India's Smaller Towns to Drive Jewelry Demand

Source: Commodity Online (7/19/11)

"Around two-thirds of the new retail outlets over the medium term will be in Tier-II and Tier-III towns."

Commodity Online

India based credit rating agency CRISIL believes that Tier-II and Tier-III towns in India will drive growth for the branded gold jewellery retailers over the medium term. Around two-thirds of the new outlets that these retailers set up over the medium term will be in such small towns.

The demand for gold jewelry in these centers is strong and growing, buoyed by increasing affluence and preference for branded jewelry. The gold jewelry retailers are therefore, expected to derive over half their revenues from such small towns by 2012-13 (refers to financial year, April 1 to March 31), as against around 40% in 2009–2010.

These are the findings of a CRISIL study of 63 gold jewelry retailers rated by it, which collectively account for 20% by revenue of the gold jewelry retailed in India in 2010-11.

In the decade through 2010-11, some of the rated players, have grown from being one- or two-outlet retailers, and expanded significantly in the metros and Tier-I cities. In the process, they have established a distinct identity through brand-building initiatives that have fuelled their growth.

"However," says Gurpreet Chhatwal, Director, CRISIL Ratings, "the intensifying competition in the large cities has led to stagnation in growth for players. The branded jewelers are, therefore, now increasingly pursuing opportunities that expansions into Tier-II and –III centers can offer."

The rising disposable income in households, favorable demographic trends in customer profile (including the increasing proportion of young consumers), and growing consumer preference for branded jewelry, are among factors that will buttress the retailers' expansion plans.

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