Transforming for colorful future


The Indian gems and jewellery market is all geared up to embrace colours and vibrancy in collections.
 
The Indian gem and jewellery market is undergoing a transformation. After enjoying the aura and sparkle of diamonds for a couple of decades, the $40-billion gold-centric domestic market is now looking to add a distinct element of colour and vibrancy to its offering.  Coloured  gemstones like rubies, emeralds and sapphires are increasingly finding their ways into jewellery collections that traditionally confined themselves to the monochromic boundary of gold and diamonds. In fact, the domestic market for these precious gemstones has grown at an impressive annual rate of around 40 per cent in the last three-four years, even as the category constitute a very small portion (current size: $ 1 billion) of the overall market. 
 
Experts are of the firm view that coloured gemstones will continue to enlarge their share going forward. They believe that the next decade will be of colour where these precious gemstones will make major inroads in the market, growing at a CAGR of 10-15 per cent. Currently, gold with around 92 per cent share is the major category, while diamond along with other categories form the rest.  After ruling the market for more than a couple of decades or so, diamond is certainly struggling of late with considerable squeeze in margins and weakening of fundamentals.   
 
“There is a distinct shift towards coloured gemstones and this trend is a global phenomenon where consumers are looking to add more colours and vibrancy to their purchases. The market is repositioning itself in favour of this category and trying to get adjusted as per the demand. Most of the stakeholders in the value chain are gearing up towards this end,” says Aruj Ajmera, director of Jaipur-based Diacolor India Private Ltd which owns the famous jewellery retail chain DiaColor, known for its original and exquisite design collections of diamonds, rubies, emeralds, sapphires and pearls.
 

“In line with the global trend, the Indian jewellery market is also changing. The trend is getting pronounced with a buzz of activity. Demographics have changed and consumers are asking for more options and varieties and that is where coloured gemstones are coming into play. On the supply side, miners are in the process of strengthening the supply of this category in a much organised fashion, even as manufacturers are retailers are all set to lend their support to make it a sustainable phenomenon,” states Nitin Golecha of Gems & Jewels, a Jaipur-based manufacturer specialising in rubies.
 
Commenting on this emerging market trend, renowned jewellery designer and gemologist Farah Khan says that the Indian jewellery market is undergoing a remarkable shift in the backdrop of multiple events. From gold, the market shifted to diamonds and now coloured gemstones which provide an ample scope for innovations for designers to make their collections. Consumer behavior has changed. Bored of traditional elements, they are ready to experiment in search of more variations. “Coloured gemstones are helping us immensely in designing jewellery collections as per the market demand. We are entering into a period where the market will proactively look for new things, and coloured stones adequately fill this void. We are increasingly using these versatile stones in our collections,” adds Khan.
 
Says Bina Goenka, celebrity designer and founder of the Bina Goenka brand of uber-luxurious jewellery: “Today, innovation is the key and coloured gemstones can play a big role here with its variations and a wider range.  We can easily say that these precious stones have infused a great deal of glitter through their range of colours. Most of the things are falling in place in favour of this category, though there will be some time lag before the market gains its true momentum.” Goenka has been extensively using gemstones in her collections for couple of decades now, generating overwhelming response from select group of consumers so far. However, the sphere of response henceforth is expected to be a much broad based and more consistent in nature.
 
“As a whole the global market along with Indian market is realigning itself in favour of coloured gemstones. The process has commenced in the last four to five years and in the coming years we are expecting this to gain further momentum with establishment of a much appropriate and organised supply chain. We can easily say that the next couple of decades will definitely be the era of colours in  the jewellery industry,” says Rupak Sen, Sales & Marketing Director – Asia and Middle East, Gemfields Plc which has emerged as one of the largest suppliers of this category in a very short span of time. The London-based miner, backed by its strategy of `mine and market' of `responsibly-sourced' stones, has been able to provide a distinct direction and shape to the market for this category. 
“Coloured gemstones have been treasured even before the beginning of recorded history. In fact, till around the mid-20th century, both diamond and coloured gemstones were at a par in terms of pricing. However, the second half of the century saw an unprecedented surge in the diamond market due to a well organised demand-supply mechanism coming into place, where a company like De Beers played a crucial role. Now, the market has turned  full circle and coloured gemstones are coming back in vogue, with consumers now recognizing their charm or in other words regaining their rightful position  against the backdrop  of a changing market scenario,” explains Dev Shetty, COO  of Gemfields plc , the company at the forefront of this colour gemstone revival. 
 
The UK-based company which entered the mining space backed by PE fund Pallinghurst Advisors by acquiring a majority stake in Kagem emerald mine in Zambia (believed to be the world's single largest producing emerald mine) in 2008 and the Montepuez ruby mine in Mozambique (one of the most significant recently discovered ruby deposits in the world) in 2012, has prepared a well-defined road map which has almost set the ball rolling towards creating an organized set-up for the coloured gemstone market in the world. 
 
The London-head quartered miner which also holds a 50 per cent interest in the Kariba amethyst mine in Zambia, as well as controlling interests in various other gemstone mining and prospecting licenses in Zambia, Mozambique, Colombia, Ethiopia, Madagascar and Sri Lanka, has made rapid strides in the last few years. It has emerged as one of the most organised and reliable suppliers of gemstones in the world, commanding over 30 per cent market share in emerald and almost 15 per cent in ruby. The company which is the world's largest rough emerald producer, is planning to take its market share in both the segments to around 40 per cent in the next five years with emerald production going up to around 45 million carats from 30 million at present and ruby 20 million carats (present production: 8 million carats). 
 
Gemfields is not only ramping up its existing capacities but is also planning to add to its portfolio other gemstones like sapphire from Sri Lanka). The company is also at an advanced stage of commencing its emerald mining activities in Colombia which has been known for its high-value emeralds. The AIM-listed company, backed by a workforce of around 2,000 employees, is looking to double its turnover in the next three-four years from the present rough gemstone sales of around $174 million (financial year ended June 30, 2016).
 
“Over the last few years, we have ramped up our capacities and desired resources in developing our infrastructure and other capabilities.  Since doing so, we are now geared up to expedite our growth and in turn boost significantly the overall supply of coloured gemstones in the global market. That is what is required to develop the overall colour gemstone market,” points out Shetty who has been instrumental in charting the growth trajectory of the company and shaping it up as an entity which has emerged as a force to reckon with in leading the industry.
 
In other words, Gemfields has played and is going to do so in many years to come, in ensuring an adequate supply pipeline for the coloured gemstone industry, and experts are of the view this is something which is paramount for any industry not only to set its footprint but also flourish in a consumer-driven market. This is even more relevant and imperative for an industry which is in the lifestyle space and calls for constant pampering.  Despite being at par with diamond till 1940s if gemstones as a category couldn't keep up its momentum it is solely due to its inconsistent and inadequate production and supply chain in the backdrop of fragmented nature of the industry. 
 
Globally, diamond mines were present in countries or regions which were conflict-free and hence large investments could find their ways towards much more organized mining. Moreover, diamond found an apt leadership in De Beers which apart from being a large miner, managed the supply chain by putting in place a special effort i.e. Central Selling Organization (CSO) along with other miners. Globally, the entire diamond product would be sold (till 1980s when other minors gradually started moving out of the consortium) through this platform in a much structured and controlled fashion. Leading from the front, the diamond major managed to create a big market for diamonds through consistent promotions. All these paid off quite well for diamond as a category and thus the second half of the 20th century proved to be the golden age of diamonds.
 
While in case of coloured gemstones the deposit areas had inherent problems. Colombia known for its deposits of emeralds struggled with the problem of due to the internal conflicts and links to drug mafias. Similarly, Myanmar (erstwhile Burma) could not attract investments (large miners) due to political upheavals. Kashmiri sapphire failed to take off due to supply problem on account of disturbance as also the deposits were geographically in the hostile territories. 
 
And hence, the coloured gemstone industry historically has been fragmented and under capitalised, mostly serviced by small independent artisanal producers, scattered around the globe. This has meant that supply has not always been consistent or reliable, prices have fluctuated and the provenance of the gems has often been difficult to determine. Formal marketing and promotion has been scant. Such conditions have benefited neither producers nor consumers. But it is a situation that Gemfields has set out to change and one that presents an exceptional business opportunity for the company and other stakeholders of the whole gem and jewellery market going forward.
 
“We are working towards bringing together resources and expertise for integrating this long overlooked sector and thereby ensuring a consistent supply of responsibly sourced coloured gemstones to the market,” says Shetty adding that Gemfields has also initiated talks with other major miners as it is looking to create a much more organised supply chain for the market.
 
Gemfields has developed a proprietary grading system and a pioneering auction and trading platform to provide a consistent supply of quality coloured gemstones to the global downstream markets. 
 
“We have pioneered the world's most comprehensive grading and sorting system for rough emeralds and rubies. We have also put in place a well-established and reliable auction platform in the coloured gemstone sector. The objective is to deliver a reliable supply of well-graded rough gemstones and thus help formalise the market,” states Shetty. 
 
“This is a key component of the company's business model which we believe has played an important role in the appropriate distribution and associated resurgence of the global coloured gemstone sector,” says Ian Harebottle, chief executive officer of Gemfields, which notched up record revenue in its recent auction of rough rubies held in Singapore. 
 
The auction held in June 2016, generated record total revenues of $44.3 million at an average realised price of $29.21 per carat for its rubies mined from its Montepuez Ruby mine in Mozambique. Of the 1,601,145 carats offered for sale (75 lots), 95 per cent by weight or 98 per cent by value, equivalent to 1,516, 459 carats (71 lots), were sold. The auction offered high and commercial grade rubies in both treated and untreated form. All treated lots were offered using industry accepted treatment techniques and on a fully disclosed basis. This latest sale was the sixth Montepuez auction held since June 2014, and they have generated $195 million in aggregate revenues. 
 
"We are pleased with the results of Gemfields' sixth Montepuez ruby auction. The prices achieved and the high percentage of goods sold fully support our analysis of the market conditions, the quality of Mozambique's rubies and the increasing levels of demand across various markets and categories,” adds Harebottle who expresses his happiness over the overwhelming response the company has generated from its auctions so far. The company's 22 auctions of emeralds and beryl mined at Kagem mine in Zambia since July 2009 have generated $426 million in total revenues. It's recent auction for predominantly lower quality rough emeralds held in Jaipur (May 2016) notched a new record of $ 5.15 per carat. Gemfields' auctions of rough gemstones from Kagem in Zambia and Montepuez in Mozambique have now generated $621 million in total revenues. The company's aggregate consolidated revenue from all rough gemstone sales for the financial year to date stands at around $174.4 million.
 
“Despite the current global economy, the kind of response our auctions has generated is a clear indication of how the market for coloured gemstones is gaining in strength. There is a big surge in demand,” says Sen adding that in the last six years, the prices (at auctions) of emeralds and rubies have significantly increased which says that the demand has been encouraging for our product. In pursuit to its aim of making the industry more systematic and orderly, Gemfields allows only those to participate at its auctions, who apart from having sound financial background, also have requisite cutting and polishing expertise as well as distribution capability. 
 
While Gemfields which is looking at China, US, EU, Middle East and India as its major markets, is reinforcing its strategy of providing the industry a more organized and transparent supply chain. The company is collaborating with manufacturers, jewellers and retailers towards establishing a complete ecosystem for the trade and industry, which is finding a trusted leader in the former. In other words, the coloured gemstone industry has been moving toward companies with greater investments in mining and more vertical integration through the value chain. Although most global colored gemstone production still comes from artisanal and small-scale mining, larger companies with deep pockets are now strategically positioning themselves towards creating a much vibrant market place.
 
For Gemfields, India, US, Europe and China are the key markets, and India is also a strategic destination due to its rich legacy of jewellery as also it has got a huge base and expertise on the upstream front. “India is very significant for us due to its strong base and rich heritage for gems and jewellery. We have initiated multiple initiatives for this market and results have been more than encouraging so far”, says Shetty who strongly believes that the current slowdown in the diamond category has proved to be a blessing in disguise for the coloured gemstone industry. Manufacturers, jewellers and retailers are early looking to fill up the void by adding gemstones in their portfolio. 
 
In fact, he believes that the recent meltdown in diamond has forced the global industry in general and Indian in particular to look for diversification, which would not only boost their topline but also give them the much-needed hedging mechanism to withstand market vagaries going forward. As a consequence, the whole process of market enlargement for coloured gemstones will gain momentum.  
 
Experts are also of the view that it is an apt time to diversify the Indian diamond industry. World's largest base for diamond manufacturers/ processors are currently facing a tough time. “The cutting and polishing industry in India can enhance its operating capacity by replacing diamonds with ruby or other coloured stones. Besides, the working capital requirement to handle gemstones will also be much lower as the infrastructure set-up can be used for coloured gemstone jewellery.” states Shetty who is of the strong view that inclusion of  this new category will add immense value to the trade and industry's overall portfolio and offering.  
 
He is quick to mention that instead of replacing diamonds, coloured gemstones as a category will play  more of complementary role and thus provide the overall jewellery bouquet more colour and vibrancy. Gemfields also plans to work closely with jewellers to promote use of rubies in diamond studded jewellery. This will not only bring down the cost of diamond jewellery but also improve the profit margins of jewellers.
 
“Undoubtedly, this will be a right time for the industry to add this category to its portfolio for its long term growth. The industry should actively come forward and explore this opportunity when the demand is in a favorable zone,” views Golecha 
 
As per Ajmera of Jaipur-based Diacolor, the setting of an organised production and supply chain by a large player like Gemfields will go a long way in promoting this category which has struggled in the past. This will also instill the much-needed confidence in the minds of various stakeholders to come forward and earmark the required resources.
 
Gemfields sees this as a big opportunity to bring confidence and stability to a hitherto erratic supply chain and to demonstrate that responsibly-sourced coloured gemstones could consistently be relied upon. As a result, Gemfields has opened a new division specialising in the sale of cut and polished coloured gems. Having already established close relationships with the buyers of its uncut gemstones, it is ideally placed to source the highest-quality cut and polished gems, often from the very clients who purchase our uncut gems. Gemfields auctions its rough coloured gemstones and buys back a small portion of the cut and polished stones for selling to designers and large manufacturers in the US, India and UK. Since the inception of the strategy, the service provided by its cut and polished sales team has been met with great enthusiasm on both sides of the supply chain. 
 

“Indeed, such has been the demand for our tailored polished gem service, that additional offices have since been opened in New York, Cape Town, London and Mumbai, each bringing Gemfields' impeccably sourced coloured gemstones to the world,” says Shetty. Gemfields' acquisition of Fabergé in January 2013 aligned the world's largest coloured gemstone producer with one of the world's most recognisable and iconic heritage brands. “The acquisition enables Gemfields to advance its vision for coloured gemstones to the next level, harnessing the Fabergé name to create a global coloured gemstone champion. This also enables Gemfields to accelerate its vision to raise the international presence and perception of coloured gemstones by repositioning the coloured gemstone industry alongside other luxury goods,” adds Shetty.
 
Gemfields' involvement does not end once it has sold its coloured gems, it is planning a lot of co-branding work with downstream customers (brands and retail chains). The company has been spending 10 per cent of its revenue in market development. It is engaged in generic campaigns to create the desired demand pull for gemstones in target markets.  It has already tied up with some of the global brands in markets like US and Europe , while in India it is at an advanced stage of discussion with some of the top retailers in the country. 
 
“Currently we are not in a position to provide you the names of these retailers but soon, we will do so,” says Sen, while elaborating about its promotional campaign in India.  The company is also looking to collaborate with some of the Indian manufacturers and create collections which can jointly be marketed. The overall campaign has the objective to create awareness and inspiration across the value chain and thus building up demand and sales. As part of its awareness drive, the company is not only training the retailers (staffs), but also creating an educational platform for consumers.
 
With all these developments in place, Gemfields is all geared up to script a very successful story for the coloured gemstone category in the Indian gems and jewellery market. Leading from the front  the company is currently in the process of putting up a reliable and structured supply chain, which will enable this fast-growing category to move onto its next level of growth trajectory along with all other stakeholders.  Most importantly, Gemfields has put lot of emphasis on how it implements its `mine and market' strategy in a sustainable way as also adopting and

  implementing responsible and best practices. While it is helping the value chain to get more organized through its consistent and technology-driven production, auctioning and grading as also well-designed marketing campaigns it is also putting lot of efforts in community development measures around its mining sites. This is something is paramount for sustainability and overall development.  
 
Along with other categories, coloured gemstones are going to play a major role in adding immense value to the overall portfolio which apart from its ornamental values, has also emerged as a new asset class for the new breed of investors. One can be rest assured that the trade and industry is going to see a big transformation in coming years when consumers will continue to explore more colour and vibrancy elements in their purchases of jewellery collections. With a much wider range of colours and variations, the market will also be able to offer more innovations to its demanding consumers.

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