After a dismal first quarter, UAE’s gold and jewellery sector is pinning all of its hopes on a fresh start to the year from this week. And they have a reason too, with retailers lining up multiple offers timed to coincide with ‘Akshaya Tritiya’ on April 18, an annual festival when Indian shoppers are more likely to open their purses to buy gold.
This time out, some of the luckier shoppers could even win a Mercedes Benz (courtesy Kalyan), gold bars (from Malabar and Joyalukkas), while those making purchases of Dh1,500 and more are guaranteed gift vouchers (from Damas). Sky Jewellery, meanwhile, is paying back 50 per cent of VAT charges on gold sales and absorbing all of it on diamonds.
But with gold prices holding firm at higher levels (Dh153 a gram for 22k) and shoppers worried about the 10 per cent additional charges (5 per cent VAT and 5 per cent import duty), it will take a lot of convincing for the jewellery trade to regain its sheen.
“The immediate priority is to keep using promotions/special offers to help shoppers overcome their worry about the VAT and import duty costs on gold purchases,” said Abdulsalam K.P., Executive Director at Malabar Gold & Diamonds. “At some point, buyers will adjust to these realities — retailers will have to keep doing whatever it takes to help them reach that point.
The immediate priority is to keep using promotions/special offers to help shoppers overcome their worry about the VAT and import duty costs on gold purchases.”
- Abdul Salam K.P | Executive Director at Malabar Gold & Diamonds
“If it means promotions every month or so, then it needs to be done. But each retailer will have to look to his books to see if he can sustain such offers over longer periods. Even a 10 per cent drop in sales will affect retailer bottomline.”
Based on that number, jewellery retailers had a horror run in the first three months of 2018. January saw industry-wide sales drop by 50 per cent, February’s decline was about 40 per cent year-on-year, but March did see some narrowing of the decline to 30-35 per cent.
So, if enough demand is generated during Akshaya Tritiya, then retailers are hopeful that gold sales in April will turn out to be a positive for them. And then during June and July, residents are likely to make their annual purchases ahead of their vacations. Plus, there will be the campaigns built around Dubai Summer Surprises.
Industry sources say that if the year-on-year decline can be brought down to about 20-25 per cent, they can still make something out of 2018. The last big rush of gold buying in Dubai took place between December 26 to 31 last, ahead of the roll-out of VAT from January 1. That was also the last time retailers saw shoppers queuing up to pick up their grams or jewellery pieces.
Retailers say there is no need to panic about unsold inventory. With gold prices inching higher, they are covered. “Our inventory is always worth its weight in gold … and low demand periods always get offset by price fluctuations,” said Vinay Jethwani, Director at Meena Jewellers. “With festive, holiday and wedding seasons around the corner, we can reasonably expect sales to show an upswing. There is no need to panic about inventory now.”
With festive, holiday and wedding seasons around the corner, we can reasonably expect sales to show an upswing. There is no need to panic about inventory now.”
- Vinay Jethwani | Director at Meena Jewellers
Amid the general decline, there are still some silver linings to be seen. Demand for diamond jewellery — and in this tourist buying also plays a major part — has been relatively steady. “The 5 per cent VAT on gold is more visible — on diamond jewellery traders are absorbing the VAT,” said Darshan Shah, Director at N. Gopaldas Jewellers.
In the long term interest of the trade, the jewellery group has to make appropriate representations to the... government to exempt the trade from the full impact of VAT.”
- Darshan Shah | Director at N. Gopaldas Jewellers
But Shah rejects any talk of more promotions being the answer to revive gold buying in the UAE. “Year-long promotions are never going to be the answer,” he added. “Promotions are always misguiding and misleading the client … especially in the jewellery industry.
“In the long term interest of the trade, the jewellery group has to make appropriate representations to the UAE Government to exempt the trade from the full impact of VAT.”
Clearly, the industry believes sentiments over VAT will have more influence in deciding customer choices than any other factor … at least in the near to medium term. If some adjustments can be made on how VAT is calculated on gold purchases, that may well be enough to get the shoppers back.