Following the World Gold Council’s report, which gave insight into the threats facing the UK gold trade, Professional Jeweller spoke with the council’s head of market intelligence Alistair Hewitt to find out how the UK is comparing with other markets.
PJ: The report outlines the jewellery demand in the UK has been weak and we were wondering if you can elaborate more as to why it has been weak?
Alistair Hewitt:I think there are two related factor which contribute to the weakness in the UK demand at the moment and the first is the sense of consumer confidence which may not necessarily be reported in consumer confidence statistics but just the underlying uncertainty in the political situation last summer, the UK made a big decision to leave the European union after an extended period of time and we’re now in the process of having those negotiation and they’re often litter across the front page of publications. We had the UK elections this year and that added another degree of uncertainty to the everyday living and how things are going to pan out. On top of that and related to the political situation sterling has weakened significantly. If we compare the strength of the pound or the EU referendum last summer to where it is now it is down a lot as a result fo that additional pressure on consumers, on households on their income and that’s causing them to think about where they spend their money and I think jewellery is one of the areas that has been suffering over the course of that past quarter or so.
PJ: Do you think with all of those things considered that the rets of the year looks more or less optimistic?
AH: We will see the unusual seasonal uptake in December, in the run up to December as the holiday season, Christmas and other celebrations, people will be buying gold jewellery so we will see that uptake. I wouldn’t be surprised to see it being relatively sift perhaps. Not necessarily compared to last year but maybe the years before where there was that greater sense of consumer confidence and what have you. That’s my sense of how things will pan out over the course of the next six months.
PJ: Is that just in the UK or is that the global outlook?
AH: No I think the global position is a little bit different. If we look at the US jeweller demand continues to grow at a reasonable pace and many of the themes we have talked about and underpin that growth remain relevant this quarter, in the US on contrast we actually see robust consumer sentiment, people remain relatively optimistic, the economy is improving, the economy is improving to the extent that the federal reserve is thinking about raising interest rates. They have got really full employment so the situation across the Atlantic is different the US jewellery market is in better shape.
There are a few structural changes going on in retail. Alternative channels for people to buy gold, such as online, TV sales are still enjoying robust growth but the speciality retailers, the people with stores on the high street contuses to struggle to adapt to online. So while jeweller demand is performing relatively well and we are seeing respectable pace of growth, the industry is continuing to adapt.
Elsewhere if we turn our attention to perhaps Italy there’s a reasonable sense of optimism there as well. We used to have a huge fabrication market which has gone through a number of years of contraction but many people in the industry feel that that may have ended and people are looking more optimistically towards growth for the end of the year and one of the factors supporting that is a buoyant export market related to the US. So Italy is becoming the number one exporter to the US jewellery, they’re very interested in the regular yellow gold chains that they produce so Italy seems to be benefitting, certainly from a fabrication perspective from the steady growth that we’re seeing in the US.
If we turn our attention to the really big market, if we think about India, there’s an interesting development, the jewellery market is actually recovering from a weak period last year. Last year the demand and the market really struggled with the huge increase in the six months. There were taxes implemented which meant the industry went on a 42 day strike, this year the situation is more optimistic.
I think China is in an incredibly interesting situation. The world’s largest gold market, the world’s largest jewellery market and has been steadily contracting sense 2013 and contracted again this quarter and it’s down at the half year stage as well. What we see here is that it shifts away from the 24ct gold jewellery which is typically very yellow, very chunky, very heavy, and appeals to an older audience, and we’re seeing a move away from that towards 18ct highly designed lower carrattage, potential with gem set design pieces of jewellery which may not necessarily be sold by weight but sold by piece. And of course being sold by piece they’re higher margin, so we’re seeing that change in evolution in China’s gold market and the retailers are really embracing this because it gives them the opportunity to design new products, sell them at a high end margin and boost their profit.
PJ: What would you say the biggest challenge specific to the UK is?
AH: So for the UK the big challenge is going to be making sure that the jewellers can compete in this competitive environment where consumers are feeling the pressure, where sterling has weakened, where there’s that greater degree of political uncertainty in the outlook, making sure they can adapt to that is going to be a key factor and that has been a factor that has been effecting the jewellery market over the course of the past few quarters.
Beyond that one of the big issues that we’ve been tracking, not from a UK perspective but certainly some of the work we’ve done in the US, just evolving consumer tastes and evolving consumer preferences and the distinction between what older generations may have bought and what younger generations would like to buy. And it’s not just what they would like to buy it’s how they would like to buy it.
PJ: Do you think the UK has reasons to be optimistic?
AH: Just drawing lessons from what I have seen in the US, the industry really thinking innovatively about how they can adapt. US Retailers have ipads and online tools within the store for people to then pick what they want to buy and they it gets shipped to them at a later stage. Lots of people, at the start when people were investigating this said ‘that won’t catch on, that won’t work’ we’ve seen a number of shops rolled out and that does appear to be appealing to a younger audience.
Earlier on I talked about the challenge the US faces between online sales, TV sales and the speciality retailer, this is one example of retailers thinking about how they can connect the two, how they can maintain a physical presence and do a lot of the sales online. The classics bricks and mortar approach. Seeing that innovation in the US gives me a sense of optimism that jewellers are innovating, thinking about how they can adapt and bridge that gap that potentially does exist between the younger generation who are digitally savvy and live their lives online.
PJ: Are there any other trends in the report you think would be worth highlighting to the UK jewellery industry?
AH: It isn’t necessarily in the report but one of the big trends in India is, the market has been routinely served by jewellers who sell jewellery which may not necessarily have the gold content in which buyers expect, so people will often talk about India and say it’s a 22ct market but the chances are if you bought jewellery that is 22ct if you get it tested it may be a little bit less than that. I was speaking to the Birmingham Assay office a while ago and I know they see this as an issue within India as an issue, and thinking about how they can adapt their business offering to go out there and offer assay services.