Economics and demography giving boost to Indian jewellery market

India's surging economic growth is drawing more people from the countryside to become city-dwellers and that is creating a burgeoning middle class.

Although the diamond and jewellery industries’ eyes are usually turned toward China where any discussion of the emerging markets in the east is concerned, India appears to currently have the more developed jewellery market. Although the Chinese diamond jewellery market is soaring, it is still at a relatively early stage whereas the Indian market is more mature.

And financial results announced this week by two major players in the Indian retail jewellery sector give added weight to the rising demand for jewellery in the sub-continent. The Gitanjali Group reported that revenues jumped 46 percent to $584 million in the third fiscal quarter ending December 31, while net profits soared 64 percent to $22 million. Diamond sales surged 58 percent to $275 million, while jewellery sales were up 37 percent to $330 million. Domestic sales powered ahead by 78 percent to $284 million, while international sales jumped 25 percent to $300 million.

Meanwhile, during the first nine months of the fiscal year, Gitanjali’s group revenues rose 43 percent to $1.55 billion, and net profits soared 87 percent to $57 million. Meanwhile, diamond sales surged 50 percent to $798 million, and jewellery sales rose 36 percent to $806 million. Domestic sales were up 53 percent to $666 million and overseas sales increased by 36 percent to $880 million.

And the potential of the Indian jewellery market is being recognized abroad, with a recent report that LVMH Moët Hennessy Louis Vuitton, the largest luxury products company in the world, is to buy a large minority share in India’s Gitanjali Gems' planned unit that will run its branded jewellery and retail businesses. The value of the deal is believed to be $100-125 million, according to reports.

Meanwhile, Goldiam International, which manufactures jewellery in India, reported that third fiscal quarter sales rose 47 percent to around $157 million. Revenue during the first nine months of the fiscal year increased by 30 percent to $389.2 million, while net profit soared 157 percent to $35.4 million.

Among the advantages enjoyed by Indian jewellery manufacturers and retailers is the large middle class population with the disposable income available to buy jewellery. India's middle class consumption is forecast to triple as a share of India's total consumption over the next 15 years, according to Deutsche Bank. Evidence shows that as income increases, the amount of discretionary spending and the variety of discretionary spending rises. In addition, the use of financial services by the middle class has increased significantly, with credit card growth ballooning in recent years, while the provision by banks of unsecured personal loans has also risen sharply.

The Indian domestic jewellery market is currently worth about $16 billion, according to a report by Credit Analysis and Research Limited (CARE). However, the value of the branded jewellery market in India is estimated at less than 10 percent of the total domestic jewellery market, CARE said. That could be because the domestic jewellery is 96 percent “unorganized”, meaning the approximately 300,000 traditional retailers or family-owned businesses with a presence in just one town, while just 4 percent is in the “organized” sector. The CARE report forecasts sales of non-branded jewellery products will grow at around 12 percent annually, with growing numbers of Indians being persuaded to buy due to hallmarking of precious metals and the rising number of certificates being provided with diamonds.

The branded jewellery sector is expanding rapidly as it shows Indian consumers the advantages of buying from the expanding number of jewellery chain stores. Indeed, there are estimated to be about 50 brands now compared with around 30 players in the middle of the last decade. And as the results from Gitanjali and Goldiam International and other firms have shown, revenues and net profit are rising by tens of percentage points.

In addition to Indian brands such as Tanishq, Nakshatra, Gili, Cygnus, Sangini, Asmi, and D'damas, India has also been penetrated by well-know foreign brands, such as Tiffany, Bulgari, Chopard, Cartier, and Harry Winston. Italian brands, such as Damiani and Di Modolo, sell via exclusive boutiques in five-star hotels, while international companies such as Thailand’s Pranda Jewelry, and Christian Dior, are also reported to be looking into establishing a presence in the Indian jewellery retail sector.

Gitanjali plans to increase the number of retail outlets in India for the sale of its D’Damas brand, with 15 stores being opened by mid-2010, and to add 80 more franchise outlets by the end of 2011. D’Damas has 28 franchise stores and a network of 750 retailers across 325 towns in India. The jeweller aims to reach consumers in 100 more towns via its expansion plan, said R K Menon, chief operating officer, D’Damas Jewellery (India) Pvt Ltd. The main challenge, initially, is to create awareness and, thus, demand for branded diamond jewellery, Menon added.

The overall Indian luxury market is valued at around $3.5 billion annually and forecast to expand to $30 billion by 2015, said business consultants McKinsey in a report in late 2010. Indeed, India could overtake Germany as the world's fifth-largest consumer market by 2025, McKinsey added.

McKinsey data also estimates that while the total population will increase by almost 30 percent between 2005 and 2025, the middle class population will increase by a factor of approximately 10, or almost 1000 percent, during the same period. Over a two-decade period from 2007, India’s middle class segment is seen rising from about 5 percent of the population to more than 40 percent.

McKinsey also estimates that by 2005, 21 million of India’s 210 million households earned more than $4,000 a year, qualifying them for membership in what it calls “the consuming class.” However, by 2015, the number of consuming class households will likely triple to 64 million. Meanwhile, at the top end of the market, there is a continuously expanding number of super-wealthy Indians who are likely to create strong demand for big-ticket items. The number of high net worth individuals grew by as much as 51 percent to 126,700 in 2009 from 84,000 in 2008, according to the 2010 Merrill Lynch-Capgemini World Wealth Report. High net worth individuals are defined as those having investable assets of $1 million or more, excluding primary residence, collectibles, consumables and consumer durables.

Two further elements that are seen providing a boost to growth in India are ongoing urbanization, and the comparative youth of India’s population. Currently, only around 30 percent of India’s population, or around 300 million people, live in cities, but over the next 20 years, that number is forecast to grow by a further 300 million. The new city-dwellers, inevitably, will adopt the more sophisticated styles and fashions of their neighbours, including jewellery purchases. That is likely to be all the more the case, says McKinsey research, since a large proportion of the new city inhabitants will be in their twenties and with the levels of disposable income necessary to splash out money on jewellery and fashion items.

It took around four decades from 1970 for the number of India’s city dwellers to rise by close to 230 million, but analysts estimate that it will take only half that time for another 250 million to join them. The forecast growth will also be uniform across the country affecting almost every state.

Related to that is what is described as the continued rise of “organized retail,” with large, branded store chains providing products that are systematically stocked and displayed, helping to accelerate the transformation of consumer preferences. Whereas organized retail accounts for less than a fifth India’s retail sector with most being in small, family-run shops, in recent years scores of shopping malls have opened on the edges of India’s largest cities and the trend is seen continuing.

The Indian jewellery industry is also changing its approach to the type of jewellery it is manufacturing, taking into account the need to make items that will appeal to young, upwardly mobile people who may not yet be earning salaries that enable them to buy big-ticket items. As a result, the domestic market is seeing more lightweight and highly fashionable designs that fall in a price range that is affordable.

"We have shifted our target from upper to middle-income people,” said Jayantilal Challani, president, Madras Jewellers & Diamond Merchants Association in comments to the media. “We also have started following a segment-oriented approach, wherein, instead of targeting buyers in general, we are targeting different groups, like working women, and children with specific designs."

Meanwhile, the Indian jewellery export sector is growing at around 7 percent annually, and is forecast to reach exports of $23.5 billion by 2012. As a result of the global financial crisis, many jewellery exporters have moved away from the traditional markets such as the United States and Europe to Hong Kong, Australia and Russia. And that has paid off with growth in exports in the first half of the current fiscal of around 10-15 percent. Exporters are also investigating opportunities in Sri Lanka, Bangladesh and Thailand, according to Yogesh J. Shah, chairman of the Gem and Jewellery India International Exhibition. "Earlier we never looked beyond the U.S. and European markets for exports, but now we are moving on to newer markets," he said.