Industry Analysis OCS August 2019 - AKL Sparkle - Pre seen video Preview from VIVA - CIMA

Industry Analysis OCS August 2019 - AKL Sparkle -  Pre seen video Preview from VIVA - CIMA

First part of VIVA Financial Tuition's Industry Analysis for the August 2019 CIMA Operational Case Study pre-seen.

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Hello and welcome along to the industry analysis for the operational case study of August 2019 here we're going to be looking at the real world jewelry market broadly speaking and then focusing in on some of the more relevant segments within that industry from the perspective of the pre seen document before I get into the nuts and bolts of the industry analysis itself I want to address a question which is often asked by students especially students who may be approaching the case study for the first time and that is what is the purpose of doing an industry analysis after all you are presented with some irrelevant industry information in the pre seen document itself so is it not a surplus to requirements to go into the industry in more detail well one thing I think that has to be accepted and admitted from the outset is that you are not expected to be an industry expert by any stretch of the imagination the examiners do not expect you to know all of the ins and outs of the relevant industry when you go to do your exam.

However there are some good reasons to do a deeper dive on the industry than the information that you're presented with merely in the pre seen document and there are two main reasons for that so I think understanding the wider business environment and the industrial context in which the pre seen business operates has two key potential benefits on exam day firstly it helps you to anticipate some of the potential issues that might arise in the unseen scenario and thereby avoid any nasty surprises or confusion it also familiarizes you with some of the key concepts and some of the key jargon within the industry and allows you to read then the unseen information more fluently on exam day if they do make use of any of that kind of terminology and so that's one of the main benefits is you become more fluent in the language of the industry and it makes it easier then to address the issues that come up on exam day a second reason I think it's important to do an analysis of the industry is that it makes easier for you to illustrate and apply your abstract theoretical knowledge by giving concrete examples and specifics rather than simply stating your theories in the abstract of course knowing the pre seen document is key in that respect as well because it makes you it allows you to reference specific people within the company's specific areas or departments or products for example or facts and figures but that it's also useful for that reason to look at the wider industry as well because it will help you in some cases to give more elaborated examples and illustrations of your applied theories from the objective test studies.

Those are two I think key reasons why it is a useful exercise to have a look at the broader industry of course some tuition providers might go a little bit into overkill on the industry analysis present you with too much information overwhelm you and provide you with big long documents on all aspects of the industry at Viva we believe that that is not necessary we don't want to overwhelm you so what we've done is we have distilled the industry to its essential components and to those aspects that are most relevant from the perspective of the pre seen document ok so let's have a quick overview of what we're going to be covering and then we'll get into the nitty-gritty we're gonna start off with a quantitative analysis of the market we're looking at some key figures some key growth trends and trends from the previous years as well as projections for the coming years and from there then we're going to move into a qualitative analysis this is a deeper dive on what we've come across in the quantitative segments and try to make sense of those numbers and interpret them and figure out why it is the case that those numbers are as they are in section 3 then we're focusing on enameling specifically if you've already read the pre scene and you've had a look at our pre scene analysis videos you will probably have a good idea already of why enameling is potentially so important and we'll be looking at it from the perspective of the real world and just giving you a better of exactly what's involved there in that process from there then we'll move on to a real world a template I think for the pre seen company that is elf nine to five and we'll explain why we think this is a good candidate for the inspiration for the pre seen company and it's a useful exercise to look at a real-world company.

It allows you then to compare and indeed to contrast I think more crucially with the pre seen company and you can see for example what they're doing differently and how that might be the future path or trajectory that a company like AKL Sparkle will take in the coming years finally then in Section five we're gonna look at some opportunities and threats this will be tying everything that we've seen in the previous sections together and giving you a good sense of what kinds of opportunities a company like AKL Sparkle has facing them based on the real world industry and also some of the threats and then at the end we've got a nice little section on sources for you if you want to pursue any of the points that were raised in this industry analysis further we will have everything that this industry analysis is based on at the end of the PowerPoint for you to look at in your own time if you wish to do so ok so let's get started on the quantitative aspect of the analysis here we're just giving you a general overview of the jewelry market globally and where it fits in then within the broader at luxury goods market personal luxury goods market so that's where we start at the top with the value of the personal luxury goods market worldwide it's 260 billion euros approximately that is a nice big market indeed and then within the personal luxury goods market which includes things like for example luxury cars you also have the luxury jewelry market and that is worth 18 billion euros.

 The total luxury goods market so not a trivial proportion of that overall market and then finally you can see here at the bottom this is the overall jewelry market including all sorts of jewelry not just luxury jewelry but fine fan fashion jewelry indeed as we saw in the priests in that is the key from the perspective of the precinct company is the fashion jewelry segment within the broader jewelry market and the global to do market is worth a whopping 271 billion US dollars so that is a very impressive market indeed here we're looking at some of the key figures in terms of the segmentation of this market you can see here on the left playing gold jewelry not necessarily the most relevant from the perspective the pre seen but interesting to note nonetheless that global plain gold jewelry market is likely to grow at a compound annual growth rate of five point three seven percent over the next five years necklaces and chains here in the middle this is going to be an important point from the perspective of diversification as we will see later on in this industry analysis in 2016 the necklaces and chain segment contributed thirty-one point three seven percent in the global gems and jewelry market that is a significant proportion indeed for just one segment of this particular market almost a third of the total market is necklaces and chains worth bearing in mind and then finally on the right here you can see this is the market in a pack a pack is an acronym for at the asia-pacific region asia-pacific region was the leading region in the global gems and jewelry market with a market share of whopping fifty three point two eight percent of the overall global jewelry and gems market that is very very significant indeed and from the perspective of the pre seen that is very important of course because we know that the precinct company is based in the Asian zone so it's probably more than likely you would say in the asia-pacific region and that is a very very lucrative market from the perspective of absolute value so now we move into the nich the distinction I should say the very important distinction of fashion versus fine jewelry as we came across in the pre seen we're looking here at some of the key regions indeed countries from the perspective of fashion jewelry and you can see here on the left as in terms of retail value that is say purchasing of Jewellery .


China is way out in front and in terms of its growth rate it also is very healthy looking forward to 2021 an average annual growth rate of 3.5% but overall in absolute terms that is a huge market in terms of retail value for fashion jewelry and you also have India with some very healthy growth figures looking forward to 2020 18.4% average annual growth rate also you have in the top five here you've got USA Japan and Hong Kong but it's notable there the asia-pacific region and Asia indeed including India is very well represented indeed and that was reflected in the previous slide that we saw luxury or fine jewelry those two terms are used often interchangeably much different picture in terms of the retail value markets that our major players you can see here USA is in absolute terms way out in front in terms of retail value for luxury jewelry not surprising perhaps as perhaps one of the richest countries in the world per capital certainly in terms of disposable income you have a lot of people there who are going to be interested in luxury jewelry you also have places like France and Italy in other words you have the mature as the mature developed markets in the West in Europe and North America primary primarily responsible for most of the retail value of luxury jewelry also have Japan and China is moving up as well in the rankings but the general picture and the takeaway here is that for the fashion jewelry segment as we saw it's the Asia and asia-pacific regions which are leading the way and then when it comes to luxury and fine jewelry the markets are much larger in the Western countries and in Europe and North America.

 In particular so now we move on to the issue of brand this is an important point to bear in mind especially from the perspective of how exactly and the company the pre seen is marketing and selling its products branded jewelry is on the rise brand adverse non-branded or you can see here in terms of the overall percentage of the market branded is moving upwards and it has set to hit thirty to forty percent of the overall market by 2020 on branded still is a large proportion of the global market bought branded is becoming more and more important and that includes not just luxury jewelry but also it includes the branded fashion jewelry that we were looking at in the previous slide welcome back to the shoe brand a little bit later on but here we're shifting the focus now to the online jewelry market which is becoming increasingly important the market will be accelerating growing at a compound annual growth rate of close to 16 percent that is a very very healthy growth rate indeed incremental rolls and this is projected to 2020 to bear in mind incremental growth of seventeen point six five billion US dollars the year-over-year growth rate for 2018 is estimated to have been at fifteen point one nine percent that is a huge huge growth rate the market is fairly fragmented you can see two here at the bottom left with quite a few players who occupy the market share as we saw in the priests  forty one percent of the growth will come from the Americas again that is based on the the push from the luxury market especially in the United States you have a huge market there for luxury goods and one of the key drivers for this market will be the innovation in jewelry design and technology remember in the case of the pre seen the use of CAD technology in the design of the products for aka Sparkle so the online market is going to be very important and we're going to come back to it a little bit later on but now we're moving into the qualitative analysis we're going to be breaking down some of those figures that we saw in the previous slides and giving a deeper dive in some of the key trends from the perspective of say consumer tastes and things like that in this industry basing a lot of what follows on a very interesting study which is linked at the end of this pre seen or I should say Industry Analysis a multifaceted future the jewelry industry in 2020 from McKinsey and company and there are four key trends that they have identified .

 I think or some way to explaining and shedding light on some of the figures that we've seen in the previous section internationalization and consolidation is one very important trend which we're going to look at fast fashion based on some of what we've seen in the apparel and clothing industry more broadly speaking and the idea is that some of this is actually beginning to seep through into the jewelry market find versus fashion apparently the line is blurring and we'll come back to that and of course as we mentioned in the previous slide the online market is becoming very important indeed so we're now going to take each of these four key trends in turn and look at them in a little bit more detail so with respect to internationalization and consolidation you can see here in the 1980s national apparel brands were the clear leaders that is to say those clothing brands which were specific to particular country they were native to that country and they were the cheerleaders back in the 1980s however now we're seeing these huge multinationals coming on the scene such as Zara and H&M others have built or expanded their international presence Hugo Boss for example in Germany we expect a jewelry to follow a similar path today the jewelry industry is still primarily local but the ten biggest jewelry groups capture a mere 12 percent of the worldwide market and only two Cartier and Tiffany and Cody's reverse in the luxury segment are in inter brands ranking of the top 100 global brands the rest of the market consists of strong national retail brands such as Christ in Germany or Chow Tai Fook in China and small or mid-sized enterprises that operate single branch stores however based on this study at the interviewees expect that a handful of thriving national or regional jeweler brands are likely to join the ranks of top top global brands by 2020 so that's an important thing to bear in mind from the perspective of the pre seen company AKL Sparkle is confined to the new land market but it is an increasingly important player within that market and according to this analysis at least were likely to see a trend towards consolidation and internationalization as it moves towards the model and the path already paved by apparel and clothing in terms of the move towards fast fashion and as we saw in the priests as well the is calmly a kale Sparkle is really keen to churn out a lot of new designs on a monthly basis and that reflects the growing interest from the younger segments who are looking for new trends all the time looking to stay ahead of the curve when it comes to fashion and to have something unique and different and that obviously is very conducive to a fast fashion model some local brands will almost certainly become known globally as a result of industry consolidation international retail groups will acquire small local jewelers so it may is where it may also be the case that the company in the preseen is a very very attractive candidate for acquisition by one of the bigger more international players in the industry

 some industry observers project that the ten largest jewelry houses will double their market share over 2020 primarily by acquisition of those local players and if the apparel industry does indeed hold any lessons for the jewelry industry incumbent jewelry houses will soon be fighting bidding wars against large private equity players with deep pockets so don't be surprised if some kind of scenario like this is coming up on exam day fast fashion then let's move a little bit more detail here on the fast fashion idea fine jewelry has so far been immune to the fairy the effects of fast fashion but the same can't be said of the fashion jewelry industry so as opposed to the finer luxury market the fashion jewelry segment is already seeing some shifts toward the fast fashion model and that is evidenced in the pre scene by the fact that the egg company a KL Sparkle is churning out ten new designs every month and that's likely to become more important as we move forward and competition heats up there will be a larger demand for more and more new designs an example of Senna acceleration here beeline a German branded jewelry players adding hundreds of new items to its assortment every month so tens in the case of a KL Sparkle hundreds in the case of the real world company of beeline and that's an unheard-of pace in the industry where two collections per year is standard so we're seeing that shift towards fast kind of strands fast styles as we have seen in the case of companies like Zara in the clothing industry in the fast fashion world flexible companies with adaptive business systems reap disproportionate Awards innovative jewelry players will emulate fast fashion apparel companies they'll react to trends quickly and reduce their product development cycle times doing so will require closer collaboration with partners along the entire value chain from suppliers to designers to logistics providers this is going to be a very important point later on when we come back to opportunities what about this blurring the line between fine jewelry and fashion jewelry well the previously clear-cut boundaries between fine jewelry which is characterized as we know from the pre scene by the use of precious metals and stones and then fashion jewelry on the other hand which is made of plated alloys and crystal stones these lines are starting to blur for example fine jewelry used to be almost exclusively a gift purchase but today's consumers are increasingly buying higher-end items for themselves some fine jewelry is available at bargain prices indeed especially in online retail and secondhand retail online chivonne Germany for example sells gold diamond rings starting at $99 on the flip side brands such as Lanvin and Roberto Cavalli sell fashion jewelry for thousands of euros so industry insiders expect that segments will increasingly be defined by price points and brand rather than purchase and wearing occasions one of the interviews interviewees in the study put it as follows

We encourage our customers to layer and mix high and low price points and just go for it to do what they're doing with apparel in this spirit actress Helen Hunt recently paired $700,000 worth of Martin Katz jewelry with a H&M dress at the Academy Awards in 2013 so there is a kind of a blurring of the lines are not so clean-cut as you might think between fine and fashion jewelry it's not clear if that's actually really spilling over into the APAC region just yet but it is something to bear in mind moving forward online as we saw earlier is increasingly important from the figures point of view but let's look into it a little bit more qualitatively here in all major markets over the past decade online sales of a parallel have grown at double-digit rates in the UK for instance online sales now account for 14% of total apparel sales up from approximately 1% in 2003 and that's already surpassed 14% by this year our analysis suggests online jewelry sales are only four to five percent of the market today with substantial variations across regions brands and types of jewelry our interviewees believe this number at least for fine jewelry will reach 10% by 2020 and won't grow much beyond that so bear that in mind for the fine jewelry segment or not looking at a huge jump in the case of the online market however look here at the bottom as for fashion jewelry which is where our company okl Sparkle is operating our interviewees predict a slightly higher online share of sales in the neighborhood of ten to fifteen percent by 2020 that's because as we see above here in terms of the rationale for fine jewelry most consumers prefer to buy expensive items from brick-and-mortar stores which are perceived as more reliable and which provide the opportunity to actually touch and feel the merchandise that seems to be less of an issue when it comes to fashion jewelry as this is seen as a jewelry that is more replaceable perhaps a little bit more disposable and there's the demand again for new Styles all the time styles that can be changed around and tried with different different items of clothing and mixed and matched for example in that context of course it's not going to be as important for the purchaser to actually see the stuff in person seeing it visually online may well be sufficient for their purposes and for that reason the online segments in fashion jewelry is likely to grow more aggressively than it is in the case of fine jewelry millennium millennial I should say demands are having a big influence on the fashion jewelry segment as well.

 We saw in the case of AKL Sparkle their target market is in the Millennial age range as Millennials are becoming the major consumers but have limited buying ability fashion jewelry is proving to be a truly outstanding replacement option allowing them to fulfill their emotional lead of looking good all the time and being up to the latest trends and giving themselves a perception of having something unique and that is distinct from what everyone else has and that is a huge driver of this new pattern and this new push towards a fast fashion model within this segment we're also seeing some interesting geographical shifts particularly in that APAC asia-pacific region which is important from the perspective of the precinct company India was previously one of the major exporters of fashion jewelry and silver based fashion jewelry in particular the export Indian export of silver jewelry and artifacts was a record high of a little above four billion in 2016 2017 taking major market share from Thailand that has since reversed silver jewelry exporters from Thailand have made their articles more attractive with contemporary and modern designs while Indian exporters continue to offer the same style of ornaments failing to move in line with consumer demand we're gonna see why Island is potentially important a case study from the perspective of the pre seen Thailand's export of silver jewelry jumped 15 percent to nearly 1.8 billion in the calendar year of 2017 from the year before silver jewelry was nearly 44 percent of their overall gems and jewelry export and that's very important again from the perspective of the pre seen we're dealing primarily with silver based jewelry export in the segment also rose from Indonesia and China pulling down India's global share interestingly as well jewelry demand is expected to record a solid year of growth in 2019 with Thailand said to be one of the driving forces behind that rice o'the island is increasingly becoming a major player terms of growth and indeed overall market share in the asia-pacific region now silver is a key as supply in the context of the pre seen company of course and here we're just gonna have a quick look at some interesting aspects of the silver market in and of itself and how that could have a knock-on effect then on the jewelry market in the fashion jewelry market in particular you can see here the top six production stage silver mines are based in Australia Mexico Bolivia Peru Poland and Mexico and then down below you see here top six near-term silver mined development projects through 2015 these are I in the pipeline and on the way and you can see again .

Chile Argentina Mexico Bolivia Canada and Peru what's the pattern here the Americas are a huge player when it comes to silver mining most of the major silver mining operations are based in American countries both North America and South America particularly in South America even a huge number of countries they're specializing in silver mining one country that I want focus on here important from the perspective of the pre seen company is Australia Australia seems to be geographically the closest a nation when it comes to a exporting silver to a place like for example thye land or the fictional country of new land in the pre scene so that is important to bear in mind from transport costs and so on now silver prices what is exactly affecting silver prices and indeed the demand for silver unlike gold which is also another commodity the price of silver swings between its perceived role as a store of value like gold and its role as an actual industrial metal for this reason price fluctuations in the silver market are more volatile than goal that's something very important to bear in mind so while silver will trade roughly in line with gold as an item to be hoarded in terms it's called investment demand the industrial supply and demand equation for the metal exerts an equally strong influence on its price and that equation is always fluctuated with new innovations so you can see here this is a nice breakdown an overview of the different sources of demand for silver globally you can see jewellery is at 209 point 1 million ounces demanded verse is you can see here another important player perhaps the most important segment is industrial electronic and electronics uses that would include things like iPhones and other such devices they're becoming increasingly important in terms of demand for silver and then you also have an interesting one here this is one of the things we would need to keep an eye on is the photo voltaic that is to say the panel's used in solar panels and a cup when it comes to energy and it comes to when it comes to renewable energies this is becoming an increasingly important area of course with the climate change and global warming issues

controversies and so there is likely to be a push towards more investment in solar panels and at in turn then we'll put a price pressure on silver as the demand goes up the price of silver is likely to go up as well and that then has knock-on effects on companies in all the other segments where silver is demanded including of course jewelry what if things look like in recent years well last year in 2018 the silver market faced a very challenging environment which was reflected in a muted price performance preliminary estimates point towards a minor 0.3% increase in total supply whereas demand contracted 3% a slowing Chinese economy coupled with rising US interest rates and equity quite equity market bull run and global rate tensions trade tensions I should say affected the price performance across many markets this is actually good news from the perspective of course of a company like the one in the pre seen if the silver price is depressed of course that is going to be good for them because they can afford more silver and lower prices but you have to bear in mind as well what's going to happen going forward this year 2019 we expect the sentiment to be more supportive for the silver market the start of 2019 has already proven to be good for silver investors the US Mint for example sold 12% more American Eagles in January compared to January 2018 in addition the expected slowdown in the US Federal Reserve rate hiking cycle should also benefit silver which in comparison to gold has a very attractive price point based on the high gold silver ratio at around 82 percent so basically what these analysts are expecting is that the price of silver is actually going to start rising in 2019 it's already at such a low that it's likely to see relatively rapid rises in the price and so obviously from the perspective of a silver jeweler this is going to be a bit of an issue if the price rises rapidly in the coming years

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