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Russian Jewelry Market Trends

24 march 2009

The major difference in media coverage of jewelry events in Russia and abroad is that so far in this country no one is seriously tackling the idea of a coming epoch of “new modesty”. This idea was thrown into the world mass media by designer Karl Lagerfeld. He predicts that the wave of world recession will bring “new modesty,” which will replace the dying culture of “bling.”

What for millions means loss of jobs and a slump in their living standards, fashion veteran Lagerfeld has compared with “big housecleaning.” "This whole crisis is like a big spring housecleaning — both moral and physical," he said in his interview to the International Herald Tribune. "There is no creative evolution if you don't have dramatic moments like this. Bling is over. Red carpetry covered with rhinestones is out. I call it 'the new modesty.' "

Lagerfeld’s statements gave a jog to discussions in a number of world publications in Britain, the United States and France. Behind the invitations to “new modesty”, there is more often than not a poorly hidden social byplay: there is no point in irritating people who suffered from the crisis. There are grounds for the fear of social eruptions (first of all, of course, not in individualistic America, but in Europe famous for its revolutionary past): some countries have already faced mass protests, which in Iceland, for instance, led to beating the prime-minister. British law enforcement authorities are gearing up for a “summer of wrath” and sociological surveys point to the growth of racist feelings in Europe.

In Russia social background does not so far look that tense. And discussion of the “new modesty” problem does not so far take too much space in the mass media. The only such event was generated by the “anti-glamour” program released by Alexander Gordon on the First TV Channel. It is noteworthy though that one of the program participants – Nikolay Uskov, the editor-in-chief of the GQ Magazine’s Russian issue – as far back as last year announced the end of the Putin style glamour and advent of “luxury minimalism.”

“From now on it is vital to have IDEALS, look SIMPLE, but EXPENSIVE, live modestly, but with taste, value quality and comfort… The indicator of real success is going to be not consumption, but self-expression and quantity of spare time you are able to spend on yourself,” he wrote in his blog as far back as April 2008. However, then this was in no way connected with crisis.

The Russian mass media agree that the crisis brunt was born by the jewelry companies operating in the mid-price segment. The first prize in sales was shared between the two groups of jewelry: cheap pieces ranging from RUR1,000 to RUR5,000 and the most expensive ones starting from RUR100,000 upwards, as RBC TV reported. The so-called middle class was virtually completely ousted. Top managers who earlier were ready to spend to a certain extent more than the average buyer now prefer to spin out money and temporarily abnegate from gold and diamonds. This drop in demand caused adequate reaction on the part of suppliers. According to wholesale dealers, they switched over to less expensive items. And again, by no means everyone is ready now to buy new goods.

Despite all the financial problems the luxury class is still in favor - as distinct from their minor jewelry brotherhood, jewelry pieces worth RUR500,000 and more are in great demand. Many view such jewelry as a safe way of investing money under crisis conditions.

The complicated situation in the jewelry market is worsened by the illegal traffic from China and Hong Kong. Domestic jewelry can easily compete with legal imports in quality but so far cannot beat illegally brought jewelry in price. The amount of grey jewelry on the market is almost 80% and it is sold under Russian trademarks in spite that its quality does not comply with this country’s standards. According to suppliers, if the government will not take action Russian manufacturers may lose the entire market in this environment.

For companies operating in the mid-price segment there are two possibilities to develop under crisis circumstances, the Expert Magazine says. The first one is to move into a higher segment, but this decision is hard to implement. Although some Russian companies learned how to produce quite good jewelry, still their attempts did not pay off: they lacked technologies, funds and mere time to create premium brands. During the crisis this turned to be impossible to achieve.

The other way of development for “medium” companies is on the contrary to cut prices preserving quality. This goes in line with the new trend: consumption in Russia becomes more frugal and balanced moving closer to the European way. This decision is backed by the fact that the middle class here – managers and “white collars” – suffered the greatest losses in terms of their income. So if companies catering to the middle class will reduce prices they will virtually not lose any clients.

The survey among jewelry consumers performed by the RosYuvelirExpert Information Agency and Rossiiskaya Yuvelirnaya Torgovlya Club showed that jewelry consumers’ age was significantly older turning into a major trend. The number of buyers between 20 and 30 years old decreased to 22%, while their number between 30 and 40 years old increased to 31%. The most credit worthy people were 40-50 year old (33%).

About 42% used to buy jewelry every year: this is a rather high indicator, particularly if taken into account that almost 24% were purchasing jewelry two times more often. But one third of prospective buyers were not similarly active.

From the point of view of consumption demand, the major difference between jewelry pieces was in their price. About 26% of jewelry art connoisseurs were ready to pay RUR30,000 right away for some piece they liked. Almost the same number of buyers (24%) were able to afford not more than RUR5,000 for jewelry.

There were 48% of those who preferred foreign jewelry and 32% voted for domestic jewelry. The rest were “omnivorous.”

There is a growing trend in being choosy to the image of manufacturers and sellers. Price and design are critical for 65% of buyers. The first is important for 71% of women and the second for 62% of men. Almost 55% of both pay attention to the quality of jewelry.

What is to be done to make Russian jewelry a maximum success in demand? Over one half of the respondents said it was necessary to improve the quality of jewelry pieces, while 43% were in favor of lower prices and 37% demanded changes in design.

According to Sergey Dokuchayev, General Manager of Saint Petersburg-based Russkiye Samotsvety, in December 2008 his company’s sales reached the level of one year ago, while in the first six months of 2008 the growth was about 20%. In January 2009 sales went down 5% year-on-year, although this month was traditionally considered as moneymaking. Jewelry retailers expect an even greater slump in sales in terms of jewelry pieces in April-May 2009. Dokuchayev hopes that his company will be able to offset lower demand by raising prices, the Delovoy Peterburg Daily says.

Decreased production turned into a common trend for jewelers. In 2008, the Russian jewelry industry registered a 3.5% drop towards 2007, Flun Gumerov, President of Almaz-Holding informed.

In January 2009, Zoloto Yakutii, a large jewelry enterprise, decreased its production by 15%. Its General Manager Alexander Fyodorov says that simultaneously the company is starting to change its product range betting against mass consumption jewelry.

Alexander Gorynya, Chairman of the Union of North-West Jewelers, forecasts that in March-April 2009 jewelry manufacturers will have enormous difficulties with working capital. According to him, after April jewelry production in Russia may drop by 40-50%.