5 Feb 2018
E-commerce and Indian Gems Transform Russian Jewellery Sector
With free trade with India looming and e-commerce whittling away at traders, jewellers face an uncertain future.
Russia's jewellery market is at something of a crossroads and is obliged to contend with a bewildering variety of transformative forces. On one hand, it is being battered by falling revenues, narrowing margins, a drop in the average receipt level and the migration of cash-strapped consumers from the mid-market to the budget sector. At the same time, trade barriers are coming down and a number of overseas players – particularly those in India – are avariciously eyeing prospects in Russia.
It is really only the upper end of the market that is displaying any degree of stability. Even here, though, there are signs that this top tier is morphing into a subdivision of the broader luxury-goods market, a sector it has far more in common with than it does the murkier end of the jewellery business. In fact, given the blurring of the lines between jewellery and the fashion / accessories sector, it could be argued that jewellery now accounts for some 10% of the total spend in the luxury sector.
This shift in the positioning of high-end jewellery has clearly been to the benefit of many of Russia's leading luxury retailers, most notably Bosco di Ciliegi, the Mercury Group, Jamilco and Cosmos Gold. Their fortunes have been further boosted by the continuing growth in the number – and wealth – of Russia's super-rich, a privileged demographic that has managed to thrive regardless of the country's ongoing economic crisis. Increasingly sophisticated, they are now looking beyond the more traditional brands – the likes of Bulgari, Tiffany and Cartier – and turning instead to many of Russia's more contemporary, emerging high-end jewellery brands.
Even putting the super-rich to one side, it is fair to say that the overall jewellery sector has remained viable – possibly even more profitable – while the wider Russian economy has stagnated. In fact, investing in gold bullion / jewellery is now the third-most popular recession-beating strategy, coming after only automobiles and real estate.
Even though some 15% of all Russians see gold as a more robust form of investment than foreign currencies or stocks, this may not be enough to insulate the sector from two major agents of change looming on the horizon, one structural and one procedural. In the latter case, it is the opening up of the market to Indian traders that is likely to trigger wholescale change, while the former relates to the seemingly unstoppable rise of the e-commerce sector.
With particular regard to India, talks resumed at the end of last month regarding fast-tracking a Free Trade Agreement between the world's second-most populous country and the five-nation Eurasian Economic Union (consisting of Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan). Once an agreement is struck – and there is clear political and economic interest on both sides in making it happen sooner rather than later – the expected end of import-duty barriers will inevitably result in massive inflows of Indian gems into the Russian market.
While, initially, this will be something of a windfall for Russian jewellers, over the longer term it will inevitably drive prices down. Sensing the way the wind is blowing, a number of Russian jewellers are said to have already made exploratory forays into India, hoping to strike advantageous deals before the floodgates well and truly open.
In terms of e-commerce, its impact is no less fundamental than the looming prospect of free trade with India. Already, the development of the sector has seen the role of the middleman trader whittled away as consumers and manufacturers increasingly deal directly with one another.
It should be no surprise, then, that all of the three leading players in the Russian jewellery sector maintain their own production facilities. Indeed, one Russian business that started out purely as a trader – Perm-based Sunlight – has now migrated almost wholly into the manufacturing sector.
These transformations asides, there remains a number of products, styles and subsectors that Hong Kong distributors / suppliers should bear in mind while targeting the Russian jewellery market over the next 12 months. Most obviously, the demand for male jewellery is growing apace, though it is not yet likely to give rise to specialist men-only retailers.
High-end watches and jewellery heavy with Russian Orthodox Church iconography are also likely to be big sellers. At the same time, exclusive designer jewellery one-offs and collections are set to be highly sought after, while, at the lower end of the market, jewellery discounters are expected to make serious inroads into the sector.
Leonid Orlov, Moscow Consultant