Covid-19’s economic impact on platinum supply and demand during the second quarter of the year has been severe, but Platinum Guild International’s (PGI’s) latest 'Platinum Jewellery Business Review' indicates that there are signs of recovery in the sector.

For China specifically, a decline in jewellery sales eased in the second quarter amid a cautiously optimistic consumption sentiment, after lockdown measures were lifted in most cities.

Owing to this, PGI says jewellery has the opportunity to gain a larger share of discretionary spending.

Platinum fabrication returned to growth in the second quarter, which led the recovery in jewellery fabrication. PGI partners also achieved a 1% year-on-year growth in the second quarter, which PGI noted “shows that the market makers are moving fast in the recovery”.

China’s economy, however, bounced back in the second quarter as its national gross domestic product (GDP) achieved 3.2% year-on-year growth during the quarter, leading to an overall decline of 1.6% year-on-year in the first half of this year.

The supply-side recovery is notable, according to PGI, as industrial output is recovering quickly and grew by 4.4% year-on-year in the second quarter, compared with an 8.4% year-on-year decline in the first quarter.

Consumption recovery, meanwhile, remained sluggish, with urban expenditure per capita having declined by 11.2% year-on-year in the first half of the year.

The year-on-year change of total sales of consumer goods narrowed to -11.4% in the first half, compared to -19% in the first quarter. Online sales in China gained more momentum in the second quarter, growing at 7.3% year-on-year for the first half of the year as more consumers have adapted the new way of shopping during the pandemic.

Along with some signs of recovery in the second quarter, overall consumer sentiment has been cautiously optimistic, especially among the younger generation.

The PGI survey also shows that there are jewellery sales growth opportunities in China when luxury spending resumes, as over 80% of Chinese consumers surveyed reported their willingness to spend more or the same on jewellery after the pandemic.

According to the National Statistics Bureau, declines in the gold, silver and jewellery categories eased in the second quarter, leading to a drop of 23.6% year-on-year in the first half of the year.

PGI says this is a result of the pandemic coming under control coupled with domestic consumption stimulus policies and efforts from the retailing industry.

The growth of online jewellery sales slowed down as almost all offline jewellery stores reopened in the second quarter. China customs data showed that net platinum imports increased by 20% year-on-year in the second quarter of 2020, leading to a 39% increase to 45.2 t in the first half of the year.

INDIA

Jewellers in India encountered greater cash flow pressure in the second quarter of the year and focused on making incremental sales to existing customers and moving inventory via e-commerce platforms.

Platinum jewellery in this region saw a business loss for most of the second quarter, but the sector is likely to benefit from retailers’ focus on high margin categories and conversion from gold customers to optimise return once business resumes.

GDP growth in the second quarter is likely to incur a double-digit contraction owing to the restrictions on economic activity, and the already struggling Indian economy is staring at its worst recession in 40 years as consumption, production and investment all froze owing to soaring Covid-19 cases in the country.

The lockdown, which has lasted longer than initially expected, has caused a depressed sentiment across businesses and consumers.

The impact of Covid-19 has been severe for the Indian gem and jewellery industry as a majority of the business for this quarter was wiped out owing to the lockdown, which was extended through four phases until the end of June.

Although walk-ins are limited, retailers witnessed almost 100% conversion rates as consumers visiting the stores are coming with a clear purchase intention. PGI notes that most purchases recorded have been on account of bridal jewellery or on maturity of their monthly savings scheme.

With an ongoing lockdown from March, there is no sign of business in the second quarter and most of the third quarter, meaning that managing cash flow and liquidity will be a big challenge for the industry, especially after the past years of liquidity challenges.

With retailers left with between four and five months of inventory across all jewellery categories, fresh orders have been put on hold, and complete normalcy will take time, hence making incremental sales to existing customers key.

PGI’s 27 strategic retail partners, with 248 stores, reported a drop of 85% year-on-year in platinum sales in the second quarter amid a total disruption of the jewellery industry caused by Covid-19.

As a result, this year is likely to see greater consolidation with larger, organised retailers gaining share, but PGI says this could be an opportunity for platinum jewellery as PGI works with those retailers.

JAPAN

Jewellery sales in Japan have seen some improvement in June as business resumes and consumers are incentivised to spend domestically on non-experience categories with cash handouts.

Non-store sales were taking share from overall jewellery sales during the national lockdown, and platinum jewellery sales were supported by a pick-up in high-end jewellery sales and bridal demand in late quarter two.

Overall, Japan’s GDP contracted by 9.9% year-on-year in the second quarter, or at an annualised pace of 27.8% from the previous quarter, caused by the great damage from Covid-19.

Japan’s retail trade declined by 1.2% year-on-year in June, after a revised 12.5% slump a month earlier and compared with market consensus of a 6.5% fall. PGI says this was the fourth straight month of a drop in retail sales, amid the prolonged impact of the Covid-19 crisis.

On a month-on-month comparison, retail sales jumped 13.1% in June, the biggest increase on record, as the economy tries to recover from the coronavirus pandemic shock.

The cash payouts of ¥100 000 per person may have fuelled some “revenge spending” following the lifting of the State of Emergency, and the digital shift of consumers is evident both from sales related to content downloads and e-commerce.

However, the overall outlook for household spending for the months ahead is dim owing to an anticipated rise in job losses, especially among service-sector firms and females, which is weighing on consumer sentiment and discretionary spending.

While most jewellers temporarily closed their stores after the State of Emergency was issued in April for key metropolitan regions, most reopened in early June, though many consumers hesitated to resume pre-Covid-19 shopping habits.

As a result, the second quarter saw jewellery sales collapse, with value sales down 45% year-on-year and piece sales down 48.9% year-on-year.

Further, given that more people are staying home, combined with the rise in gold price, recycling of old gold jewellery has been booming, says PGI.

The retail trade survey shows retail sales of yellow gold dipped 47% year-on-year in the second quarter, and asset types of jewellery such as Keihai chains saw demand from concerns on economic uncertainties and geopolitical risk.

Diamond jewellery demand was also under severe pressure, but there is unprecedented discounting of high-end diamonds over $100 000, which encouraged some bargain buying.

Unit sales of all precious jewellery fell sharply, but platinum was the best performer (-46.4%) helped by competitive platinum prices and bridal demand.

Platinum jewellery sold through mail order (including e-commerce and TV shopping) also jumped 46% year-on-year.

Despite the pandemic, sales achieved positive results and proved an effective way of promoting of platinum to affluent shopaholics who are already interested in a metal-only asset type of jewellery.

US

Jewellers in the US, meanwhile, saw sales plunge in the second quarter amid physical distancing and store closures, but business started to recover in June owing to retailers having been forced to provide an omni-channel experience for their customers both for the survival of businesses and long-term success.

US GDP fell 9.5% year-on-year, marking the worst fall in modern history, following a 0.3% year-on-year increase in the first quarter of the year, said PGI.

The sharp fall in GDP reflected decreases in personal consumption expenditures, exports, and private inventory investment, owing to the impact of Covid-19.

The US unemployment rate dropped to 11.1% in June 2020, from an all-time high of 14.7% in April, as many people returned to the labour market following weeks of physical distancing measures.

Retail sales in the US were heavily affected by the impact of Covid-19 in April, declining 14.7% month-on-month, representing the largest month-on-month drop since the government began tracking the data.

Retail sales quickly recovered in the second quarter after the lockdown measures were lifted, surging a record 18.3% month-on-month in May and 8.4% month-on-month in June.

Overall demand for jewellery suffered in the context of business shutdowns owing to Covid-19 in the second quarter, despite an increasing trend of online sales. Retailers have been trying to move their inventories, and manufacturers struggled with fewer and postponed orders.

Many retailers are still concerned as many states continue to fight against the coronavirus, carefully managing the need for restocking for sales in the second quarter, notes PGI.

Gold jewellery, meanwhile, was hit by store closures owing to Covid-19, and demand collapsed in April and May before recovering in June as stores began to reopen.

Diamond jewellery demand also suffered from weak demand and disruptions of supply chain in the second quarter.

Major miners decided to let clients refuse contracted supply and this has eased midstream liquidity concerns and helped prevent a build-up of polished inventory.

Platinum ounce consumption from PGI's US strategic partners declined by 40% year-on-year in the second quarter of the year; however, with business starting to reopen in the second half of the second quarter, they have reported a strong uptick in business in June and are optimistic of a strong holiday season for this year.

Overall, the second quarter’s results were dismal, but PGI notes that there is a strong rebound in platinum business in June as stores began reopening and ordering product.

However, with the ongoing pandemic threat, shopping activities have yet to recover fully, and the concern of job security and reduced income will continue to hamper spending on discretionary products.

In light of the effect the coronavirus has had on how consumers spend their money, jewellers have been forced to re-evaluate and re-engineer their operations to provide an omni-channel experience for their customers.

While it was essential for their short-term survival, it will have a very positive impact on their long-term success, according to PGI.