RAPAPORT... A Millionaire Fair, which Moscow hosted for the second time from October 27 to 30, once again drew attention to the extravagance of the Russian rich and the country’s growing luxury market. International media reported on the priciest purebred horses, helicopters, yachts and real estate for sale at the fair.
In four days, more than $600 million worth of luxury goods was sold at the fair, including 15 gold and diamond mobile phones from Swiss Goldvish, priced upwards of approximately $450,000. Ilgar Rustamov, Goldvish vendor, told RDR that the company processed more than 100 orders during the show and plans to open a Moscow branch in early 2007.
The Russian luxury market has been growing faster than 15 percent annually, according to Alexander Shumsky, producer general of Russian Fashion Week. A recent Bain & Company study estimated Russia’s luxury market at $3.2 billion, out of which $2.3 billion represents spending by Muscovites. Though still much smaller than the American luxury market, the Russian luxury market, along with the Chinese and Indian markets, is one of the most dynamic in the world, and is expected to reach $5.2 billion in 2008.
In the five years following the collapse of the Soviet Union, Russia generated 33 dollar- billionaires, according to Forbes magazine’s 2006 rating. The number of Russians worth more than $1 million is estimated at around 100,000 and, according to Claus Korner, head of private wealth management at Deutsche Bank, the number of Russian millionaires is expected to double in the next five years.
But, what’s most important, Russians are generous with their cash. When asked by a Russian reporter about the difference between Russian millionaires and those from other countries, Yves Gijrath, general director of Millionaire Fair International, didn’t take long to find an answer. “You spend more,” he said.
Turning to Domestic MarketThe importance of the domestic market was stressed further during the Russian Jewelry Guild’s November 2 to 5 trade show, where ALROSA hosted an ambitious “Diamond City” exhibit and distributed diamond awards to the Russian winners of the Torino Olympics. Three major Russian jewelry makers — Yashma, Elite and Saav — presented their new premium retail brands. Elite, which specializes in chains and gem jewelry in the medium-price segment, launched a premium line, named Monte Auri, in the $2,000 to $50,000 range in September. Like the other two producers, it is developing its own retail network. The company is trying to tap into the higher profits from retail, which can top 50 percent in the premium segment, Viktoria Ivanova, Elite’s deputy director general, told the newspaper Business.
The domestic market is also a new development target for Smolensk Kristall, Russia’s major diamond cutter, which currently exports more than 97 percent of its production. “It doesn’t mean that we’ll just begin to sell more domestically. It’s a complex program, which comprises cut diamonds, jewelry and services that we can provide,” said Maxim Shkadov, Kristall director general, in a news conference on November 2. Kristall launched its sale of cut diamonds via the internet for individual Russian buyers and companies in November, and started a processing on commission scheme this past August, also aimed at Russian companies.
Boosting domestic sales from the current level of just 3 percent may not happen quickly. “I don’t expect this share to hike up because of internet sales, but I’m sure a certain niche will be formed. We now aim not so much to increase sales, as to form an appreciation of diamonds in the domestic market,” Shkadov said.
At least in part, Kristall’s attention to the domestic market comes in response to the world diamond market conditions. According to the company’s annual report, in 2005, Kristall Smolensk processed 512,000 carats of rough, with the plant capacity at 746,500 carats. Nikolay Afanasiev, Kristall Smolensk marketing and sales director, said earlier this year that the target for 2006 is to keep production level with 2005. Kristall also earned a $2.4 million profit from stock market operations in 2005, which helped it to achieve a positive balance for the year, according to the company’s annual report.
Other polishing plants have not had it easy, either. Only ten plants in Yakutia have kept production level with 2005, Vasily Vlasov, chairman of Yakutia’s Diamond Council, said at the conference entitled “Russian market of precious metals and gems: situation and outlook.” Yakutia’s diamond cutting plant production in 2006 is forecast at $170 million worth of diamonds, a $67 million drop from 2004.
Boosting Angola Ties
Jose Eduardo dos Santos, Angola’s president, visited Moscow in late October, a month after Russian President Vladimir Putin had canceled his trip to Luanda on very short notice.
“Angola has a lot to offer in the way of two party cooperation,” dos Santos said in Moscow.
Putin responded that “We talked about expanding our trade and economic relations; they include the diamond mining industry, the energy sector, the oil and gas industry, transport and communications.”
Following the talks, ALROSA signed a protocol on cooperation with Endiama, Angola’s national mining company, on October 31. Under the terms, ALROSA will provide Endiama with prospecting, mining and enrichment technologies and assist in personnel training and the establishment of a mineralogy lab.
ALROSA, along with Zarubezhneft and Dark Oil Company, also signed a cooperation memorandum with Angola’s state-run Sonangol for crude oil drilling. According to ALROSA, the four companies intend to explore and develop four coastal areas — between the basins of South Congo and North Kwanza, in the basins of Cassange, Ocawango, in southwestern Angola’s Etosha Plateau, and in two areas in the Atlantic shelf.
The Marketplace• Demand is high for rounds larger than 1 carat.
• Rounds smaller than 0.29 carats are in demand.
• All cuts larger than 2 carats are in stable demand.
• Fancy cuts from 0.30 to 0.99 carats are moving slowly.
Article from the Rapaport Magazine - December 2006. To subscribe click here.