Dubai
The jewellery retailer Damas remains on a sharp lookout for an acquisition or a joint venture with an overseas retailer, with the US and China being the likely target markets. Such a deal, however, will not be about spreading the Damas branding into those territories.
Rather, the focus will be on using that retailer’s name and network to grow, according to the Damas CEO. “We think the chances of something working in the US under a US name — an existing retail operation — will be much higher than going in with an international name,” said Anan Fakhreddin. “In terms of US consumer touchpoints, it has to be with an American brand.
“We almost had a lease deal on a New York shop three years ago. Then I thought why would an American couple looking for a one-carat engagement ring step into a jewellery shop with a Middle Eastern name. We dropped the plan at the time.”
It was more recently that Damas started thinking about acquiring an existing retail operation. Such a deal needs to come at the right price for Damas to develop a serious interest. (The retailer recorded sales of between Dh1.7 billion to Dh2 billion dirhams last year and a net profit of Dh190 million.)
New markets are vital for UAE based jewellers, some of whom such as Malabar Gold & Diamonds and Joyalukkas have made the overseas cut with a limited number of store openings in the Far East, the UK and US. But, their dominant expansion strategy has been within the Gulf and India.
For Damas, the US and China are obvious attractions for fairly straightforward reasons — the former is the largest jewellery market in the world and China one of the two biggest consumers of gold apart from India. Even for India, Damas has plans for a presence in the medium-term. (It did have a presence in the past that was discontinued.)
“We could try for organic growth in India once the fundamentals are ready for us,” said Fakhreddin. “We have access to the products and — just as important — access to clients through our contacts here.
“China and the US are definitely the markets we think of for expansion, and more than Europe.”
But how much will Damas — fully owned by Qatar’s Al Mannai Group since 2014 — pay for a deal in the US or elsewhere? “We have been talking internally about this for a long time,” the CEO said. “But it’s now that we have a clear definition how our target will look like financially, what value it will provide the portfolio, and what it means in terms of diversification of risk. We had ignored opportunities because they failed to deliver these standards.
“You can buy the whole of something or 51 per cent of something much bigger for the same value. There aren’t that many jewellery retailers in the market up for sale. But we have the intention.”
If everything goes as per script, opening up a new front overseas can mean a lot for the leading jewellery brands in the UAE. The sector has been through some intense pressure in recent years, with gold prices being volatile and tourists having less of a spending power after the dollar started its hike. (Gold prices rose 8 per cent in 2016 against 2015 levels. The contribution of tourists to Dubai’s total gold sales is estimated at 20 per cent on average.)
Damas has placed a lot of focus on Saudi Arabia ... but again by maintaining a sedate pace. “We are always careful — in Saudi Arabia we moved from 19 to 35/36 stores in three years and will take another two years to go to 50,” said Fakhreddin. “Most of these have been in cities where we didn’t have a single shop.” (As of now, Damas owns all the stores it operates in its network, except for in Qatar, where it has a joint venture.)
As for possibilities in Egypt and Turkey, they are “not attractive because of certain circumstances that hopefully will not be there in future,” said Fakhreddin. “There’s the state of the economy or you have inflation shooting through the roof, plus lots of turbulence in and around the country.
“Plus with the restrictions on foreign currency, it’s not easy to start something new. but they will remain on the radar for future organic expansion. As of now, we have the leftover of an exited joint venture that we terminated.
They have the rights to the name for a small number of shops and for a limited period of time. Once the terms of the contract expire ...”
In the meantime, Damas has the US and China to plan for.
BOX
* Last year, Damas invested Dh380 million on expansion, which included opening 21 stores and renovating six.
* The retailer has been ringing some good numbers on its online portal. “It’s still at the infancy stage — we want to understand what the digital space is and how fulfilment happens there,” said Anan Fakhreddin. “Build the know-how and when the day comes for online jewellery, we will have the full wealth of knowledge.” The inventory is daily-wear jewellery worth Dh3,000-Dh5,000 and is only available to shoppers in the UAE.
* Damas has also signed up with Noon.com, the Dubai based online marketplace that is due for a launch shortly. “I don’t think any industry can remain immune to online,” the CEO said. “In the US, if you are interested in one carat diamonds, your number one to three choices are usually found on the internet.”
