| Jewellers push sales via discounts | |
| Dilip Kumar Jha / Mumbai Feb 23, 2012, 00:36 | | | | | |
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The current global economic problems, led by the uncertainty in the euro zone, may have pushed precious metals and stones out of the reach of the common man. But, retailers’ latest move to clear their inventory could come as a respite for buyers.
Jewellery retailers are following in the footsteps of garment makers, who are cutting prices and offering discounts for long periods to clear their stocks.
Leading jewellery manufacturer and retailer, Gitanjali Gems, is offering a flat discount of 20 per cent on all exquisite brands, including Nakshatra, Gili, Sangini, D’damas, etc. Tanishq, a Tata brand, is offering up to 20 per cent price relief to consumers. Another renowned brand, Orra, a diamond jewellery venture by Intergold Gems, is set to offer up to 25 per cent discount for a month beginning April 1.
Jewellery makers normally offer discounts on making charges, but it is a little different this time. The discounts are on jewellery prices.
Jewellers prefer to relinquish old stock by offering some discounts rather than sending the inventory for re-melting and re-making of jewellery items because that has a chance for material loss.
A Tanishq executive said the material loss in processing of old stocks is higher than the calculated loss in discount. So, it is always better to desist from stockpiling, especially when buying response is lukewarm.
Re-melting also lead to material damage in transit, which is irrecoverable. The process involves extracting precious metals and stones separately through machines, which always entails the fear of loss in gems’ real value. Generally, the overall loss is nearly 25 per cent if jewellery items are sent to be re-made. So, it is better to renounce a part of profit to clear inventory, the executive added.
These offers come as a surprise to many, as the apex trade body, the Gems & Jewellery Export Prom-otion Council, claims to have a value addition margin between 15 and 20 per cent. A discount of 20 per cent and above would result in a loss for the company, which many retailers would not like to offer. But, Gitanjali Gems Chairman Mehul Choksi justifies it. “We pass on to consumers the raw material price benefit that we get through efficient hedging strategies,” said Choksi.
India sees around Rs 325,000 crore of annual jewellery sales with an average growth rate of 20-25 per cent a year. But, the discount is offered only by branded jewellery retailers, which constitute six per cent of the industry and witness faster growth rate, between 40 and 50 per cent.
Orra CEO Vijay Jain, however, says: “The discount is a promotional effort which allows us to recover only the cost of raw material prices. Sometimes, we even take a marginal hit on our profit. But, through discount offers, we are able to win customers’ goodwill, which helps future purchases.”
According to Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation, the normal trade margin between raw material and finished jewellery items, which is 15-20 per cent, goes up to 80 per cent for branded jewellery retailers. Since, most retailers have integrated manufacturing facilities, their margin goes up even higher, he says.
“From such a high margin, if jewellery retailers shed 15-20 per cent, they still make huge money. In the overall cost of jewellery items, gold constitutes around 15 per cent. So, the discount is offered purely on diamond and labour cost, which depend on individual companies. Gold jewellery retailers, however, cannot afford such discounts. Unlike diamond jewellery retailers, they offer discount only on making charges and not on the entire cost of jewellery,” he adds.
In 2011, gold prices surged 31.6 per cent and 10 per cent in rupee and dollar terms, respectively. Data compiled by De Beers show a 29 per cent jump in rough diamond prices last year.
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