New gold retail stores on halt as jewellers run short on cash despite soaring gold prices

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Updated: Sep 18, 2020 4:51 PM

While gold prices rose to reach a fresh record high amid the pandemic, gold retailers are putting a brake on their store expansion plans due to a lesser availability of cash.

Cash accrual of gold retailers is expected to nosedive around 40% on-year on the back of an expected 35-40% fall in sales volume for the industry.

While gold prices rose to reach a fresh record high amid the pandemic, gold retailers are putting a brake on their store expansion plans due to a lesser availability of cash. “Slack demand leading to lower cash accrual, elevated inventory levels and curtailed bank finance will lead to moderately negative credit outlook for gold jewellery retailers this fiscal and hard-brake store expansion,” a CRISIL report said. In fact, the number of store additions is likely to fall to one-third of the average between financial years 2017 and 2020. As a result, capital investments will also be lower by around 70% Rs 650-700 crore this fiscal as opposed to the average of the past four fiscals.

Cash accrual of gold retailers is expected to nosedive around 40% on-year on the back of an expected 35-40% fall in sales volume for the industry. This is the steepest on-year drop in more than a decade even while gold prices climb. Retailers are experiencing lesser footfall amid a lesser inclination towards discretionary spending among myriad of other reasons. “Sales volume would plunge because of curtailed discretionary spending following the Covid-19 pandemic, stores remaining shut for most of the first quarter, and intermittent lockdowns in some states in the second quarter,” the report said. Their overall revenue is expected to drop by 20-25% this fiscal.

Meanwhile, recovery in gold jewellery demand is expected to be gradual and as India will enter the festive and wedding season soon, demand is also expected to pick up. Wedding jewellery accounts for 55-60% of gold demand and postponement of marriages because of the pandemic will lead to pent-up demand which will manifest later. Since people are also expected to maintain social-distancing, households are expected to save up on other costs in marriages such as banqueting which is likely to increase the wallet share of jewellery purchases in overall wedding expenses. However, even then, store expansion is likely to take a back seat.

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