The law of conservation of matter (Jewelry trade guide)
It is quite possible to describe the tendencies of the jewelry market in Russia using one of the basic laws of physics: if there is a decrease somewhere, then there must be an increase somewhere else. We talk to Victor Mamykin, the head of the Krastsvetmet Jewelry Division, about the possibility of managing this process and how to figure out the prospects.
2017 was not a very successful year for the jewelry industry as a whole, but it was favorable for our company. We have increased the production of gold, having passed the threshold of 2.5 tons, thus, most likely occupying the first place in the country in the production of gold chains. While some of our competitors have reduced their production volumes in 2017 for various reasons. I would like to point out that Krastsvetmet remained the only enterprise in Russia producing machine braided platinum chains. By the end of 2017, no one in our country makes them apart from us.
It turns out that you squeezed out all your competitors from the market and you are only ones left?
No, it would be wrong to say that we squeezed out someone. Of course we compete, but without fanaticism. A whole set of factors resulted to the fact that our business is doing much better than that of others in 2017. Customers saw it and they transferred and continue transferring a percentage of their orders to us.
The records of the Russian jewelry industry in previous years indicated that there had been a decline in the market associated with decreasing household income. This was attributed to the redistribution of production: the enterprises reduce the amount of gold products and reorient to silver. And you, on the contrary, are setting records for gold. Is it against or consistent with the market logic?
Due to lower incomes and financial crisis in the jewelry industry, many manufacturers of both chains and jewelry in general are shifting to working with silver. Companies simply do not have enough financial resources to maintain gold as the recirculated metal. Therefore, from 2014, the jewelry market in Russia has significantly declined. Some of our competitors reoriented to working with silver, while we received more orders in the gold market.
A significant part of customers use contract agreements when ordering jewelry today. Therefore, when choosing a manufacturer, most customers do not even look at commercial conditions, but on the manufacturer's financial stability and ability to guarantee the safety of the recirculated metal that the customer transfers to him. Under these conditions, our company differed from competitors favorably in 2017, this is reflected by the record volumes of orders for gold.
As for silver, the preliminary figures for 2017 confirm this - our competitors were more active in this market. It has its own specificity: orders are placed mostly under sales contracts. That is, the recirculated metal factor is present to a much lesser extent. We are quite sober about the results of the year and we understand that we were a little short of attracting new orders for silver chains in 2017. Now it is an important goal for us in 2018.
You make chains of different metals, different lengths, different weaves. Surely there are more popular and less popular products. How do the customers choose? Is it some sort of jewelry fashion or is it something else? Technology developments, for example?
If we analyse the statistics of what chains were popular in 2017, and what in 2015 and 2016, we will see that weaving varies from year to year. So we can talk about the jewelry fashion factor.
You need additional equipment to produce any new weaving or diameter. That's how all the jewellery production in the world is arranged. Therefore, the manufacturer's intuition is also important — to predict what will be the fashion in the short-medium term, to purchase the necessary tools and be able to cater for the demand for these products. We have so much room to grow in this area. The figures speak for themselves: out of the 160 weavings we do, only around 30 are popular, so we are not very good at guessing yet. But for some weavings, for example, the full "snake", we are the only manufacturer in the country. This year we have mastered the production of two new weavings, which are called "Tsar" and "Garibaldi". Only in October, after declaring to the market that we have been producing these chains, we had already received so many orders by November that they completely covered our production capacity till the end of 2017.
Who invents these weavings, how do they come about: the "Tsar", "Garibaldi" and the rest?
The main center of chain-bending machines production in the world is Italy. Back in the 70s, Italian companies understood that you should regularly come up with new weavings and each diameter of a new weave requires designing a new machine.
They have replicated this business model worldwide over the past decade. We, just like the other producers in Russia, are hostages to the current situation. We regularly follow the novelties that the Italians offer. But what takes us an obvious advantage over our competitors in Russia is that we have the opportunity to buy new machines directly from Italian manufacturers.
Since 2014, when there was a sharp drop in demand in the jewelry market, many manufacturers were forced to either stop the program of buying new machines altogether, or to buy already used ones in the secondary market. So we have a very serious competitive advantage on this.
So it turns out, that fashion is dictated to you by the Italians?
To us, and probably, to the whole jewelry world. But we can not say that we just follow this fashion without introducing anything. Experience and passion for work stimulate our employees to show creativity in the seemingly automated activities. Combining the methods of finishing, the variety of forms of diamond facet represent the favorite classics to the buyer as «reinvented» items.
Are your products sold only in Russia or abroad too?
Most of our clients are in the Moscow region. But it will be more correct to say that the Krastsvetmet chains are widely known throughout the country due to their high quality. Our jewelry is sold from Kaliningrad to Kamchatka, as well as in the CIS. Periodically we make sales to foreign countries.
Do you promote them under the Krastsvetmet brand?
All of our products manufactured by the jewelry division are produced with the Krastsvetmet stamp. And it is indicated on the tags that are attached to the products that these are the products of our company. Another thing is that retailers often attach an additional tag with their price and designations of themselves as a store. But our manufacturer's tag is everywhere. This practice will be followed in 2018.
There is, for example, a chain of stores "Zolotaya Kostroma", where the entire range of products made by the jewelers of the Kostroma region — the jewelry capital of Russia — is presented. In this regard, what is the policy of Krastsvetmet? Are you cooperating with the existing networks or are you planning to develop your own brand?
As for the policy in retail sales, our position is as follows: as a manufacturer, we cooperate with wholesale and retail buyers. We do not plan to develop our own retail network, although we have one company store in Krasnoyarsk — the "Golden chain". At that, in 2017 we launched our own online single-line store selling our chains and bracelets, in the coming years we will develop it.
Presence in the retail networks and support of own brand complement each other. Thus, in cooperation with the Sunlight retail network we integrate our brand into the design of display equipment and interior advertising media. This is one of the steps to support the brand, as it distinguishes our products from the general range.
It is known how the interaction of production and retail in food products is organized, many people have written and said a lot about it, especially the problems: entrance ticket, fee for the shelf and so on. And what are the principles of cooperation between the manufacturer and the seller in the jewelry business?
Producers rarely interacted with retailers before the abrupt changes in the jewelry market, which began in 2014. Wholesale buyers played an important role. Manufacturers often fell into the conditions when they were forced to give products with a deferred payment in order to have at least some sales market.
Our company established the institution of dealership more than 10 years ago. And we geographically divided the territory of Russia into several regions. In each region, we identified a dealer to whom we were trying to supply the most complete range of our products with a deferred payment in order to develop sales in his region.
I have to admit that today this scheme of product realization has undergone significant changes. We are one of the few companies that still maintains the institution of dealership, although the geographical principle has been violated. Now the situation is radically changing. The role of the wholesale buyer is significantly reduced. Retail networks want to interact directly with manufacturers. And they have sufficient financial resources, recirculated metal in order to work without the help of wholesalers. The term "selling products with a deferred payment" in the gold products market is practically receding into the past.
Like other market participants, we are forced to react to the changes taking place, to adjust our marketing policy. Today we do not refuse cooperation with those networks that want to work with us directly.
Therefore, in the future we see that in the coming years, just as it was in the grocery market, the role of wholesale buyers and dealers will decrease, and direct interaction between retail chains and manufacturers will grow.
What conditions are you now ready to offer to the retailers so they come to you?
In fact, any major customer today evaluates the chain manufacturer by three criteria. Since most of the orders are placed on the basis of contractual agreements, the following is important: the price of work, the level of metal loss during the manufacture and the speed of the order processing.
This year we are able to withstand the shortest possible production time. Even in the hot season, our chain production period did not exceed 30 calendar days. And we are planning to significantly shorten this period next year. And also to maintain the prices at a competitive level.
And how can you shorten the production time of chains? Some new machines, new technological solutions or logistics?
Krastsvetmet work experience in the 2017 has shown that it is possible to substantially reduce the production time of chains, even without making major changes in the technology or buying new equipment.
A key element is an IT platform that ensures the forecasting of order execution at all stages: from its placement in the client's personal account to sending the parcel with the products. Several interconnected information systems plan material flows by means of mathematical modeling and optimization, track the movement of products at all stages of internal logistics.
An equally important component is people's interaction and organizational changes. We continue to implement programs to improve management effectiveness and build a better corporate culture.
In 2017, we managed to reduce the term for fulfilling orders by a third, from 45 to 30 calendar days. We expect that by the middle of 2018 we will be able to declare more tight deadlines for the market — we focus on 20 calendar days.
I am interested in your forecast: which production areas will be in demand? What are the prospects for Krastsvetmet jewelry production in the Russian market and globally?
I think that not only us, but all manufacturers in Russia are very much looking forward to the growth of the jewelry market in general and jewelry chains in particular, next year — for the first time in several years. We saw certain prerequisites to this in 2017. If we talk about the place of Krastszvetmet company, we hope that thanks to our competitive advantages, we will continue to increase market share in gold chains and occupy first place on silver chains sales in the next year.
The market for platinum products is still very small. This is several tens of kilograms per year. In the chains segment we will meet the demand of buyers for platinum products.
What makes the platinum market so stable? Would you like to change something?
There is a well-established view among the customers that platinum is an unreasonably expensive metal. And you can have a prestigious color by purchasing products made of white gold or even silver. Visual differences are practically invisible.
Last year we launched production of chains and bracelets made of 585 platinum. Our scientists have spent more than a year to create an alloy with the physical and mechanical properties that are suitable for chain-bending. Now, by lowering the content of the basic component in platinum products to that level of gold products, we can offer competitive prices on them. Traditional products with fineness of 950 will still be offered to the market.
Customers have not yet paid attention to another remarkable fact: chemically pure platinum has been cheaper than gold for several years now. To date, the deviation reached 30%. In my opinion, this is a very weighty argument to review your consumer preferences.
Can the jewelery market be a general indicator of the well-being, of citizens' income growth?
Jewelry is considered luxury goods. Therefore, the jewelry market size may not just be an indicator of the people well-being, but actually is. If we expect a growth of the jewelry market in Russia in 2018, then, naturally, we hope that the well-being will rise compared to 2017.