Even as the market scenario continues to remain turbulent, TBZ - The Original is adopting innovative business strategies to mitigate the economic down cycle. IR Connect gives you an insight on how this peer jewellery player is cleverly adapting itself to mitigate ground adversities.

It seems that Indians have a near pathological fascination for gold. Not only do we view it as an ornamental metal that glistens and adorns, but also as the ultimate safe haven investment of last resort. And when it comes to the negative impact that gold imports are having on our Current Account Deficit (CAD) and so our currency valuations, Chaucer's saying that "all that glitters is not gold" is truly apt for once.

Not surprisingly, India's jewellery industry has recently been facing one of the worst scenarios in the last few decades. Not only is it facing soft demand in one of the most restrained consumption behaviour that India has experienced in the last 30 years, but the Government too has tried to nip the supply bud by taking various measures to curb gold imports, such as import duty hikes and the 80:20 import restriction–that ties gold imports to exports. These recently introduced measures are aimed at reining in a record-high CAD India is currently facing and defending a weakening Indian Rupee – or at least in theory. Adding to this, with the overall consumer sentiment weakening due to a sluggish economy and high gold prices (barring the period during April-May 2013 when the prices fell by around 10%), demand for the physical metal remained broadly subdued.

Amidst this backdrop of "the perfect storm" brewing into, what some might say, tsunami-like waves, one jewellery player that is navigating these choppy waters and managing to maintain its course along an exciting journey of growth is TribhovandasBhimjiZaveri – The Original (TBZ). With more than 150 years of travel distance behind it, TBZ is not a novice to witnessing tough times. In fact it has navigated through several down cycles over its long history – and this current storm is no stranger to this jewellery bellwether.

KEEPING JEWELLERY AFFORDABLE; KEEPING CONSUMERS INTERESTED
A general slowdown in the overall global economic activity has led to a widespread drop in consumer spending in India too. Consumers generally refrained from spending and focused on preserving their cash position in view of the world economic slowdown. And since jewellery is accorded as discretionary spending, the segment was adversely impacted by a fall in consumer spending. And well, TBZ was no different. Akin to the players in the jewellery segment, TBZ too witnessed slower sales in its showrooms. Moreover, the steep rise in global prices of the yellow metal didn't help either – making jewellery more expensive and unaffordable.

Nonetheless, the industry along with TBZ did benefit from a drop in gold prices during April-May 2013, helping the company post stellar first quarter results. However, there was a low level of activity at the store level during July-September period. This was due to combination of two factors. One, the second quarter is typically the weakest in the jewellery sector given the lack of any auspicious days for weddings or other occasions; and second, a fall in gold prices in the first quarter led to advancing of jewellery purchases by many customers.

a. Being Value Smart
Given the prevalent business conditions, TBZ continues to work towards stimulating consumer demand through stunning jewellery designs and for demonstrating continuity in quality assurance. The jewellery player continues to display a sterling quality of determination to move forward, amid the current economic challenges. Its contemporary and traditional jewellery, albeit low-priced, entails a higher perception value, even as its skilled designers continue to elevate existing jewellery designs to inimitable craftsmanship.

b. Enhancing In-store Experience
TBZ is enabling branding and marketing initiatives with more in-store events and road-shows. Towards this goal, a definite paradigm shift is being carried out from ATL (Above The Line) to BTL (Below The Line) activities, with an increased focus on one-on-one customer interaction and enhancement of ‘in-store experience’. To give an example, through its Jewellery Education Programme, TBZ tries to educate loyal customers on different ways of caring for their personal jewellery.

c. Rationalising Costs
To maintain its operating margins and improve profitability in these difficult times, TBZ is rationalising its marketing and payroll costs. It is also maintaining a key focus on inventory improvement by getting rid of non-essential inventory and by lowering its inventory carrying cost.

d. Encasing Elegance
The story of TBZ begins with a simple vision – that of elevating designs and creating jewellery that excites. Today, TBZ has arguably reached the status of becoming a national brand. It enjoys a special connect with customers backed by a strong pedigree, exclusive designs, innovative offerings and a widening store reach. TBZ considers its customers as its brand advocates. To fulfil their aspirations, it recently unveiled its jewellery collection for weddings and the 'showstopper' and Dohra collection in the fashion jewellery segment. It aims to continue making a mark in innovative jewellery design, continuing its 150-year old tradition.

SOURCING IS THE NAME OF THE GAME
The gold lease model has traditionally been a favourite source of gold requirement for most jewellery makers. The model helped the jewellers manage their working capital intensity, avail credit up to 180 days, and most importantly without having to bear any inventory price risk, leading to lower financing and hedging costs. However, as a measure to constrict supply and trading of gold coins and tablets, the Government thought it wise to temporarily ban gold procurement under the lease model, making the jewellery industry suffer a temporary setback. TBZ too needed a way out of this precarious condition. In fact, the gold lease model had become a prime source for TBZ to source gold.

Given this constriction, TBZ has been quick in adopting alternative channels of raw material procurement to manufacture its jewellery. Various avenues are being tapped to source gold, aimed at reducing its exposure to mark-to-market loss, enhance cash flows and accelerate its working capital cycle. Let us learn about the different avenues of gold sourcing tapped by TBZ in order to fulfil its annual gold requirement.

a. Maintaining Strong Bonds with Bullion Traders
Given the excellent relationship TBZ continues to enjoy with its bullion dealers for over one-and-a-half century, it anticipates this medium of supply to continue smoothly.

b. Tapping Funding from Consumers
TBZ aims to procure physical gold in the form of coins and bars through its recently floated Gold Deposit Scheme. The scheme helps customers earn 5% interest on gold deposits and get back the precious metal after a year in physical form. TBZ's Kalpavruksha Scheme is seen contributing nearly 10-12% to its total sales in FY2014, higher than 7% it contributed in the previous fiscal. TBZ recently launched another gold scheme – the SuvarnaSrushti scheme – which enables customers to book grammages month-on-month at current market prices, eliminating rate volatility.

c. The 'Old' for the 'New'
TBZ also relies on exchange of old gold jewellery for its gold requirement and has been historically meeting around 26% of its gold requirement through this medium. The company now plans to incentivise this medium by waiving off charges levied on exchange of old jewellery.

d. Tapping Bank Gold Reserves
To add yet another significant and reliable source for its gold requirement, TBZ is in the last leg of negotiation with a leading PSU bank. It will tap on the bank's large reserves of gold accumulated in the form of deposits from temples and trusts.

In view of these multiple fresh alternative avenues of gold sourcing, TBZ is confident of keeping the supply sources flowing and mitigating the incremental increase in working capital due to the abolishment of the lease model.

EVERY CLOUD HAS A SILVER LINING
After having breached the level of Rs 34,000 per 10 grams in August 2013, the price of gold in India has currently moderated to a range of Rs 28,000 – Rs 29,000 per 10 grams. With the gold price expected to remain at or below the current price range,TBZ is betting on the upcoming festive season, higher number of jewellery-buying occasions (DhanTeras, PushyaNakshatra and AkshayaTritiya) and the soon-to-arrive Hindu wedding season to clock higher sales and report a better performance during second half of FY2014. During FY2014, an increased number of auspicious days (lasting till June-end 2014, highest in the decade) and wedding days (74 days in FY2014 vis-à-vis 49 days in FY2013) is expected to do the magic.

Wedding jewellery buying is high-ticket and generates good volumes, which helps TBZ gain an edge as a specialist wedding jewellery retailer, focusing on exclusive design and superior quality. TBZ is also banking on the conversion of a pent-up demand for the yellow metal, combined with India's generally strong affinity for precious gold-based jewellery.

EXPANDING THE FOOTPRINT
Despite economic sluggishness, TBZ is on track with its expansion plans with a robust commitment to grow with a cautious approach. The company's prime emphasis is on India's Tier 2 & 3 cities to leverage on a strong preference for quality jewellery in these markets. About 27 retail stores are currently operational with its retail space exceeding 88,000 sqft across 21 cities. Going forward, TBZ's overall goal of opening 57 stores remains intact. However, it is judiciously re-adjusting the number and timing of the hub stores versus spoke stores, to ensure maximum inventory and marketing efficiencies. With a long term focus on expanding its footprint, TBZ continues to travel on a steady course of becoming a truly pan-India player.

BEING FUTURE READY
Amid troubled waters, TBZ aims to continue sustaining its leadership in the jewellery segment by leveraging on its capabilities and building on new business strategies. It seeks to deliver value through a seamless supply chain and enduring relationships. The key is to sharpen itself amid trying times and hold its ground well. Well, if TBZ can pull this one off effectively, nothing can stop it from penning a new success story and standing out as a strong contender among the industry's outliers.

- IR Connect
Editorial Team