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UAE wholesalers run parallel gold retail operations

Tuesday, Oct 25, 2011

Gulf News

Dubai It’s not just global gold prices that are going through quicksilver changes; the gold trade here is undergoing the same. Bafleh Jewellery, a local wholesaler for 19 years, has decided to get into retail directly as a consequence of recent changes in the trading environment.

“We have a fairly large share of the wholesale market in the three main categories — 18, 21 and 22 carat — with Africa being the key market for us,” said Chirag Vora, managing director. “Unlike in the US and Europe, consumer interest will take a long time to build up in the Middle East and African markets for 14 and 9 carat gold.

“The only option to do something now was to go for forward integration into retail. This is contrary to what has been happening in the trade here with the big jewellery retailers backward integrating into wholesale operations as well.”

An instant improvement in the company’s cashflow position is an obvious factor in Bafleh Jewellery’s venture into retail, with its first outlet being in the Gold Souq. While in the last year or so, the company has reduced its credit period by 30 to 45 days to between 15 to 30 days for its wholesale customers, it still would not provide the immediate cash that retail offers.

Different ball game

“We refuse to give credit for a longer period because gold’s been extremely unstable — if there’s a 10 per cent upside one day, the very next day you witness the same sort of drops.”

While it has cut its gold in wholesale, would the transition to running a parallel retail operation be easy?

“Certainly, it’s not easy; retailing is a different ball game and you need to spend on marketing to keep the limelight on the company and get people to know you,” said Vora.

“But that’s not to say wholesaling is less easy on the costs — in fact it has its own expenses and they are no less significant than anything that accrues in retail.”

For its retail foray, however, Bafleh Jewellery will not be creating its own branded jewellery lines, which is a trend that has been quite apparent with the other big names in the trade here.

Target clientele

“Going branded means a lot of additional costs; the amount you spend on branding is probably what you make on the jewellery,” said Vora. “Being in the wholesale trade for these many years, we can create a better price benefit offering to shoppers.”

In a calculated move, the retailer will be pushing jewellery of lower weightage, and particularly in the 100 to 150-gram range.

In the last five years, gold prices are up by 20 to 25 per cent year-on-year, and in the year-to-date the increase has been by 35 per cent. According to Vora, more retail customers are showing a preference for gold bars and guineas, a trend quite noticeable since the start of the year.

“The target clientele for us would be the mid to the low high-end; we are not keeping diamonds or the big stones in our designs,” said Vora. “The intent is to make our merchandise more accessible.

“I see no point in us getting into bridal jewellery — of 250 grams and more — which is a different ball game altogether. That would be a market addressing 15 to 20 per cent of the population; but our intention is go after the remaining 85 per cent.”

bafleh

expansion plans

Having opened the first location in Gold Souq, Bafleh Jewellery has plans to extend the network to Abu Dhabi as well as add two more stores in Dubai. This could happen in the next 12 months.

— M.N.

By Manoj Nair?Associate Editor

© Gulf News 2011. All rights reserved.