JEWELRY CHAINS CLOSE THE STORES IN RUSSIA

Leading jewelry factories of Russia are reducing their presence in the market. The sources report that Moscow Jewelry Plant (MJP) which in March had 260 brand stores in Russia and neighboring countries plans to reduce the number of stores. Apparently, similar measures are likely to be introduced in the nearest future by the Adamas chain which has more than 140 stores throughout the country.

Jewelry manufacturers themselves refuse to comment on the situation or call the closure planned. According to Kommersant, the experts have different points of view. According to them, a decrease in the large factories’ presence in the retail market might occur due to the change in the purchasing preferences of Russians, caused by a decrease in profitability and restrictions, related to the COVID-19 pandemic.

The experts call the underdevelopment of online trade and high rental rates one of the main problems of the jewelry market in Russia.

We should recall that the official legitimization of the sale of precious metal products on the Internet was adopted only at the end of 2019. Prior to this, a presidential decree of 1992 was in force in the country, according to which it was impossible to be legally engaged in the remote jewelry trade. The authorities managed to cancel the document before the pandemic, but the industry was not able to prepare for a full transition to the online space. Those companies that tried to sell jewelry on the Internet at their own risk did not exceed even 4% of the total revenue amount.

Adaptation of the business to the new terms of trade was difficult.

According to the analysts, jewelry sales fell by almost 70% due to the pandemic.

The Russian Guild of Jewelers notes that sales may fall by 45% by the end of 2020 compared to the results of 2019. It is clear that this will inevitably cause a reduction in the number of outlets. If the total amount of jewelry last year was sold for more than 240 billion rubles, this year the market turnover is expected to be no more than 133 billion.

Another side of the crisis, experienced by the industry, is the lack of the massive government support. Jewelry retailers were not included in the officially approved list of the companies affected by the crisis and in need of the government support. The industry experts believe that under the current conditions, the industry will be able to return to the pre-crisis indicators no earlier than by 2022-2023.

Another problem is the franchising model, on the basis of which the jewelry market is developing.

Many enterprises, including MJP, Adamas, and EPL Diamond, work on this model. To open a store under the brand name of MJP, an entrepreneur needs 3 million rubles of start-up capital and a lump-sum payment of 65 thousand. Opening an outlet under the Adamas brand is even more expensive (8 million and 250 thousand rubles, respectively). Given that the payback of such a franchise is usually from one to five years, the experts predict a significant reduction in the number of retail enterprises in the nearest future. Opening new jewelry stores in the current economic environment is becoming less and less profitable.