Price offensive likely as gem outlet opens

Dubai: For shoppers looking to buy diamond jewellery in Dubai, the conventional wisdom was that there were only two pricing options they could choose from — ‘very high' and ‘very very high'. Now, a first-time retailer in diamonds hopes to make a clean cut from accepted practices in the trade and help make diamond buying as much of a commodity business as the one on gold.

At its newly opened outlet in Deira's Gold Souq, Jewel Trading is offering its entire collection on gross margins of an average 15 per cent which, according to its founder, is less than half of the standard in the marketplace. But how can the company expect to get away with it?

"We've been in diamond wholesale in the GCC for the last ten years and what I've seen is that getting the payment dues from retailers takes up two or three months and, in some instances, even five," said Shekar Patni, managing director of Jewel Trading. "That was holding up my cashflow and placing the business at a disadvantage.

"That's when it was decided we should get into retail directly and offer a pricing to the consumer that is as close as to what we offer the retailers in the wholesale trade. That translates into a huge advantage for the business as we get immediate payments."

In the last two years, all of the leading jewellery retailers in Dubai have been making a strong push into diamonds given the extreme volatility that gold prices — and its consequent impact on retail sales — have had during the period. Pushing diamond sales also helped immensely with their margins compared to what they are for gold jewellery.

Now, with Jewel Trading making a conscious bid to have a lower than the market average margin on its diamond jewellery — set in 18-carat gold — there could be a build-up of pressure on others in the business. Though they preferred not to go public with their plans, industry sources said they would be monitoring the activity quite closely.

Increasing demand

On his part, Patni plans to open more diamond jewellery outlets and get a further grip on the increasing demand from tourists and domestic shoppers. The company has been operating shops selling silver jewellery and curios for some time now. The diamond jewellery sold here is made in India, Hong Kong, China and Thailand.

"If the end-user is assured of a quality buy at a price they would see as being accessible, it's my impression that this would lessen the volatility in the trade," said Patni. "The jewellery trade here is seeing the return of consumers after what has been an extremely difficult period. The last thing consumers want to see now are an unrealistic pricing strategy from the retailers."

More stocks released

For shoppers looking to top up their collections of sparkling stones during the upcoming gift season, there is good reason to cheer.

Diamond prices have dropped by 10-15 per cent from their peaks in recent weeks and gone some way in compensating for the more than 25 per cent spike in values since the start of the year.

"Yes, there has been some value erosion and particularly on VVS1 and VVS2 where it has been between 10 to 20 per cent, but less on the cheaper diamonds," said Shekar Patni of Jewel Trading. (VVS1 and VVS2 refer to the grading clarity of a stone and are a measure of the value that it would carry.)

"It has to do with the Diamond Trading Co [the conglomerate that controls more than 70 per cent of the global trade] releasing more than $600 million [Dh2.2 billion] worth of stones into the market in the most recent quarter compared with the average of $300 million earlier. This in turn has caused a cashflow situation for the trade and they are trying to overcome that by dropping prices to boost demand. "On the carat side, where we used to get a 30 per cent discount on the repo [repurchase agreement] part, now it's 42 per cent. However, the trade does not foresee any further erosion in diamond values in the near term.

"Where diamond jewellery is concerned, gold prices are up and so are the labour costs, while diamond values are still — despite the recent correction — on the higher side. These three factors are influencing what the eventual price will be for the shopper."

Sales

The Dubai Diamond Exchange traded a record number of diamonds last year, with value doubling to $35 billion (Dh128.45 billion), while gold sales in Dubai reached a record $41.3 billion, according to Reuters.