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While gold as an asset class continues to remain attractive given the global uncertainty, the jewelers in India are facing a much less promising future. In today's post, we look at the steps some jewellery retailers are taking and try to understand the rationale behind them.
Akshay Tritiya & the gold rush
Akshay Tritiya is one of the most auspicious occasions for Hindus in India, and one they often celebrate with making an auspicious purchase of gold. Gold retailers across the country eagerly wait for these occasions where they get a surge of demand and footfall in their stores, and can usually get customers leaving the stores with more than what they can come in for.
Things are different this Tritiya though. For one, folks won't be venturing out to the stores given the nationwide lockdown. Gold not being an essential item, wouldn't be available for delivery until the lockdown ends either. The impacts of the lockdown are combined with a weak demand environment, further denting sales. The jewellers in India aren't backing down though, and are prepared to go the extra mile to get their customers buying even in this demand environment.
What's on offer
Price optionality - One concern customers might have while making the purchase is the movement in gold prices, which could taper down when the lockdown is lifted. To ensure that this doesn't hinder the purchase decision, jewellers are offering customers the option of availing the lower of the two prices on the date they book and date they order.
Making charge cuts - Making charges can add up to a lot when you're making the jewellery purchase and go to aid the margins for the retailers. To make the deal more attractive to the customer, gold retailers are offering discounts upto 30% on the making charges of the jewellery they sell.
Discounts on gold rates - Jewellers are also offering discounts on the gold rates to provide the last push for customers looking to make the purchase.
The road ahead
The road ahead is likely to be bumpy for most jewellery players. Wedding demand, which contributes more than 50% of Indian jewellery sale has already begun taking a hit. As the lockdown extends, regular sales also get dented. Jewellery purchase considered a discretionary spend, will also see a slowdown as the economic slowdown worsens.
Firms have been preparing themselves well to deal with the situation when the lockdown opens. The online channel is likely to see a sharp uptick, marking a fundamental shift in how Indians are comfortable making gold purchases. In stores firms are having detection equipment, distancing norms and more in place to ensure a safe environment for the customers in their stores.
Challenging times ahead for one of the country's favourite industries, and we will be keenly following how the leaders in the industry tackle the obstacles that lie ahead.
About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P. Morgan and Goldman Sachs, before founding GSN Invest.