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A GJEPCKPMG report
Executive summary
The gems and jewellery industry is extremely global in nature-given
the geographic dispersion of the value chain - from mining of
gold, diamonds, and platinum in Africa, Canada, Australia, and
Russia to polishing and jewellery manufacturing in India, China,
and Turkey, and retailing in the U.S., European Union, Japan, and
the emerging markets of China and India.
As one of the most traditional industries, it has witnessed
sweeping changes since the beginning of this millennium. Supply
sources have become fragmented, raw material prices have shot
up, and consumers have become more demanding and less loyal
than ever before. Regulators are cautious and consumer activism
is on the rise. These pressures have driven changes that are more
intense and lasting than any witnessed in the previous 50 years.
In the absence of a comprehensive global view of the current and
likely future state of the industry, players indulge in selective future
gazing. Given the leadership role of Gem and Jewellery Export
Promotion Council (GJEPC) of India in the development of the
industry, it was considered appropriate to initiate a study to take stock of the
current challenges and predict a future for the industry. KPMG, a global network
of professional services firms, which has done extensive work in the industry
joined in and over the last six months, teams from both organisations conducted a
study of the global industry.
The study focusess on understanding the current size and scale of the value
chain, identifying trends that will have an impact on the future, predicting the
likely state of the industry by 2015, recommending initiatives, and developing a
roadmap for various players given the expected changes in the environment.
Apart from interviews with major industry leaders to gather insights, the study
used quantitative modelling techniques to estimate changes in the size and structure
of the industry.
The report is limited to the precious jewellery segment of the industry, covering
the entire jewellery value chain and its three main elements diamonds, gold,
and platinum, which constitute 95 per cent of the industry in terms of value.
Silver, coloured gemstones, and palladium have been covered partially.
CAGR
200
(2000-2005)
146
160
5.2%
USD billion
136
120
113
111
2000
2001
118
124
80
40
0
2002
2003
2004
2005
Diamond
Jewellery
47.2%
Plain gold
jewellery
41.6%
China
8.9%
India
8.3%
Italy
5.0%
Japan
8.3%
Turkey
2.9%
US
30.8%
Middle East
8.9%
UK
3.1%
Sale of jewellery is concentrated in eight key world markets, which corner more
than three fourth of the worlds sales. The U.S. is the world's largest market for
jewellery and accounted for an estimated 31 per cent of world jewellery sales in
2005. India and China are the emerging centres of jewellery consumption and
have steadily increased their share of the pie to 8.3 per cent and 8.9 per cent,
respectively (2005)
Value addition at the two ends of the value chain is the highest, with intermediate
segments adding relatively lower value (29 per cent in diamond cutting and polishing
and 32 per cent in jewellery manufacturing).
The global gems and jewellery value chain (2005)
0
20
12.7
0.5
40
60
USD billion
80
100
120
140
160
1.7
CPD output
4.4
(2.4)
0.7
17.6
40.6
Jewellery
fabrication/wholesale
20.6
Jewellery retail
67.2
146
Jewellery retail: Increasing consumer sophistication, dwindling investmentdriven purchases, and competition from other luxury goods are influencing
the quantum and pattern of jewellery consumption in markets across the
world. Stagnation in key jewellery markets and retail organisation in emerging
markets are continuously altering the geographic distribution of jewellery
consumption. Increased consumer consciousness about issues around
origin/source of product' and 'labour conditions in manufacturing countries'
adds to the complexity.
Competition and overcapacity
in traditional centres
Israel and Belgium
losing market share
Traditional centres finding
rough procurement difficult
Shrinking margins
Stagnating demand in
the U.S. the largest
market
Shortening fashion
cycles
Emerging consumption
centres linked with
economic growth
Diamond
mining
Increasing
rough prices
Declining
market share
of large
diamond
marketing
companies
Gemstone
processing
Coloured
gemstone
mining
Creation of store
and product
brands
Jewellery design
& fabrication
Gold
mining
Platinum
mining
Ore processing
& scrap
recovery
Jewellery
retail
Jewellery s
declining value
proposition
Bullion
trading
Recovery of
silver
Intense competition in
the export markets
Changing retail
channels
Competition from
other luxury items
increasing
Increasing consumer
sophistication
Aggressive marketing to
boost demand
KPMG used the scenario analysis method for forecasting and modelling the
impact of each of these trends on the future of the industry. Based on trends
distilled from an analysis of current events and expectations of industry experts,
eight scenarios were identified as likely to cause a significant disruption to the
industry equilibrium.
The eight key scenarios that are likely to impact the industry are:
1. Mining countries encourage local beneficiation and capture a share of the
polishing industry.
2. Supply sources get fragmented and rough supply increases.
3. Consolidation occurs across the jewellery value chain.
4. Existing centres of the industry lose out in favour of new ones.
5. Substitutes such as synthetic diamonds and non-precious metals capture a
share of the precious jewellery market.
6. Demand for plain gold jewellery declines.
7. Large emerging retail markets such as China and India organise and
consolidate.
8. Jewellery loses out to competing luxury goods.
The effect of all the scenarios was estimated by building an economic model and
evaluating sensitivity of industry size and structure to the forces of change first
independently, to each scenario, and later, collectively with assigned probabilities.
(2000-2005)
230
240
185
USD billion
200
160
146
120
80
40
0
2005
2010
2015
4.6%
Global jewellery sales growth will be sluggish, and will see emergence of
new markets
Global jewellery sales will grow at 4.6 per cent year-on-year to touch USD 185
billion in 2010 and USD 230 billion in 2015. Palladium is expected to establish
itself as an alternative metal for jewellery fabrication, while gold and diamond
jewellery will continue to dominate the market together, accounting for about 82
per cent. Diamond jewellery will be the slowest growing segment at a CAGR of
3.3 per cent.
Growth in the industry will be slow as compared to that expected in other luxury
goods categories such as watches, perfumes, etc. For example, luxury apparel, a
USD 100 billion market today, is expected to grow at 10-15 per cent over the
next seven years1.
Source: Global market review of luxury apparel - forecasts to 2012, Just - Style (2006)
Plain Palladium
Others
jewellery
5%
6%
Plain platinum
jewellery
7%
RoW
28%
India
12%
Diamond
jewellery
41%
Italy
3%
Japan
4%
Turkey
3%
US
26%
Plain gold
jewellery
41%
UK
2%
Middle East
9%
China and India together will emerge as a market equivalent to the U.S.market by
2015. The Middle East will surface as another large market, accounting for close
to 9 per cent of the global jewellery sales in 2015.
Jewellery fabrication will feel the pressure of sluggish demand and will
move to new centres
Global jewellery fabrication output will grow at a CAGR of 5.1 per cent to reach
USD 95 billion by 2015. China and India will be the new centres for the fabrication
of studded jewellery, as the U.S.'s share will decline. Turkey will take over a
significant share of the gold jewellery fabrication market from Italy.
Value addition in diamond processing stage of the pipeline will increase
significantly
Cutting and polishing of diamond (CPD) centres will be the primary beneficiaries
of the fall in rough prices and value addition in polishing will increase from
29.3 per cent in 2005 to 34.1 per cent in 2015. They will also benefit from an
increased flow of diamond rough through the trade channel (a low margin route),
which would imply that rough prices being paid by CPD players will see a
downward trend.
The jewellery pipeline will see consolidation
Shrinking margins and increasing debt levels in the industry will force the
diamond industry to consolidate. This consolidation will have the maximum
impact on the diamond-processing segment of the value chain. Smaller players
will be acquired or will go out of business, and the following will emerge:
Niche polishers
South Africa
5.5%
Namibia
1.5%
Russia
7.1%
US
1.4% Angola
3.2%
Israel
4.7%
Belgium
0.7%
Botswana
5.3%
China
21.3%
India
49.3%
Figure 9: Projected share of world diamond rough for processing (2015), in value terms
Source: KPMG analysis
Relative
scale of
operation
Niche CPD
players
Pure Play
Rough
Traders
Sourcing
Upstream
Figure 10: Sustainable business models of the future (2015)
Source: KPMG analysis
Regional Jewellery
Chains
Mining
MNC Jewellery
Chains
National Jewellery
Retailers
Niche
Jewellery
Fabricators
Junior Mining
Companies
e-tailers
Diamond
Processing
Value Chain
Jewellery
Fabrication
Jewellery
Retail
Downstream
USD billion
Realistic case
50
billion
200
100
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
We have estimated the range of impact to be around USD 50 billion, taking the
industry size to USD 280 billion by 2015. In such a situation, the industry would
be growing at a CAGR of 6.7 per cent, an increment of 2.1 per cent over the
realistic case. At this rate, the industry would be growing faster than the Gross
Domestic Product (GDP) per capita and would be claiming a share of the market
from other luxury goods.
Diamond and plain gold jewellery (product segments) and India and China (markets)
will contribute the bulk of this incremental growth. This additional growth will
also have a salutary impact on other parameters of industry health e.g. inventory
levels (will decrease from 19 per cent to 7.5 per cent).
In order to realise this vision, stakeholders must come together, overcoming
internal differences and competitive issues, to undertake certain actions.
Capturing the industry potential segments and markets
Turkey
9%
Plain palladium
Others
jewellery
5%
Plain platinum 5%
Others
5%
US
35%
Middle East
9%
jewellery
1%
USD 50
billion
USD 50
billion
Diamond
jewellery
46%
Plain gold
jewellery
43%
India
17%
China
25%
Strategic
Capabilities
rprise c apab
ente
iliti
ild
es
Bu
Operational
Capabilities
Grow the
jewellery
market
rprise c apab
iliti
ente
es
ild
Bu
Financial
Capabilities
Supporting
Capabilities
10
Identify new product and consumer segments: Unlike other luxury goods,
the target segments and value proposition of jewellery have remained
relatively unchanged. We believe it is time for the industry to think creatively
and target new customer segments and address newer needs. This
extension is an absolute necessity for guarding against stagnating sales.
11
Attract talent from luxury goods industries: Nearly all the talent in the
industry today is home grown. There has been little infusion of talent, either
of young professionals at the entry stage or lateral entrants from other
industries. We believe the industry can benefit significantly by attracting
talent from other luxury goods industries. They can strengthen the branding,
marketing, and retail experience capabilities and help the industry garner a
greater share of discretionary spends.
Reduce the cost of financing: High-value raw materials have made the
industry capital intensive, and low transparency has led to a premium on
financing. Thus, while funds have been forthcoming, they are not at the most
economical rates. Further, with relatively few players accessing the capital
markets and modern financial products (compared to other industries), the
overall cost of financing has remained high. The industry can reduce this cost
and improve access to funds if individual players embrace transparency and
go public.
12
Big brother (presence across the value chain): Players with presence
across various segments of the value chain will function as a portfolio
of businesses, allowing them end - to - end visibility of the supply
chain, providing natural risk mitigation, and access to global talent.
Volume player (large scale operations in a single segment): Depth in a
particular segment of the value chain will allow players to compete
with others on the back of economies of scale. These high-volume
players will enjoy greater bargaining power, and their focus on one
segment will allow them to develop processes and systems that are
operationally the most efficient.
Specialist (possession of skills): Players that choose to compete on
skill will have to develop specialized expertise in various areas of
business - organizational flexibility, product design and development,
business operations, and the use of technology. The premium that
their goods will fetch will allow these players to employ the best talent
in the industry.
Straddler (presence in adjacent segments): In comparison to players
present only in one segment, these players would have the ability to
shuffle resources between the two segments in which they are
present, as well as hedge their risk and garner greater margins.
13
Way forward
So far the industry has grown due to the intrinsic attraction of its product, the
sporadic marketing push by some incumbents, and the entrepreneurial skills of
individuals. However, the threat posed by luxury goods, changing consumer
habits, industry's opaque and transactional mode of operation, and various socioeconomic and political forces are fast changing the environment the industry
operates in. Growth of the industry (and of individual players) is dependent on
their successful reinvention of the category, substantial infusion of capital and
talent, and adaptability to change.
14
www.in.kpmg.com
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Tel: 0091-22-2382 1801 / 1806
Fax: 0091-22-2380 8752 / 2380 4958
Exhibition Cell: gjepc@mtnl.net.in
www.gjepc.org
Neelesh Hundekari
Director
Tel: +91 22 39835421
e-mail: nhundekari@kpmg.com
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Gurgaon 122 002
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Tel: +91 44 24332533
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Hyderabad 500 034
Tel: +91 40 23350060
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Delhi
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Jhandewalan,New Delhi - 110 055.
Tel: + 91 11 2361 4197 / 2351 5395
Fax: 0091-11-23675274
Jaipur
Rajasthan Chamber Bhavan, 3rd Floor,
Mirza Ismail Road,Jaipur - 302 003.
Tel: +91 141 256 8029 / 256 5731
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Deepankar Sanwalka
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Tel: +91 124 3074302
email: dsanwalka@kpmg.com
Ajay Mookerjee
Head Business Performance Services,
Tel: +91 80 41866800
e-mail: ajaym@kpmg.com
GJEPC
Sanjay Kothari
Chairman
e-Mail: chairman@gjepcincia.com
Chennai
Ankur Plaza, 3rd Floor, 52 G.N. Chetty
Road, T. Nagar,Chennai - 600 017.
Tel: +91 44 2815 5180
Fax: +91 44 2815 4526
Kolkata
Vanijya Bhavan, 6th Flr, Left Wing, 1/1,
Wood Street, Kolkata - 700 016.
Tel: +91 33 2282 3630 / 2282 3629
Fax: +91 33 2282 3629
Surat
626-628 Belgium Tower, 6th Floor,Ring
Road,Surat - 395 003.
Tel: +91 261 243 5008 / 241 5579
Fax: +91 261 743 5008
Kolkata
Park Plaza, Block F, Floor 6
71 Park Street
Kolkata 700 016
Tel: +91 33 22172858
Fax: +91 33 22172868