Are Natural Gemstones a good investment?

Introduction to Gemstones Business

The gemstone business involves various aspects with each representing a different segment of the  gemstone industry. These business segments can include mining, processing of gemstones such as cutting and polishing, trading, and retailing of precious and semi-precious stones, as well as the design and sale of gemstone jewelry. Not every business person can engage himself or herself in all these activities; some focus on gem mining, others may go for jewelry design, and some others on gemstone wholesale trading. Therefore, it’s important to choose the right niche for your business. To manage all sides of a gemstone business at once can be overwhelming. While some well established gem mining companies handle everything from extraction to processing and to retail sales. However, a startup with a limited budget should focus on a specific gem business field to ensure success.

Let us have a look into these segments in order to better understand:-

Gem Mining and Extraction: The mining of natural gem resources involves extensive work required by the geologists, gemstone miners, engineers, and skilled laborers. Initially, geologists start surveying the selected area to identify stone veins. Geologists conduct scientific analyses to determine the best locations for mining or extraction of stones. Once the area analysis is complete, a proper mining setup is started, including machinery installation and the hiring of expert engineers and laborers. Gemstone extraction is then carried out using appropriate tools.

Operations of gem mining are often regulated by government authorities. The key players in the gemstone mining industry are countries like Brazil, Myanmar, Australia, and various African countries. However, concerns about climate change and environmental impact have forced us to reduce further gemstone mining. The gem buyers prefer buying and selling of already extracted natural gemstones. They believe that these stones can be recirculated in the market for business purple, thus minimizing the need for new mining activities.

Gemstone Cutting and Polishing Side: This field also requires a high level of faceting and lapidary expertise. As now you are going to transform the raw stones into final dazzling pieces ready to sell in the market as a loose stone or set in jewelry. Even a small mistake can ruin the entire investment. High-end gemstones are cut and polished by gemstone cutting specialists. Commercial-grade stones are processed on a large scale which needs significant investment in establishing the cutting centers equipped with advanced machinery. Then you will be needing to hire skilled gemstone cutters, gemologists, and analysts to ensure the quality and precision of the finished products.

Gemstone Wholesale Business | Wholesale Gems Trading: Wholesale gems traders buy natural gemstones in bulk from miners and sell them to the gemstone retailers or manufacturers. These gemstone wholesalers sell the stones in quantity. 

Retailing of Stones and Gems Jewelry Design: Gemstone Retailers and gems jewelry designers work on bringing the natural gemstones to the consumer market. They create beautiful pieces of gemstone jewelry such as gemstone rings, earrings, necklaces, bracelets, brooches and so on. This segment is highly competitive and consumer-driven, while focusing on branding, trends and craftsmanship.

One needs to understand first what segments of gemstones he or she wants to adopt. The above written explanation of each main segment will help to understand and select. Now we discuss the type of gemstones which also may have an impact on your investing in gemstones. 

Types of Gemstones

Overview of Gemstone Market

Gemstone market is one of the most rapidly growing markets in the world. Gemstone market is estimated to reach $87908.4 million in 2030 thus growing at a CAGR of 6% from 2023 to 2030. In 2023, coloured gemstone industry was estimated to be US$ 1.55 billion and is expected to increase to US$ 4.46 billion in 2033.

Market Analysis

According to Credence Research Inc., in 2022, global demand for gemstones was worth US $55154.8 million. By 2030, it is expected to be US $87908.4 million, exhibiting a 6% CAGR.

According to the data released by Future Market Insights, in 2023, the gemstone market is estimated to be worth US$ 32.38 billion and by 2033, it is expected to reach US$ 55.96 billion with a CAGR of 5.6%.

In the overall gemstone and jewelry business, the gemstone market has a share of 50% with diamonds contributing about 20% in market.

Share of different countries in gemstone market 2022 is as follows:

United States 84.1%

Japan             35.3%

India               31.6%

China              28.4%

Germany        15.2%

Economic Factors

In order to set up a gemstone business, one must have an idea of initial investment, profit margins and pricing strategies depending on product selection, market trends and target audience.

Initial Investment : Initial investment depends on your scope of business. You must draw scope before starting a business. What is your target market? Where do you want to sell the stones? Keeping in view the scope of business will give you an idea of how many customers you can gain in a particular region or location? Initial investment also depends on what segment you select for starting a gemstone business? Do you want to start gem mining? or would I go for faceting? You want to be a wholesaler gemstone dealer or a gems jewelry retailer? 

Profit margins: Investment in gemstones is highly profitable. Profit margins in gemstone business vary depending on market conditions and pricing strategies. Profit margins of:

• Wholesale market is 10–30%
• Retail market is 50–100%
• Online market is 20–50% 
• Luxury goods market is 100–200%

Pricing of gemstones is based on the 4Cs, color, cut, clarity, carat weight. Based on variation in these properties, different prices are offered for a single gemstone. 

Optimized pricing strategies are required for successful gemstone business. Following pricing strategies can be applied for your business to boost the growth:-

1. Setting a competitive pricing strategy which should be based on prices set keeping in view the competitors in the market.
2. Premium Pricing in which price is higher than average market price to strengthen the perceived value of gemstone.
3. Bundle pricing in which multiple products are offered in a deal at discount price.
4. Certification based pricing for gemstone authentication.

Analyzing Impact of Economic Cycle on Gemstone Sales

During periods of economic expansion, rising income leads to increased demand for gemstones and new business opportunities.But during periods of economic recession, consumers’ demand of gemstones decreases thus reducing the sale of gemstones. Economic downturn also affects international trade of gemstones. As a result, recession hit countries cannot import gemstones.

Sensitivity of gemstone prices to fluctuation in the economic cycle also depends on type of gemstones. Luxury gemstones are more susceptible to economic fluctuations while synthetic gemstones’ demand is particularly increased during economic downturns.

Some of the economic risk factors in gemstone business and their management is as follows:

Market Volatility: Gemstone market involves significant rise or fall in prices of gemstones. So, a long term investment is needed to stabilize the business. You can also invest in a variety of gemstones to manage the risk of price volatility.

Fluctuation in foreign exchange rates highly affects gemstone business due to extensive import and export in the international market. This risk can be reduced by implementing hedging strategies and monitoring market conditions.

Inflation leads to increased labor costs, thus increasing the prices. Moreover, purchasing power of customer is decreased leading to decreased sale of gemstones. So, you should  gradually increase prices during inflation while remaining competitive in market.

Supply Chain and Sourcing

Supply Chain Logistics is a concept map that helps gemstone companies to deliver gemstones from mines to customers with minimum obstacles. It involves inbound logistics (bringing supplies into business) and outbound logistics (to deliver products to retailers and customers). Logistics management includes sourcing the raw material, moving it to factories, transforming raw material into finished product and shipping product to consumers. Excess or defective products can be returned to suppliers via the system of Reverse Logistics.

 You have to be very conscious even about the minor details from sourcing materials to their shipping within due time because any disruption in supply chain leads to reduced profitability in business. Here are some challenges faced in maintaining a consistent supply chain:

To overcome these challenges, partnership with miners and suppliers is crucial in gemstone business for:

• Quality assurance which involves inspection of gemstones to ensure their quality and authenticity.
• Competitive pricing to offer gemstones at price same or lower than competitors to attract customers.
• Getting diverse array of gemstones at bulk discounts from wholesalers 
• Exclusive access to unique gemstones

Ethical Sourcing: A large percentage of gemstones are mined by artisanal miners who are deprived of basic human rights. Moreover, mining processes also cause deforestation,soil erosion and decline in biodiversity.

In the present era, awareness about exploitation of the environment and human rights during mining process is increasing.  So, ethically sourced gemstones are preferred because they are mined, faceted and traded in an eco- friendly manner, ensuring fair labor standards and are traceable from mine to the market.

You can ensure ethical sourcing by providing documentation like images of work being done at the mines and mining licenses as a proof. Suppliers should be asked whether they have visited the mining site and can they trace their gemstones from mine to market?

Marketing and Sales Strategies

First of all, identify the target audience. You must know about your customers’ demographics, preferences, their buying behavior, whether they would use online sources or prefer to buy gemstones physically. It will help you in choosing the right channels to reach potential customers.

Create a new brand and position it in the luxury market. Branding refers to creating a unique identity in the form of a name and logo for a company. Positioning means categorizing the brand in a specific niche. Luxury brands focus on expressing sophistication, social status and elegance. Also pricing in luxury market not only depends on production cost but also on brand reputation and its perceived value in society.

Here are some strategies to stay competitive in luxury market:

• Highlight the Rarity and Exclusivity of gemstones.
• Showcase the Craftsmanship involved in cutting and polishing of gemstones.
• Collaborate with designers to create unique designs.
• Storytelling through digital platforms emphasizing the history and beliefs about each gemstone.

Next you have to choose the right sales channel. Decide whether you want to sell through online or offline platforms. Both have their own pros and cons. It is important to choose the right sales channel because it is the only source of connection between the seller and customer.

Online Sales Channels: Through online sales channels, products can be introduced to the customers through internet.These channels include online marketplaces, social media, google Ads, email marketing and webinars. Instagram, Facebook, YouTube are social media platforms which can be strategically used to advertise the products of brand and attract customers to buy gemstones online.

There are many pros of online sales channels. It is possible to reach the audience throughout the world breaking geographical barriers, Operating expenses are reduced and it is more convenient for customers to browse and purchase items while sitting at their homes.

However, building customers’ trust and technical requirements like website maintenance and cyber security are common challenges faced in online business.

Offline sales channels: Offline sales channels are dependent on physical interaction between salesperson and buyer. These include physical stores, trade shows and exhibitions.

Through offline sales channels, face-to-face interaction occurs which develops trust between customer and seller. Customers can physically observe and compare the qualities of product.

But through offline sales, only local customers can be attracted. Operating expenses in the form of rent of shops, utility bills and staffing are also a great challenge.

Therefore, the best option is to combine both offline and online sources and avail their advantages to accelerate the progress of business.

Advertise your brand by distributing attractive brochures in trade shows and conventions and through eye-catching printed ads in business journals. Create visuals (images, videos, infographics) for the products in ads. Grab attention of your customers by using terms such as  “top quality”, “best prices” etc. in the advertisement. Make sure that your ads are more attractive and interesting than your competitors’ ads in the market.

Consumer Behavior

While buying gemstones, there are different aspects of consumers’ behavior including cultural, psychological, personal and social that drive them to buy a product. Important factors influencing consumer behavior are:

1. Color and clarity of gemstones with Precious gemstones being more famous among the Millennials.
2. Certain motives like marriage, festivals, fashion trends and discount offers
3. Beliefs and Perception about healing properties of gemstones, people also consider them as a status symbol.
4. Buying vibrant coloured, well cut and inclusion free gemstones for aesthetic use.
5. Emphasis on ethical sourcing of gemstones has motivated consumers to buy certified, recycled and lab grown gemstones. Nowadays, about 6–10% of couples consider ethical sourcing as an important factor while buying engagement rings.

Technological Advancements

Innovations in Gemstone mining and processing

Technological advancements have revolutionized the gemstone industry. The age of manual labor and unsafe working conditions is over. Thanks to technological advancements, today mining and processing of gemstones have become much more efficient and safer than before. Some of them are given below:

Impact of Technology on Authentication and certification

Role of E-commerce Platforms and Virtual try-ons

E-commerce platforms are easily accessible for customers. You have to create a website for your brand and provide high resolution images of your products along with their description. This makes it easier for customers to understand the qualities of products offered by your brand. They can also compare your products with those of other brands. This helps them in making informed decisions. Technological advancement  has also revolutionized payment methods making them more secure.

Virtual try-on is an innovative tool which enables the customers to virtually try jewelry items on themselves and visualize their appearance through live videos or photos. They can get an idea of whether that item suits them or not and then they can decide whether they should buy it or not.

AI algorithms and big data analytics are used to track and predict market trends by analyzing available data. They provide valuable insights to investment opportunities. Big-data analytics monitor sales data to optimize supply chain and pricing strategies.

Challenges and Opportunities

Common challenges faced in gemstone business are:

• Startup costs for initial inventory, tools, staff, licensing and certification

• Managing Supply chain with limited revenues
• Fluctuations in Forex rates affecting export and import of gemstones.
• Unpredictable Shifts in Trends resulting in sudden obsolescence of a gemstone.
• Ensuring ethical sourcing
• Competition in Gemstone Market

Global events like COVID-19 greatly influenced the sale of gemstones. Export rate of gemstone and jewelry was declined by 11.32% during December 2019 to March 2020 and 34.58% during April 2020 to February 2021. This decline was due to the shutdown of physical stores, shortage of labor and reduced demand of gemstones.

Despite challenges, still there are ample opportunities for expansion of gemstone business:

• Rise of E-commerce providing new avenues for marketing.
• Increased demand of luxury goods due to rise in living standards
• Collaboration with Designers for creation of unique designs with gemstones.

In the modern era, some of the emerging trends in gemstone business are as follows:

• Ethical Sourcing and Sustainability
• Customization of jewelry designs
• Advancements in Technology
• Brand Heritage and Storytelling
• Revival of Vintage Gemstones

Fashion trends have a significant influence on consumers’ preferences. Moreover, consumers’ interest in customized products and online shopping has increased. The Asian and Middle East gemstone market is witnessing an increased demand of gemstones due to rising living standards.

Conclusion

Gemstone business is influenced by a variety of factors. However, with the passage of time, demand of gemstones has been increasing, leading to the expansion of gemstone market.

Setting up one’s own gemstone business is very profitable. Here are some recommendations for entrepreneurs aspiring for a successful startup of gemstone business:

• Stay updated about market trends.
• Learn about characteristics of gemstones.
• Build strong relationships with suppliers.
• Ensure ethical sourcing.
• Utilize management softwares like QuickBooks, CRM to keep records in organized form.
• Seek guidance from experts.

By following these guidelines, new entrepreneurs will be able to cope up with challenges that they will encounter in this journey.

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