Jewellers have started melting newer ornaments to reduce inventory as recession has started affecting their businesses. So far they were melting only the old jewellery they received in exchange on the sale of new ornaments.
Jewellers are also prepared to forgo the making cost on jewellery melting. Many hold inventories for long to cater to the diverse needs of customers. The cost of holding such inventories is becoming unbearably high.
Chirag Sheth, Principle Consultant for South Asia at Metal Focus said, “Now two types of scrap have started coming for melting. So far, only old jewellery going to scrap was melted, but now many jewellers have started melting fresh jewellery stocks also. This will increase scrap supply in 2020 to 140 tonnes, from 119 tonnes last year.”
He said that such melting is also getting institutionalised, with scrap now making way to refineries. Earlier, it used to be melted by shops/centres nearby.
With customers deserting stores and become very choosy, jewellers are under strain due to a pile up of inventories, margin pressure on the gold metal loans they had taken for jewellery making and not facing margin calls from lenders following price rise when they are not able to sell jewellery.
They can afford to sell old jewellery, which most chains have in any case started, because the price at which gold is ruling today gives them enough space to forgo making charges of such gold jewellery.
Dipu Mehta, Managing Director, ORRA, a retail gold and diamond jewellery chain, said, “During the Covid lockdown, we got enough time to step back and review strategies and relook at merchandising to suit the new demand reality post Covid. That said, the practice of rationalisation of inventory based on newness, popularity with customers and differentiation of the brand is not new to us.”
Many bigger chain stores were already working on reduced inventories in single stores but used to arrange designs not available in one store from another one of their own outlets. However, smaller and standalone stores that had no such choices were keeping higher inventories wherever possible to retain customers. Such stores have now started melting additional inventories of jewellery which they can’t afford.
Refineries, especially 8-9 of the big ones, are active only due to the supply of old jewellery scrap and melting new ornaments which retailers are doing to prune inventories at a time when dore or unrefined gold is not available in adequate quantities.