Jewellery & Gems Industry * Group 10 * K Ashwin * Himanshu Raj Gupta * Lalit Mittal * Kaustav Ghosh * Meghna Singh * Kishan Khedia * Gunjankumar Solanki

Table of Contents

Executive Summary
Situation Analysis Climate (PEST) Company Gitanjali Gems Tribhovandas Bhimji Zaveri Titan Industries Ltd (Tanishq) E-commerce in Jewellery Customer Analysis Collaborators Porter’s 5-forces analysis
Problem Brand : TANISHQ

Executive Summary

According to a report by Research and Markets, the Jewellery Market in India is expected to grow at a CAGR of 15.95 per cent over the period 2014-2019.The Gems and jewellery sector in India plays a significant role in the Indian economy, contributing around 6-7 per cent of the country’s GDP. One of the fastest growing sectors, it is extremely export oriented and labour intensive. India is deemed to be the hub of the global jewellery market because of its low costs and availability of high-skilled labour.

The gold jewelry exports from India were US$ 554.45 million in December 2014, while silver jewellery exports were US$ 148.49 million, according to the latest data released by the Gems and Jewellry Export Promotion Council (GJEPC). The cumulative foreign direct investment (FDI) inflows in diamond and gold ornaments in the period April 2000-December 2014 were US$ 476 million, according to Department of Industrial Policy and Promotion (DIPP).

The sector is witnessing changes in consumer preferences, as the westernisation of lifestyle is responsible for changes in the buying habits of the consumer. Consumers are demanding new designs and varieties in jewellery, and branded jewellers are able to fulfill their changing demands better than the local unorganised players. Increase in per capita income has led to an increase in sales of jewellery, as jewellery is a status symbol in India. The sector is highly-fragmented and unorganised, and is characterised by family-owned operations. Around 96% of the gems and jewellery players have family-owned businesses, but, over the last few years, more organised players have been entering the sector. The products in the sector can be categorised as gemstones, jewellery and pearls, which can be further segmented into diamonds, coloured stones (precious, semi-precious and synthetic), studded jewellery, costume jewellery, gold and silver.

Market Characteristics
The key characteristics of the market are:

* Unorganized sector * Labor Intensive * Working Capital Intensive * Raw material intensive * Import dependence on Raw materials

Key Trends in the market * Rise in e-commerce * Low cost of labour * Rising disposable income * Rise in number of working women * Favorable government policies (Abolition of Gold Control Act 1992) * Adoption of Kimberly Process Certification System (KPCS) * Development of SEZs

Climate (PEST Analysis)
Political Climate

The Gems and jewelry sector in India plays a significant role in the Indian economy, contributing around 6-7 per cent of the country’s GDP. One of the fastest growing sectors, it is extremely export oriented and labor intensive. The government of India has declared the sector as a focus area for export promotion based on its potential for growth and value addition. Recent Developments/Initiatives:

Gold, which is 2nd only to crude in terms of imports, and having been placed under rigid import measures in the past to restrict the rising CAD, have now been deregulated by the RBI with more liberal gold import norms. With this, Star and Premier export houses can import the commodity while banks and nominated agencies can offer gold for domestic use as loans to bullion traders and jewelers.

India, which is the top global processor of diamonds has signed an MoU with Russia(which is the largest rough diamond producer) to source data on diamond trade between the two countries.

The government plans to establish diamond bourses in an endeavor to make India an international diamond trading hub. Some important measures, regarding the same in the New Foreign Trade Policy are * 100% FDI is permitted in the gems and jewellery sector through the automatic route * Gems and jewellery SEZs have been set up to promote investments in the sector

The Gems and Jewellery Skill Council of India is planning to train over four million persons till 2022 as the sector is facing shortage of skilled manpower. The council aims to train, skill and enhance 4.07 million people by 2022. The council will tie-up with the existing training institutes including Gemological Institute of America (GIA) and Indian Gemological Institute (IGI), along with setting up of new institutes in major diamond cutting and processing centers.

Economic Climate
The Economic importance and behavior of the Industry can be highlighted using the following key points:

Significant Employment Generation: There are about 2.5 million people(2.5 times the number of jobs in basic iron and steel manufacturing) directly employed by the industry. Diamond processing, gold jewellery , fabrication, and jewellery retail account for 92 percent of the total employees. It is expected that the industry can generate 0.7–1.5 million additional direct jobs over the next five to seven years.

High Exports: The industry makes a significant contribution in terms of exports. Overall, the industry export contribution was INR 227,000 Cr in 2012–2013, or 14 percent of total Indian exports. Cut, polished diamonds and jewellery are the two most important subsets, with 81 percent share of gems and jewellery exports.

Significant Value Addition and Returns: There is a total value addition of ~INR 100,000 Cr for the industry, which corresponds to about 21 percent of the industry’s total output. Value addition occurs through trading, cutting and polishing of diamonds, jewellery manufacture, and retail. Also, Gold has outperformed several other asset classes, including Nifty, term deposits, and savings deposits, with significantly higher returns over the past 12 years

Social Climate

Jewellery and Gems are a symbol of prosperity and appeals to all generations across the social system within the country. The demand for Gold is unique in the country in the sense that it has both Consumption and Investment Demand.

Investment Demand : It has a unique position in the minds of Indians and is considered to be a source of social security for a large section of the society. With only 747 bank accounts per 1000 adults, Gold is a primary instrument for investment for the Rural and the Semi-Urban India.

Consumption Demand : Indians also attach a high emotional value to gold. It is often considered a social requirement for ceremonies and weddings and bestows a sense of pride and social status to its owners.

The unique nature of Indian demand highlights the insatiable demand for gold jewellery in India that has been largely immune to rising prices. Even with gold prices rising about 3.8 times between 2005 and 2012, demand for gold jewellery in terms of volume has remained steady and in terms of value has grown by 4.2 times in nominal terms, despite higher import duties. In contrast, gold jewellery is typically viewed as a consumption product in most other countries. For example, in the U.S. and Turkey, the volume of gold jewellery purchased is negatively correlated to the price of gold. In these countries, gold competes with other consumption items and hence its consumption goes down when gold price rises.

Technical Climate

Technology and research-led innovation are key factors in the long-term future of an industry, where they are needed in both design and manufacturing. While use of better designs can enable jewellers to differentiate in the market and attract higher premiums, technology can enhance productivity and the quality (finish) of jewellery produced.

There is also limited use of technology in manufacturing, specifically in the fragmented part of the industry due to the presence of sub-scale facilities. This leads to a lack of standardization and challenges in quality control, which results in gaps in productivity and quality of jewellery produced in India

While the diamond processing industry has a higher adoption of modern machines, jewellery manufacture is largely done manually. It is estimated that the ratio of manual- to machine-oriented work in the industry is around 70:30 for jewellery manufacture and 40:60 for diamond processing. Even in diamond cutting and polishing, Indian companies use less technology than their global counterparts

Gitanjali Gems Ltd

Company Background

Gitanjali Gems Ltd is part of the Gitanjali group of companies, founded and incorporated as a private limited company by the Choksi family in 1986. It has become one of the largest integrated branded jewellery players, with over 4,000 points of sale across India. The company has also grown through mergers and acquisitions, some of which – including Gitanjali Exports, Gemplus, Giantti Jewels, Hyderabad Gems SEZ Ltd and Fantasy Diamond Cuts – are key companies from the group and which have been merged into the parent company. Last financial year, the company clocked over 12,436 crores in revenue, a 24% decrease YoY.

Product

The company has a range of products in all price segments. The Sangini and Diya brands target low-income demographics, the Gili and D’damas brands target middle-income consumers, while Asmi and Nakshatra target high-income earners. However, the company is focusing on high-end, luxury and designer jewellery, launching Giantti on a limited basis in Mumbai and Delhi in order to gain the attention of premium jewellery consumers.

Gitanjali Gems manufacturing facilities are located at Mumbai, Hyderabad, Coimbatore, Kolkata, Surat and Jaipur, and produce 235,000 pieces of finished jewellery each month, while the company’s international manufacturing set-up is in China. The company’s international design hub is located in Italy.

Jewellery Type | Production Capacity | Diamond | 1,020,000 pieces | Gold | 882,000 pieces | Colored Stone | 180,000 pieces |
Table: Product wise split of production capacities

Place

The company is positioned in the fastest emerging channels – direct selling and online retail. It has over 4,000 point of sale outlets. Its primary distribution channels are – stores via franchise and shop-in-shop routes. It has 319 franchise stores, and over 570 shop-in-shops. (shop-in-shops are smaller shops in a bigger shop such as Lifestyle etc).

Promotion

Gitanjali primarily uses mass-media such as TV, print media for promoting their brand. They have also roped in Bollywood celebrities as celebrity endorses and brand ambassadors for their brand. Shah Rukh Khan and Anushka Sharma are currently endorsing Gitanjali Brand in both events and TV advertisements.

Tribhovandas Bhimji Zaveri Delhi Pvt Ltd (TBZ)

Company Background

TBZ is over 150 years old and is currently run by Shrikanth Zaveri, a third generation businessman from the Zaveri Businessman. Last year, TBZ clocked over 3717 crores in revenue, a staggering 57% increase in revenues from 2013. Tribhovandas is currently located only in 8 states in India- Chatisgarh, West Bengal, Seemandhra, Telengana, Gujarat, Rajasthan, Maharashtra, Madhya Pradesh. But it also has plans to expand to another 9 states and 33 cities in India in 2015. The Company manufactures diamond studded jewellery only at Kandivali, Mumbai.

Product

TBZ does not have sub-brands like Gitanjali. It functions like an umbrella brand. However it produces a wide range of products ranging from gold, silver, platinum, men’s range. Unlike Gitanjali, TBZ launches collections, which are set of jewellery based on a theme. Their current collection includes Ria, Dohra, Showstopper and Azva.

Their Kandivali facility has a production capacity of over 1,000,000 pieces per annum (based on 8 hour shift per day), 4,000 kg of gold refining and 4,500 kg of gold component manufacturing.

Place

Tribhovandas sells all their products through stores owned by them. They do not use the franchise model or the shop-in-shop. Currently they have 29 outlets across 9 states, with over 8 of them in Mumbai itself. In addition, they have a website where they showcase the collection but unlike Gitanjali, they do not sell any of their products online. All their stores are owned in the up-areas and posh localities where they target the above-average and higher income segment.

Promotion

Tribhovondas primarily targets its customers through TV advertisements and print media. Vaani Kapoor is the brand ambassador for TBZ and their advertisements are primarily collection based. Wedding Collection advertisement had gone viral recently and acclaimed much fame.

The company runs various installment schemes for its customers, such as the Kalpavruksha Plan, where consumers can deposit a monthly minimum of INR 1,000 and which has maturity time of 10 months with added discount of one month installment to purchase jewellery from its outlets across India.

Tanishq (Titan Industries Ltd.)

Company Background

Titan Industries originated in 1984 and is a joint venture between Tamil Nadu Industries Development Corporation (TIDCO) and Tata Group. TIDCO is a state-owned corporation, while Tata is one of India’s leading industrial houses, with a diverse range of interests. The company’s initial business was the manufacture and marketing of watches, and its entry into this category led to major industry-wide changes. It has since successfully moved into other businesses, such as jewellery via Tanishq and GoldPlus, and eyewear.

Product

Titan Industries acts as a house of brands with a brand developed for every personal accessory category such as FastTrack for watches, Eye+ for eye gear, Tanishq etc. However, under Tanishq, there are no sub-brands.

The company targets key consumer groups with a wide range of brands and brand extensions. The Zoya and Xylys brands cater to high-end luxury and premium customers, while Tanishq and Titan are premium and mid-segment offerings.

Place

Tanishq has a pan-india presence and their primary mode of retail is Exclusive Branded Outlets (EBO). Tanishq has 163 EBOs throughout India and in addition they also have an online presence from where one can view their collections with a purchase option.

Exclusive Brand Outlets are also a type of franchise model that Titan (parent company) employs for Tanishq retailing. In an EBO, no brand other than Tanishq would be sold.

Promotion

Tanishq promotes their brand through TV advertisments, print media and Bollywood endorsements. Currently they have multiple celebrities endorsing Tanishq including Amitabh Bachchan, Jaya Bachchan and Sridevi.

However, Tanishq is famous for its unconventional advertisements that touch upon soft and inconvenient topics such as remarriage, using dusky complexion women, mature couple gifting each other.

E-commerce in Jewellery

“Gitanjali Gems Ltd, India’s biggest diamond and gold jewellery retailer, expects online sales to account for much as 20% of its sales in two to three years from about 1% now. The growth potential convinced Ratan Tata, former chairman of the Tata Group, to invest in Bangalore-based online jewellery store BlueStone last year.”- Live Mint, March 2015

As brick and mortar retail chains like Gitanjali, Tanishq increase their online presence, there are plenty of pure e-commerce focused startups that sell jewellery online. Some have raised sufficient venture capital as well. It would be incomplete to analyze the industry without touching upon the current trends – e-commerce. Currently few players dominating this space are:

* Caratlane * Bluestone * Voylla * JewelsKart * Juvalia & you * Gerald Online

These online firms cater to both real and imitation jewellery. Gurgaon based Juvalia & You has grown by 50% with an average transaction size of Rs 900- Rs 1200 for imitation jewellery and the ticket shoots up to Rs 12,000- Rs 14,000 for real jewellery. Bluestone, Bangalore based startup has been growing at a staggering 100-110% in revenue on a quarter-to-quarter basis. Their average transaction size is around Rs 10,000 to Rs 12,000.

The venture capitalists have also been very receptive to the idea with many of the e-commerce startups receiving sizeable funding to expand their operations, update the technology. Some of the recent funding in this space are: * Caratlane raised a total of $27 million from Tiger Global in three rounds. * Bluestone $3 million from Accel Partners and Meena Ganesh * Voylla raised $ 0.5 million from Snow Leopard Technology Ventures. * Youshine raised $1.5 million in two rounds of angel funding in February and November 2012 from two angel investors based out of Switzerland.
But what are the key expectations from customers, key challenges that these online retail sites would face while selling jewellery? It is not the same as selling books, mobile phones. We conducted a survey and got opinions from over 80 people. Following are our analysis and findings from the survey. * 94% of them have never purchased jewellery from an e-commerce website. * Over 75% of the respondents said they would not buy jewellery from an e-commerce website either. * The primary reasons why respondents are not ready to buy are: * Need to touch and feel the jewellery before buying – 53% * Do not trust a website for purchasing jewellery = 25%

Table: Reasons for not purchasing jewellery online.

Customer Analysis

While some brands of jewellery appeal to the younger generation, others to the older, there are two key trends that drive gold and gold jewellery sales:

* Gold is not just a product. But an investment * Heavy seasonal demand (Diwali, Akshaya trithi etc.)

Till the early part of 1990s the average Indian bought gold jewellery for investment rather than adornment. Confidence in the local jeweller was the hallmark of the gold jewellery trade. The local jeweller had a fixed and loyal clientele and the clients had complete trust on the jeweller. However in the recent times there was a shift in the consumer tastes. Women nowadays are opting for fashionable and light weight jewellery instead of huge chunky jewelleries. The new age has definitely witnessed a change in consumer buying preference.

In our survey, we also wanted to investigate the key demand levers. There are 2 major and 2 minor levers. * Major – Design and Quality * Minor – Brand and Price

Figure: To showcase the seasonal change in demand across the years. There exists a spike during Diwali and Christmas.

Collaborators

The collaborators can be better analyzed through the value chain in the jewellery and gem industry. As given below, the value chain involves 6 steps.

Sourcing The precious metal or stones required for jewellery is either mined domestically or imported. For in-house mining, there are two mines currently present – Hira-Buddini mines, Karnataka, Kundkocha mine in Jharkand. Due to India’s limited resources, much of the gold is imported.

Refining
Refineries in India are a small market primarily consisting of two players – Private and Government refiners

Trading
Trading of physical gold is done by dealers and gold jewellery manufacturers and retailers. Physical gold is usually purchased in bulk from importing agencies and then resold to smaller jewellers across the country. This trading caters to both consumption and investment demand in the market. In addition, Gold is also traded on Exchange Traded Funds, MCX etc.

Manufacturing
Large organized manufacturers cater to consumption demand, however they are only few. Most of the manufacturing is highly fragmented and non-automated. This increases the demand for skilled labour in this sector. Close to 70% of the demand is met by the fragemented part. Main manufacturing hubs in India are, Amritsar (Jadau), Delhi, Kolkata, Andhra (Hyderabad, Nellore), Coimbatore, Thrissur, Gujarata (Junagadh, Rajkot, Surat) and Jaipur.

Retailing
Similar to manufacturing, retailing is also a highly fragmented part of the value chain. Most of the jewellery retailers are single shops, regional chains.

Porter’s 5 forces analysis

When e-commerce waves hit the jewellery industry, it is imperative to analyze the competition that an entrant would face. We performed a 5-forces analysis to understand the business competition existing in the jewellery and gem industry.
Comments
* Since over 70% of the demand is met by the organized sector, the industry is a highly fragmented one. Also, due to high capital-intensive nature, it is difficult for a new entrant to enter and achieve economies of scale. * Jewellery industry is highly non-automated one, relying highly on skilled labor. This increases their bargaining power, more so because of their shortage. * India imports most of gold demand from SA, Australia, Russia, UAE and USA. This leaves heavy exposure to global vicissitudes and currency fluctuations. * India being the biggest supplier and consumer of gold, the seller has considerable bargaining power over its buyers both domestic and international ones. * Gold being a precious metal is purchased for both consumption and investment needs. This would mean that there are threats from substitutes such as equities, fixed deposits, mutual funds. They might give higher returns which would shift the demand scales to those securities.

PROBLEM BRAND : TANISHQ

Major challenges and problems surrounding Tanishq: No Golden Harvest for Tanishq :
Golden Harvest, a jewellery purchase scheme run by the company, had to be discontinued in July 2014 due to the new Companies Act which terms such schemes as public-deposit schemes. As a result, the company recorded an outflow of sales of about Rs 1,000 crore in Q2FY15
The scheme was the most sought after, as through this, a customer had to pay equated sums for 11 months, after which the company contributed a month’s worth of deposit; the customer could buy gold worth 12 months of deposits
The scheme was re-launched under stricter rules in November 2014, which reduced its contribution to the company’s turnover to 10% from the earlier 30%
Revenues were down 11% during Q1FY16 with volumes declining by 10% due to no Golden Harvest sales and a 39% decline in income due to lower Golden Harvest advances as compared to previous quarters
Measures taken by Tanishq to overcome this situation:
The company has taken steps to accelerate revenue growth in the form of higher level of promotions and lower making charges which have borne fruit in the form of improved customer acquisition by 22%
To push sales, Tanishq has started focusing on advertisements with Deepika Padukone as its brand ambassador. Moreover, 30 standalone stores and 15 for Mia, a light jewellery brand for working women, were launched, in order to compensate for the lost sales
Tanishq launched a new brand campaign “Tanishq Promise” to spread awareness about various parameters of buying jewellery. Through this campaign, it has pledged to keep 10 precious promises that it has made to its consumers (Exhibit 1)
Tanishq recently launched a new ad commercial with its latest value proposition “only price has decreased, not the value” (Exhibit 2) * * Future prospects for Tanishq:
Presently, Tanishq has a wide range of collection catering to a large spectrum of consumers (Exhibit 3).
Its recent launch of the high-end Taj collection çan turn out to be profit maximize for Tanishq as it is targeted at the crème de la crème
Its Mia collection which is aimed at the young women of the country has great potential as the market is still untapped and would give Tanishq an edge over its competitors * Exhibit 1 : “Tanishq Promise”
Exhibit 1 : “Tanishq Promise”

Exhibit 2 : “only price has decreased, not the value”
Exhibit 2 : “only price has decreased, not the value”

Exhibit 3 : Brand Classification of Tanishq
Exhibit 3 : Brand Classification of Tanishq