Mumbai: Jewellery retailers are increasingly offering customers cash for their old gold as high prices and volatile demand put pressure on sales and margins ahead of the festive season.
Large listed jewellers including Kalyan Jewellers India Ltd and Titan Co. have introduced or expanded cash-for-gold programmes since June, taking a service that was traditionally associated with smaller and regional jewellers into the organised market. Kerala-based Joyalukas, which operates over 200 stores, also offers cash for gold.
Under these schemes, customers can trade in old jewellery for cash. This differs from conventional exchange offers, under which old gold is exchanged for a new jewellery purchase.
The move comes after a difficult period for fresh-gold demand. On 10 May, Prime Minister Narendra Modi urged Indians to postpone gold purchases for a year to help conserve foreign exchange amid the West Asia conflict. Three days later, the government raised the effective import duty on gold to 15% from 6%. This was followed by adhik maas, an inauspicious period for gold purchases that ran from 17 May to 15 June.
“The cash for gold is really catching up, and it should ideally negate the margin dilution, which happens due to the exchange,” Kalyan Jewellers’ executive director Ramesh Kalyanaraman said during an analyst call on 4 August.
The share of cash-for-gold to Kalyan’s business rose to double digits from single digits in the June quarter, Kalyanaraman said. The company expects the business to be margin-accretive because it buys the recycled gold at a discount to the prevailing spot price.
Kalyan has also reduced promotional offers on its traditional exchange programme and shifted its focus towards cash-for-gold.
The move comes as jewellers grapple with elevated gold prices, which have weighed on jewellery volumes even as the value of sales remains supported by higher prices. Kalyan’s India business saw the share of recycled gold rise to 46% in the June quarter from 31% in the March quarter.
Not all retailers are seeing the same response. Titan, which made its cash-for-gold option available across all its stores from June, said customer traction has so far been limited.
“We are not seeing significant traction here, but that option is available for customers to bring their own gold and exchange that for cash,” Arun Narayan, chief executive of Titan’s jewellery division, said during an analyst call on 7 August.
The trend is nevertheless gaining ground as organised jewellers look to tap the large pool of old gold held by Indian households, analysts said.
“The trend is definitely increasing,” said Rahul Guha, senior director at Crisil Ratings, adding that cash-for-gold was initially a small market dominated by a handful of players, particularly small regional jewellers.
The expansion by large retailers is likely to be accompanied by tighter checks on the purity of gold being purchased, Guha said. “Cash for gold definitely will gradually increase over the medium term,” he added.
The push comes at a crucial time for jewellery retailers, with the festive and wedding season approaching after a challenging first quarter.
Gold prices have risen sharply this year, with 24-carat gold reaching â‚ą1,60,480 per 10 gm on 21 August, compared with around â‚ą1,35,000 on 1 January, according to India Bullion and Jewellers Association (IBJA) data. The sharp increase has made consumers more cautious, particularly on discretionary jewellery purchases.