Jewellery retailers defy slump as new stores spur growth

Rating agency CRISIL Research on Wednesday said that retail gold jewellers, who account for a fifth of th country’s gold jewellery retailing business, have outperformed the industry, reporting a compound annual growth rate of 15 per cent in sales volumes over the three years through 2011-12.

CRISIL avered that retailers in gold jewellery are likely to maintain their revenue growth momentum, aided by increase in gold prices and additional revenue from new outlets. They are expected to continue expanding their footprint in newer geographies to drive growth, which will help them brave the current economic slowdown, it noted.
Consequently, the credit risk profiles of jewellery retailers are expected to remain stable over the medium-term, it added.

Although a significant share of the sales growth has come from new stores, growth in volumes at existing stores has remained mute because of intense competition, compelling retailers to explore new markets. As anticipated by CRISIL, Tier-II and Tier–III towns have emerged as the new growth drivers for retailers; the smaller centres benefit from shifting customer preference towards branded jewellery and low penetration of organised retailing. The rated retailers are expected to expand over the medium-term, with two of every three new stores coming up in the smaller towns.

Revenues from Tier-II and Tier-III towns are therefore expected to contribute around 55 per cent of the rated retailers’ revenue in 2013-14, up from around 45 per cent in 2010-11.

However, new stores will necessitate significant investment in working capital for gold jewellery inventories. For one, the high price of gold may raise retailers’ average inventory costs, and weaken their ability to absorb any steep fall in gold prices.

Besides, the margin between average inventory value and gold price has narrowed by 50 per cent; retailers whose gold inventory was earlier valued at 20 per cent lower than market price have witnessed the gap contract to 10-12 per cent over the past year, owing to large expansions.

DH Newsletter Privacy Policy Get top news in your inbox daily
GET IT
Comments (+)