6 Nov 2017
Green Light for Expansion of Russia's Amber Sector Under O2O Model
Facing the twin problems of a low local skill base in the jewellery industry and a prohibition on the online sale of all such items, the online-to-offline (O2O) trading model may yet come to the rescue of Russia's stalled amber industry.
Switching to the O2O (online-to-offline) trading model is now seen as one possible answer to a problem that has long restricted the growth of Russia's amber industry. While it is technically illegal to sell items of jewellery online in Russia, demand is now growing for items of amber jewellery both within and beyond the country's borders – most notably in mainland China.
As the same time, many of Russia's primary jewellery manufacturers – including Moscow Crystal, Bronnitsy Jewellery and Estet – shun the production of amber-related pieces, largely on account of the comparatively small domestic market for such items. Overall, only the country's smaller jewellery manufacturers, typically those based in the Kostroma Region some 340km to the northeast of Moscow, specialise in amber items. Unfortunately, many of these producers fail to deliver items of a consistent quality and struggle to meet the fast turnaround times required for many larger orders.
Inevitably, as with every other retail sector, sales of amber jewellery have migrated online, with a number of specialist e-commerce sites seeking to meet growing demand. Among the most high profile of these are Amberika and Amberway, as well as Ambery.net, a relatively recent addition to their ranks.
Typically, all such sites invest heavily in promoting themselves online, whether via Google or through Baidu, mainland China's leading search engine. The majority of these sites, where permissible, accept payments in roubles, US dollars, euros or renminbi. Many can also process AliPay payments, a facility seen as a must for any online business targeting mainland China.
Despite such transactional readiness, the majority of these specialist e-stores are still legally obliged to operate solely as online showcases. This sees all purchases having to be officially completed in person at a designated sales site or in a convenient branch of the Russian Post, the country's state-run mail delivery service.
It is now expected that, over time, the industry will increasingly adopt the O2O model, with two particular e-commerce operators seen as leading the way – Berlin-based Monoqi and Moscow's own Poison Drop. Both are looking to target the production issue by using designers/manufacturers across the world, while also having in place showrooms where the purchase of items selected online can be finalised.
These two approaches are expected to expand the range on offer, while also complying with the law restricting online jewellery sales. It is also believed that the use of non-Russian designers will result in the production of more contemporary-styled amber jewellery, while the more traditional items will still come courtesy of domestic manufacturers.
Such progress would prove a particular boon to Kaliningrad, part of Russia's Northwestern Federal District, which is said to be home to 90% of the world's amber reserves. Although plentiful, this ornamental form of fossilised resin is not hugely popular within Russia, with many consumers viewing amber jewellery as somewhat dated. As a result, the domestic market is valued at only about US$2 million a year, with the majority of the region's amber destined for China where it is far more highly prized.
Until 2012, the amber industry in Kaliningrad, a relatively small region, was largely unregulated, with semi-legal and wholly unlicensed players dominating the sector. This resulted in illicit exports becoming the norm, typically via Poland or Lithuania, with the far smaller amber reserves found in those two countries used as smokescreens to hide any product's true origins.
In 2013, this all changed. The export of non-processed amber was banned by the Russian federal authorities, while three local businesses were licensed to handle all such future trade – Amber Juvelirpom, Amber House and Darvin. The first of these – Amber Juvelirpom – is a subsidiary of Kaliningrad Amber Kombinat, making it the region's only authorised amber exporter to be ultimately wholly owned by Renova, the giant state-owned mining, power, real estate and construction conglomerate.
Any Hong Kong businesses looking to enter this sector would be advised to consider offering new and more stylish amber jewellery concepts, ones more in line with the preferences of younger consumers in Europe – including Russia – as well as in China. They could also look to introduce high-tech systems that are better suited to processing amber, a material notoriously easy to damage using established manufacturing and fixing techniques.
Leonid Orlov, Moscow Consultant