the organizer and inspirer of Russia's largest jewelry trade shows, Junwex, held in St. Petersburg and Moscow in February and March, answers the questions from Rough&Polished trying to find out how he assesses the outcome of these shows and what the current mood of jewelers in Russia is.

Jewellery exhibitions give you a chance to identify the situation in the jewelry market - what is it now?

The exhibition in St. Petersburg enjoyed good attendance - on the whole, it was even bigger than last year, expanding over additional 1,000 square meters and hosting a greater number of participants. It has always been and remains a source and major generator for the Jewelry Russia Program.

Of course, the exhibition made it possible to see what happens in the jewelry market in a shaky economy on the backdrop of global pre-crisis or even once again crisis environment. Nevertheless, Russian jewelers appear to be a fairly powerful communion, sophisticated and insightful. For example, they may offer a large impressive ring with a diamond, say, 0.5 carat in size coated with tiny diamonds, but its inside is completely hollow (to make it they use 0.7 grams of gold, which is a very small amount taking into account its ever increasing price). This is just one example of how jewelers here adapt to the market and, in general, people do not lose their heart and look into the future with optimism.

The numbers indicate the same thing: in 2008 we produced, for instance, 47 million pieces of gold jewelry using 126.92 tons of yellow metal, whereas in 2011 we used 77 tons of gold - jewelry became lighter in weight. But basically, we are well up after the fall of 2009 when, after the figure of 47 million pieces of jewelry made in Russia, jewelry production in this country slumped by half. In 2010, we went up a little, and in 2011 we produced 34 million goods. We are bouncing back by the number of jewelry pieces to where we were before the crisis, but not yet by the tonnage.

The previous exhibition was mainly characterized by a very diverse range of products. Everyone understands that today it is impossible to live on the old stocks since gold becomes more expensive and prices are jumping which even worse than just a sharp rise. It means that if today you released a product worth 100 rubles, tomorrow you will have to sell it for 97 rubles as a result of falling prices (and customers nowadays are well briefed on price movements). Of course, it is hard to work this way: for a jewelry factory it is difficult to build relationships with vendors and calculate at least some short-term pricing, while repeated re-evaluation of goods inhibits buyers’ activity.

So the product range turned to be wider and better, and this is the first positive impression of the exhibition.

Was the situation much worse at Junwex last year?

Then we had a lot of criticism from retail vendors. There was a feeling that many manufacturers came to the show having old inventories, whereas retail buyers visit jewelry stores looking for something new. One thing is clear: there is no doubt that the ruble will soon depreciate two or three times. And this may be seen by customers’ behavior - they exchange their money for gold jewelry because there is no way to buy bullions.

The first observation is that this time there was a good range of products: competition is growing, customers turn more demanding and jewelers are fighting for a place under the sun - for high quality and design.

On the other hand, if previously sales personnel at the exhibition used to work for two or three days on the average and then leave, now they come on the day set for arrival, toil six days and still do not have enough time. Because, first, the selected product range falls within customer demand, and secondly, the situation has really changed: today the jewelry counter features many manufacturers and making separate purchases it is possible to compile an attractive showcase which gives vendors a possibility to work. There is no other way for them to work now.

What else has changed in the jewelry market?

A lot. Previously, in the early 2000s, the share of large manufacturers in the market reached 77.5% of the total output. Today, ten large companies produce only 24-25% of the total output. If previously you used to work with Adamas and Yashma buying from these two companies (chains from one of them and everything else from the other) and it was enough for your inventory. However, today everything has changed: people saw all the diversity of the jewelry world and the demanding end user is looking for new products each time, acquiring not just a piece of gold, as in Soviet times in exchange for a coupon, but trying to find something suitable for his or her soul.

It is absolutely true that it is now an established practice to offer collections on a seasonal basis. Previously, it was summer and winter alike. Now our three exhibitions run under the Jewelry Russia Program include Junwex New Russian Style set for May with implications for the coming summer season (featuring leg chains, bracelets, earrings-chains-stones for piercing - now that's a whole fashion trend); then it is followed by a September exhibition - this is the time to draw up programs for jewelry production for the next year – which helps define the trends in demand, production volumes and broad marketing strategies in order to start manufacturing and launch wholesale shipments for the most effective New Year Eve shopping season. Demand for jewelry begins to rise sharply in winter and spring time on the eve of St. Valentine's Day, February 23, March 8, and Easter. Of course, in the western civilized market demand is more or less regular every day. But we have a seasonal jewelry market with two peaks of sales – on the New Year and the 8th of March, after which demand goes down and jewelry stores turn empty. In previous years, the New Year sales accounted for 60-70% of annually sold goods, while the rest 20-30% was sold before the 8th of March, and more 5-10% was spread over the year, in the remaining time. Now, these two peaks lowered making space for new holidays (St. Valentine's Day, matriculation or finals).

What do you think about competition from fashion gadgets and other luxury goods such as handbags, which are now successfully challenging jewelry?

A few words about competition and the role of jewelry shows: the jewelry exhibitions of the Junwex format together with the activities of major jewelry networks (Adamas, Yashma-Gold, Almazholding, Bronnitsky Yuvelir, also known as Hallmark 585) running their ads in federal mass media, TV, radio and outdoor stands appear to be the only thing that supports the competitiveness of the jewelry gift. During the exhibitions held within the frames of the Jewelry Russia Program our advertisements cover the whole of Moscow, St. Petersburg and Yekaterinburg which in conjunction with federal network advertising before the holiday sales peaks draws customers' attention to the fact that there is such a gift. Today, customers’ loyalty to the jewelry gift is utterly low and the culture of information and PR in the jewelry market appears to be in an underdeveloped state. But the notions of treasure gifts are used by all the other industries: vodka is called “pure as a diamond,” candies are compared to "pure gold", and even gifts we give are described as "precious" - these terms pertaining to jewelry are used in other areas. If we all do not come together, if the federal jewelry networks will not understand the need to join the club of the Russian jewelry trade, coordinating among other things this kind of advertising, jewelers will have a difficult life. Tradeshows, which provide commercial and industrial ties and solve the problem of macro-advertising, PR and marketing, construction and operation of the jewelry market, allow us to support the budgets of businesses under these volatile economic conditions. Just imagine: prices for gold, silver, precious metals on the whole, and gems are galloping on the background of incomprehensible demand (regional demand is completely chaotic), whereas the exhibitions Best Jewelry of Russia help the company, the manufacturer to communicate directly with the retail buyer and identify the marketing environment for new products.

What is your outlook for the diamond market and diamond jewelry sales?

I do not want to offend anyone, but the value of diamonds is largely inspired by parables and fantasies invented by people themselves. Today, it is quite easy to produce diamonds in artificial conditions, providing for desired clarity and any color – such diamonds will not differ from natural stones. After all, we turn on the TV and see ads for stones sold at three pennies and hear that this brilliant piece of glass can be distinguished from a real diamond only by an expert. In reality this is quite true. I have heard an opinion, perhaps, fearful for jewelers that in 40-50 years diamonds will lose any value at all, because they will be churned out as cooked sausages by any factory. That is why there are entire programs to protect against fraud, where synthetic diamonds as well as enhanced natural diamonds are being questioned, and finally that's why there is a program to combat conflict diamonds. Specialists and interested market forces are trying to maintain the authority of the diamond. Regarding the identification there is a terrible story - I will not say where this is coming from, but this is what I was told by experts: a one-carat diamond was twice sent to the New York gemological center, and on both occasions they said it was a natural stone. But in reality it was lab-made ...

Was it a reliable source?

I heard it from the person, who made that diamond. They have their own cutting factory dealing with natural stones, also their own large operation producing artificial stones and a third business turning out industrial diamonds. They are very serious professionals with scientific degrees, and they say: yes, there is really an instrument defining whether a stone is artificial or natural, but it is very difficult to give such an instrument to everyone. In this case, I'm not a big expert, but my opinion is: if we cannot support a purely emotional authority of the diamond as an eternal value, on the one hand, and on the other hand if we do not provide proper identification of natural and artificial stones, it is possible that predictions about the finitude of the diamond market will already come true in this century. We have to work, to make a breakthrough in the PR and advertising.

Do you expect changes for the better in the jewelry and diamond markets in connection with Russia's entry into the WTO?

There are signs, directly showing that the banks which have taken diamonds as collateral for loans will go bankrupt tomorrow. With regard to changes in the jewelry and diamond markets in connection with Russia's entry into the WTO, they are not well-defined. Of course, the WTO will hit corruption - I think that already tomorrow the customs service will turn very unpopular and thugs will not strive to get enlisted in the police and customs any more: people will stop giving them bribes. In this sense, the WTO for us is a step forward. On the other hand, if we see fake Rolexes all around us, as well as other unprotected brands, tomorrow we'll be working by common rules and Rolex will be Rolex and Boucheron will be Boucheron. May be this will teach us to protect our own brands since they are emerging here as well and we can be proud of it.

Russian jewelers have created today a unique industry - with its own reserves of precious metals and stones, modern, technologically advanced and innovative - which can allow us, without presidential decrees, but with proper organization and support, to fill this country's budget in an environment when our oil and gas will be entirely exhausted or when new or alternative energy sources will appear.

Galina Semenova, Rough&Polished