Glitter goes out of jewellery sales

When Indian consumers slow down their purchase of gold jewellery during the festival season, it’s a sure sign of a faltering economy. Of course, sales have been generally low for other retailers (clothes are an example) as well and is a reflection of lower discretionary spending.

Consider Titan Co. Ltd’s last-quarter numbers. Its jewellery business, which contributes to about four-fifths of total revenue, reported its worse performance in a long while. Jewellery volumes declined by as high as 21% compared with the year-ago quarter, mainly affected by lack of gold coin sales. Adjusting for gold coin sales, volumes declined by 2%. Titan’s overall revenue and net profit for the December quarter declined from a year ago.

Another jewellery maker, Tribhovandas Bhimji Zaveri Ltd (TBZ), too saw a less glittering December quarter. Both revenue and net profit declined on a year-on-year basis. TBZ’s gold jewellery sales excluding coins fell by 4% in the December quarter.

The latest World Gold Council (WGC) data indicates India’s gold consumer demand, including jewellery and bar and coin investments, increased by about 13% in 2013 over 2012. That’s despite many measures to curb imports. Jewellery demand increased 11% in 2013. However, it’s worth noting that the full-year performance was helped by stronger performance in the first half.

“Indian gold demand in 2013 was skewed in the June quarter while there appears to be a sharp double-digit decline in the last two quarters,” according to Citi Research analysts. WGC data suggests 12% year-on-year decline in Indian gold jewellery demand in the second half of 2013, said a Citi note last week. Indian consumer demand in the December quarter declined by 16% compared with a 4% increase in China. Total jewellery demand though shows a slower pace of decline of 2% last quarter.

Most of the regulatory bad news seems to be factored into stocks of Titan, TBZ and PC Jeweller Ltd. All three stocks have declined since the beginning of this financial year. This means that any positive surprises—perhaps an import duty cut—on the regulatory front could boost sentiments.

In any case, some analysts say unless there is a healthy pick-up in purchasing activity, the scenario is likely to remain grim for some more time for jewellery companies. Firms have resorted to offering discounts and attractive schemes to cope with the situation.

“Given the market scenario, jewellers are likely to go slow on store expansion in the near to medium term. The smaller jewellers, PC Jeweller and TBZ, noted the long-term view on store expansion (with some focus on large shops) remains, but in the current external environment, expansion could be more measured, Citi says. In short, jewellers face not just a supply issue but a demand problem, which is the bigger menace.