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Global jewellery retail industry and the growth of jewellery retail chains

 

The annual global jewellery retail sales have grown at a CAGR of around 5% from USD 146 billion in 2005, this is expected to reach USD 250 billion in 2017. The top 5 regions for the jewellery retail sales are the US, China, India, Middle-East and Japan, together these account for 64% of the global jewellery retail sales. The jewellery retail industry is highly fragmented with numerous localised jewellery shops. The retailers may manufacture the jewellery on their own or they may outsource the manufacturing. The industry has moved from only manufacturing to manufacturing and retailing and further to branding. Additionally, the preference towards branded jewellery has increased with a rise in consumer discretionary spending and personal disposable incomes. In 2015, the branded jewellery accounted nearly 25% of the global jewellery retail sales. The organised jewellery retail chains operate their own shops and also have franchises. 

Televisory analysed three global and few regional jewellery retailers. Signet, Tiffany and Pandora are global jewellery retailers and there has been a continuous increase in the number of their stores as there is more preference towards branded jewellery. The number of stores of PC Jewellers, an Indian jewellery retailer grew at a CAGR of 20.1% in the past 5 years. Similarly, Jubilee Enterprises, a Thailand-based diamond jewellery retailer witnessed a CAGR of 13% in the number of its stores in the last five years. Pandora, the global jewellery retail chain saw a CAGR of 36% in revenue owing to the formation of the brand recognition.

The cost of the goods sold by a jewellery retailer depends on the prices of gold, diamond and the market prices of other precious metals and stones. Companies use hedging in the form of forward contracts, options and inventory replacement to offset the erosion of profits when the costs of materials rise. 

The graphs below depicts that the gross profit margins of the above-mentioned companies were relatively stable despite the fluctuations in the prices of gold and diamond. This was so because these companies were in a position to change their retail prices according to the fluctuations in the market prices of raw materials. When gold and diamond prices are high the retail prices of jewellery in their stores also rise.

The jewellery retail chains have been successful in leveraging their brand recognition to command a premium price for their products. Moreover, the beneath chart on the gross profit margin shows that with exception to the PC Jewellers, the rest of the companies operate at a relatively higher gross profit margin (30% to 70%). These companies strive to provide a great store experience and high-quality customer services. Their stores have employees with a good knowledge of jewellery, thus, the employee expenses for these companies are high. As these firms carry an inventory of a very high value, they have stringent operating protocols and advanced security systems in place. Therefore, due to these reasons the SG&A expenses are high. Although the gross profit margin for most of the companies was very high, their EBITDA margins were relatively low.

The jewellery retail industry caters to a luxury segment and owing to this, witnesses a high inventory turnover period. The table underneath lists the inventory turnover period of the companies in 2015. During their growth stage, they have both short term and long term liabilities. They can sustain their growth if their brand value helps them to earn commensurate returns. It can be seen that these companies have a good debt service coverage ratio.

From the above analysis, it can be concluded that organised jewellery retail chains have a scope of growth if they create a brand value and also sustain this brand awareness. The higher the revenue they can command for their market position, better will be their performance. It is observed that despite a high growth in the number of stores, most of the companies were able to maintain their EBITDA margin. Pandora retained the highest EBITDA margin, owing to the emphasis on a franchise model and its positioning as a brand management company.

Also Read:- The impact of the declining prices on Silver

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