THE JEWELLERY INDUSTRY IN THE UAE

‘As long as the capitalist system lasts... vote for gold’ - William Shakespeare’s ‘Merchant of Venice’

The jewellery industry in the UAE and Dubai in particular, has grown by leaps and bounds over the last decade, driven by high economic growth, a growing resident population, a rising inflow of tourists, increasing affluence levels and initiatives of industry associations.

Industry overview

The jewellery industry in the UAE was estimated to be around AED 23-27 billion in 2008, with Dubai accounting for a major portion of the market. According to retailers and industry sources, year-on-year, the growth in the gold jewellery business has been around 20% to 25% while that in the diamond jewellery business has about 30%to 40%

Dubai has positioned itself as the ‘City of Gold’ and has the highest concentration of jewellery shops in the world, with the number of jewellery retail outlets in Dubai increasing from around 500 in 2006 to between 900 and 1,000 in 2008 (Source: Dubai Gold & Jewellery Group), primarily on account of new shopping malls over the years.

The ‘Gold Souk’ at Deira has long been considered a traditional shopping haven for jewellery. But, inadequate parking facilities, its location, connectivity and its narrow approach have discouraged people from patronizing it more often. However, many residents and tourists frequent the souk for the variety and choice available.

Product segmentation

The UAE jewellery industry can be segmented based on product categories; gold, other precious metals such as palladium, rhodium and platinum, gemstones including diamonds and other coloured precious and semi-precious stones and pearls.

Investment demand for gold

According to the World Gold Council, the per capita consumption of gold in Dubai is among the highest in the world, with 76% of all residents owning gold, and more than 2/3rds of the population buying gold at least once a year.

With rising gold prices, the ‘yellow metal’ has done well over the last 5 years, with consumers viewing gold as a tool for investment.

(Source: World Gold Council, DGJG)

Gold has the advantage of having high intrinsic, adornment and investment value, and hence, 22 carat and 21 carat jewellery find favour. Bullion, gold bars and coins also attract investment demand, as they are considered a hedge against inflation.

Industry characteristics

Jewellery purchase has been linked to seasonal festivities, calendar events, wedding seasons etc.

DSF alone accounts for around 30% of annual sales and, between the DSS and Ramadan promotions, retail jewellers sell another 30% of annual sales.

Typically, tourists comprise between 50%-70% of customer-mix for retailers. With the financial crisis, the influx of tourists has reduced, having a negative impact on the industry’s performance. The industry is heavily import dependent:

• 18k diamond jewellery is imported largely from Italy due to the craftsmanship and modern, elegant designs that the Italians have earned a reputation for;
• Gemstone and other studded jewellery are a speciality of South and East Asian countries like Singapore, Thailand, China, Hong Kong, Sri Lanka etc.
• Gold jewellery mainly 22 carat and 21 carat, comes from Bahrain, Turkey, India etc.

Emerging trends

There has been a shift in customer preferences towards fashion-dictated purchases from the erstwhile investment driven purchases.

Design trends: While there are designs that are classic and never go out of fashion, there are also certain designs that are popular for a particular season or year. For instance, in 2008 animal designs such as leopard, elephant, snake etc., became popular. The use of coloured stones is gaining popularity due to their versatility and lower price compared to diamonds. Gold finishing can also affect the overall style and feel of a particular item of jewellery. The new focus is on highly textured finishes such as silky, ribbed, plaited, pierced, woven, etc.

‘Branding’ of jewellery has enabled jewellers to command a premium for the brand. It has become increasingly overused and has become more of ‘labelling’ or ‘nomenclature’. However, only 25% of all jewellery sold is branded.

‘All that glitters is not gold…’, a popular adage is true for Dubai as there are scores of stores selling artificial or imitation jewellery, which appear authentic and not surprisingly are popular among those who would like to own ‘look-alike’ gold or diamond jewellery while doing far less damage to their pockets.

Marketing and promotions are predominantly linked to seasonal festivities. An independent study conducted on the Dubai gold and jewellery market reveals that around 1/3rd of the jewellers do not advertise at all, while another third have an annual advertisement budget less than AED50,000. The remaining comprise the large jewellers who invest significantly in marketing and advertising activities.

Jewellery pricing: The prices of jewellery at mainstream jewellers range from AED 250–300 for plain gold items to around AED 200,000 for diamond studded jewellery and certain exclusive pieces even run into millions.

The making charges per piece on studded jewellery are determined based on the setting, model making, casting, plating and other procedures involved and ultimately the time and effort required to manufacture each piece of jewellery and can range from 10% to 20% of the selling price. Making charges on plain gold can range from AED 10 per gram to AED 100 per gram.

Key success factors

• Established brand name and reputation
• Trust, loyalty and rapport built with customers
• Diversity in designs and collection
• Management of inventory in line with seasonality
• Pricing
• Location, among others

With financial assets increasingly viewed as being inherently unstable and no longer perceived as having a store of value, the price of gold may well continue to rise with increased investment demand. On the other hand, diamond and studded jewellery are directly linked to the extent of disposable incomes and customer sentiments on spending.

(This article has been contributed by Ms. Susan Daniel, an Assistant Manager in our Management Consulting Department.)