Indian jewelers eyeing US-based retailers and distributors, industry sources say05 March 2008

Indian jewelry makers such as Goldiam International, Gitanjali Gems and Shrenuj & Co, riding high on the value of the rupee, are eyeing US-based retailers and distributors given lower valuations in the US.
At the same time, US retailers and distributors, suffering from the deteriorating economy and the rising costs of metals, are in need of deep pockets, sources in both countries agreed. According to two US executives, more consolidation in the US jewelry market is expected in the coming year.
Texas-based Friedman’s Jewelers and listed Zale Corporation and its two sister chains, Piercing Pagoda and Gordon’s Jewelers, could be potential US takeover candidates, the US executives said. Many of the smaller middle-men are falling by the wayside, and may also be vulnerable.
By acquiring companies in the US, Indian retailers are merely “aligning the value chain and cutting out the middle-men,” said Mehul Choksi, chairman and CEO of the Gitanjali Group. Indian retailers can increase profit margins from 20-25% by buying US retailers and 10-15% by buying US distributors, Choksi said.
Indian jewelers which do not yet have the infrastructure to develop a retail presence in the US market may prefer to acquire jewelry distributors, said one India-based industry source. The US is a particularly attractive market because it accounts for approximately 45-50% of the global diamond market.
Gitanjali Gems, one of the largest jewelers in India, has been on a buying spree since December 2006 and is likely to continue purchasing US-based retailers, Choksi said. Smaller players like Goldiam International are also buying US-based retailers, but are focusing on minority stakes rather than outright acquisitions of majority control, said a source familiar with the company.
Acquiring stakes in US companies gives Indian manufacturers more market exposure, said the source familiar with Goldiam. Meanwhile, the US retail targets become more informed about jewelry manufacturing costs and save on operational charges by outsourcing their mid and back-office operations to India where labor is cheaper, he noted. “It’s a win-win situation for all,” he said.
While Indian buyers court US companies, forces in the US are also pushing jewelry companies into their suitors arms, sources said. With the price of gold up by 45% and platinum trading at USD 2,300 an ounce, some jewelry companies have been pressured to raise prices by as much as 50%. One executive noted that many are having a hard time moving their platinum inventory. Further impacting the situation, cautious consumers are holding on to their cash due to fears of an impending recession, he added.
Consequently, many of the smaller family-owned retail jewelry chains are agreeing to sell for a sum well below their asking price, the same executive said. For instance, he mentioned one company that was asking for USD 50m but later sold for only USD 18m. He said the family just wanted out and feared that the market was not going to improve in the short term.
Given the strong Indian rupee as compared with the weakening dollar, Indian-based strategic acquirers stand to take advantage of these market conditions, said one US executive and an Indian-based banker. And though private equity will still be in the circle of bidders, the executive said PE firms will be more selective than they have been in the past.

by Anjali Naik and Tamika Cody

Back to Editorial