The gold and diamond jewellery retailer Sky Jewellery is investing Dh188 million in expansion in the Gulf Cooperation Council (GCC) and India.
This includes a Dh91 million investment in three facilities in Qatar, including a jewellery-making unit and two showrooms in three months, as well as the development of a mall in Kottayam, a convention centre at Thiruvalla, and 36 luxury villas and a new showroom in Kochi — all in the south Indian state of Kerala.
The company — with an annual turnover of more than Dh1.3 billion — was established by Babu John, chairman and managing director of Sky Jewellery. He started with four craftsmen and 500 grams of gold on an investment of Dh30,000 in 1978 in Qatar. Today, the company has 50 business establishments, including 23 gold jewellery showrooms in the GCC. This includes 13 outlets in the UAE and four in Qatar.
Apart from jewellery, the company has interests in real estate, textiles, a mall and hotel in India. "In India expansion will mostly be financed from company resources," said John. "Taking into consideration the regional significance, as well as Qatar being our launch pad for the entire growth, our immediate focus is on Qatar."
He said the unified import duty structure for jewellery was the reason behind consolidating the manufacturing set-up in Qatar. "By facilitating this over there, we would be able to extend any locally manufactured jewellery at a wholesale price structure to the public."
The company already has a manufacturing facility in Ajman as well as a smaller factory in Qatar.
"The new factory will give a big boost to our price structure; with the increasing gold price and lower margins, this will help us to pass on the benefits to our retail customers, especially the average wage earners," he said. "Our biggest customers are the middle-class and cutting costs helps us to remain competitive in the market."
Dubai's gold trade is largely dominated by Indian retailers. Backed by a large pool of Indian customers — who buy jewellery as part of savings, weddings, festivities and religious occasions — the market has thrived even during the downturn.
A number of gold retailers are expanding businesses.
"The recession hasn't hit the gold retail market," said John. "The high price has affected volume but not the value. People continue to buy gold as a savings instrument."
"I expect gold to hit $2,000 mark this year. Even then, people will buy gold."
The World Gold Council in its annual report estimated that China in 2012 would overtake India as the biggest consumer as both retail demand and central bank buying would continue. One of its forecasts was that China's central bank would have made significant purchases during the last quarter of 2011.
"This goes to show that major setbacks in the gold market are likely to be met by continued strong physical demand, especially from China as the central bank continues to build its gold holding in order to diversify its currency reserves," said Ole S. Hansen, head of commodity strategy at Saxo Bank.
"Gold and silver continue to consolidate while searching for the next trigger. Direction has increasingly been dictated by economic data with positive news encouraging risk on trades supporting equities and commodities, including gold."
Yellow metal: Central banks buy more
Central banks worldwide are estimated to have expanded their gold reserves in 2011 by 440 tonnes, the highest in nearly 50 years, according to the World Gold Council. A similar tonnage could be bought in 2012 with the higher price not acting as a deterrent.