Customer preference moving towards organised sector
MUMBAI: The COVID-19-induced lockdowns and economic downturn have put the small and unorganised jewellers in a tight spot with many small players finding it difficult to sell their inventory and are planning to wind down businesses, amid high gold prices and weak liquidity position.
According to Manish Basawante of India Ratings and Research (Ind-Ra), customer preference is also moving towards organised jewellers, which can provide a safer buying experience while maintaining social distancing norms.
Moreover, Basawante noted, organised jewellers have an added advantage due to their wider customer reach with presence in digital channels.
“Although the government has extended the deadline for mandatory hallmarking to June 2021, the hallmarking requirements could boost market expansion for organised jewellers,” Ind-Ra analyst said.
Stable-to-negative outlook
India Ratings and Research (Ind-Ra) has assigned a stable-to-negative outlook for the retail jewellery sector for the second half (H2) of the current financial year (FY21).
The demand for retail jewellery was muted in the first half of the current year (H1, FY21).
However, an expected sharp recovery in Q3 will be contributed by the pent-up weddings demand and major festival season, which shall remain a key monitorable amid a higher-than-expected rise in gold prices.
Furthermore, a better-than-long-term average monsoon rainfall would boost the rural economy, which contributes meaningfully to overall demand.
Ind-Ra believes that jewellery demand shall be supported by a rise in savings at the hand of salaried middle-class and upper-middle class end-users, due to the postponement of purchases and cancellation of travel/tourism plans among other reasons. However, it remains to be seen whether such savings would add to jewellery demand in H2, FY21 or will be used in compensating loss of income or saved for emergency situations.
Overall revenue to post decline in FY21
Ind-Ra believes the overall revenue in FY21 is likely to decline by 20 per cent-25 per cent year on year, due to a reduction in discretionary spending amid a reduction in income due to the on-going slowdown.
However, the business from rural areas and weddings may remain resilient. From the fourth quarter, sales are expected to improve due to the base effect and expected normalisation in economic activities.
Demand declined 75 pc in Q1
As expected, the overall industry demand declined by 70 per cent-75 per cent year on year in the first quarter of the current year (FY21), amid multiple effects of the lockdown and sharp increase in gold prices.
The recovery is a tad better than earlier estimates due to higher gold prices and pent-up demand in June 2020. The second quarter is expectedly weak due to the lack of festivals and auspicious occasions.
Many jewellers witnessed a down trading in terms of grammage due to the reduction in purchasing power, whereas there is a likely shift towards pure gold jewellery from studded jewellery.
Customers postponed purchase of large sized jewellery amid a sharp uptrend in gold prices, whereas the sales of gold bars/coins/bullions were supported by customer sentiments to lock-in gold prices in anticipation of a further increase.
