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The Best of the Best is Never out of Fashion - Investing In The Jewellery Market In 2018

OGP Business Reporters / Members Contribute File Photos

Sept 4, 2018

Growth continues to be driven by consumers in emerging markets. The jewelry industry seems poised for a glittering future. Annual global sales of €148 billion are expected to grow at a healthy clip of 5 to 6 percent each year, totaling €250 billion by 2020.

In last year’s edition of Global Powers of Luxury Goods, we looked at ‘luxury’s new normal’, mid-way through ‘the decade of change’, and we discussed the opportunities created by changing consumer behaviours, the blurring of channels to market, increasing international travel, and the emergence of the millennial luxury consumer.

Our analysis found that over the last five years collectors spending on luxury jewelry has remained relatively robust, with only a small proportion claiming to have cut back on their spending. In China, Russia and the United Arab Emirates (UAE), markets that we have categorized as emerging luxury markets, the percentage of consumers claiming to have increased their spending stood at 70%, compared to 53% in the more mature markets (EU, US and Japan). However, there were big differences between consumers in emerging luxury markets and those in the more mature markets, with watches and jewelry favored much more by those in emerging markets, particularly in Russia and the UAE.

Growth continues to be driven by consumers in emerging markets. The jewelry industry seems poised for a glittering future. Annual global sales of €148 billion are expected to grow at a healthy clip of 5 to 6 percent each year, totaling €250 billion by 2020. Consumer appetite for jewelry, which was dampened by the global recession, now appears more voracious than ever.

In 2017, annual worldwide sales came to an impressive total of US$551.3 million – a figure that, doubtless, the international auction house will be looking to match, or even top, this year.

Sotheby’s was responsible for the sale of The CTF Pink Star in Hong Kong, which broke the world auction record for any diamond or gemstone after it fetched US$71.2 million at auction in April 2017. Similarly, the US$57.4 million sale of The Memory of Autumn Leaves and The Dream of Autumn Leaves in Geneva last May set a world auction record for earrings, suggesting collectors have a hearty appetite for rare and exceptional jewels.

The main coloured stones - diamonds, sapphires, rubies and emeralds -particularly if they are high-quality stones without treatment, will never go out of fashion. In Asia, we see increasing demand for coloured diamonds as collectors become increasingly aware of their rarity and beauty. And in recent years, with the rising Chinese market, jadeite jewellery remains strong.

The “new money” consumers who wear branded jewelry to show off their newly acquired wealth; in contrast to “old money” collectors, who prefer heirlooms or estate jewelry.

Anyway, the best of the best is never out of fashion.

Some data reveals that despite increasing internationalisation, US dollar-adjusted prices for equivalent items are on average over 50% higher in China than in Italy and France. This presents a clear arbitrage opportunity for travellers from Asia, and maintains the pre-eminence of European brands’ home markets as shopping destinations. An important influence affecting several markets over the past year has been China and the Chinese luxury consumers. Although a premium is charged in Asian markets for all brands, pricing strategies vary, and the price difference between China and France varies from just 20% to over 70%, depending on the brand. The highest premium is for watches and jewellery (55% on average) and the lowest is for bags (40% on average).

In mainland China, the slowing economy has resulted in lower spending, and the central government’s crackdown on luxury gifts in the corporate sector continues to have an impact. Nevertheless demand remains steady among the country’s expanding middle class, with their increasing disposable incomes, as they continue to buy better quality products and showcase their social status. In addition, as in other emerging markets, prices of luxury goods in China are being adjusted downwards to bring them in line with global markets. This is encouraging more Chinese consumers to purchase luxury brands in their domestic market.

At the global market, Slow growth in major developed economies, high levels of debt in emerging markets, deflation or low inflation in rich countries, a protectionist backlash against globalisation, troubled credit markets in a number of countries, and worsening demographics in many. Yet despite the economic headwinds, the sector is resilient and the rich are still making luxury purchases, especially in emerging markets.

There are buyers who come to auction specifically for stones, there are those who come for iconic designs, and those interested in the provenance of the jewel with our selection of Estate jewellery. To the rich, who have inherited jewellery from a past generation who have a completely different style and taste to their predecessors, and therefore look to sell these pieces in order to buy jewellery which they would enjoy wearing.

Furthermore, another significant challenge for luxury goods companies is how to transition to a more digitally-led distribution model while retaining the all-important element of quality. Omnichannel distribution will emerge as the dominant model in luxury retail, as it has done already in the mainstream retail market. While e-commerce continues its relentless rise, 63% of luxury goods purchases still take place in a physical store, with luxury consumers in mature markets more likely than average to shop in store, although consumers in emerging market are more likely to shop on a mobile device. Millennials are the most digitally-influenced luxury consumers, with 42% of their purchases made either by computer or via mobile devices, which are becoming more popular with all generations.

In all major markets over the past decade, online jewelry sales are only 4 to 5 percent of the market today, with substantial variations across regions, brands, and types of jewelry. For fine jewelry will reach 10 percent by 2020 and won’t grow much beyond that. The rationale: most consumers prefer to buy expensive items from brick-and-mortar stores, which are perceived as more reliable and which provide the opportunity to touch and feel the merchandise—a crucial factor in a high-involvement category driven by sensory experience. O2O mode is the current focus: offline jewelry giants develop online marketing channels, while online Internet jewelry brands gradually turn their attention to offline marketing channels.

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