Basking in the success of Rs200-crore IPO in a tepid market in May this year, Mumbai-based jewellery retailer Tribhovandas Bhimji Zaveri (TBZ) is now getting ready for its next act – a massive expansion by setting up 43 new stores in the next three years — or more than a store a month.
While chairman Shrikant Zaveri is not a hands-on manager, his eyes never stray from finesse and design. He’s wont to suggesting a stone here, a flourish there to the smiths, whenever he does the factory rounds.
In a chat with Nupur Anand and Promit Mukherjee from DNA Money, he talks about what makes the company unique in a rapidly exploding organised jewellery retailing market in India:
Demand’s been very tepid in the first two quarters. When do you see a turnaround?
Demand has begun to pick up slightly. So, right now, we are better in terms of both volume and value growth compared to the past quarter. The jewellery segment is picking up due to the festive and marriage season. However, the investment story is different. Coin sales have been very slow and going ahead, we even expect a de-growth of 2-5%.
You been expanding very rapidly...
Yes, we have been adding one store every month. At the time of IPO, we had said we will add 43 stores by 2014-15 and our plan is on track. We are targeting both metros and non-metros for this. Jewellery market in non-metros is growing faster than metros, and so about 75-80% of the expansion is going to be in non-metros. In fact, for us, the diamond market in non-metros is growing at 40% vis-a-vis 20% in metros. And the gold story is no different.
How do you go about selecting locations?
We spend at least four months researching before investing in any new market. The key checkpoints are localities that have a high and an increasing disposable income with low organised jewellery penetration and less options in terms of design when it comes to diamond jewellery.
We are also wary of opening stores in areas where the majority of the population is dependent on one source of income like agriculture. Moreover, since we are focusing more on diamonds, we don’t want to enter areas where the market is dominated by gold, or where gold sells more like commodity.
With so many launches, what’s the break even calculus?
Conservatively, we have a breakeven target of 6-8 months. But in almost all the stores, we have been able to do so in 3-4 months. Another thing that has been helping us is we have seen a very fast turnaround.
So, when you acquire a store, there is a free time given for fittings. We make the most of this and get the store operational in the rent-free time. This translates into huge savings as we are present in key locations and has helped us break even faster.
You are shifting to the leasing model. What is the rationale?
Earlier, we were working on the national hedging model. In this, the entire inventory was booked on the company’s books. This means we had to bear the entire risk of gold price fluctuations. As a result, we had budget constraints. Post IPO, our net worth increased by Rs200 crore and this gave us the freedom to move to the leasing model.
The advantage of this is that it turns out to be a more cost effective model and that means I have more money for expansion. Moreover, it also shields me from the gold fluctuation prices. Therefore, this model definitely scores over the other one and has given the business a boost.
What is the TBZ USP?
If a design is made for one store, we don’t repeat it in the same market, to maintain the uniqueness. That’s our USP.
Secondly, despite rapid growth, we continue to offer customised jewellery in every location. If someone comes up with an idea or design for jewellery, we have our designers figure it out for them on paper. Once they approve, we do it for them. Currently, about 7% of our sales are customised stuff.
How does your nationwide rollout plan look like?
Currently, we are in Andhra Pradesh, Gujarat, Kerala,
Maharashtra, Madhya Pradesh and West Bengal. The strategy is to target all major locations where we are present so that it helps us reduce our operational costs, rotate inventory faster so that we can deliver more swiftly, reduce cost and then every year continue adding three to four new states.
This year, we entered Kolkata because next year we plan to get into Bihar, Jharkhand and other cities of West Bengal and Kolkata will act as the base. Probably in the next three years, we will reach New Delhi, NCR and Chandigarh, too.
You have both format of stores — large and small. Going forward, will it continue to be a mix or a focus on a specific format?
What we have planned to do is to have a hub-and-spoke model, where every big city will have a big store and will act as a hub for the smaller cities nearby, which will be like the spokes. These smaller cities could also be served by the bigger store. People who want to buy wedding jewellery will be visiting bigger stores as they won’t mind traveling extra kilometres and for gifting or any other purpose, the stores in smaller cities can serve them adequately.
So, this is again driven by the purpose of reducing the inventory as smaller stores have one-third of the inventory of the bigger store. And this format has worked really well for us. Out of the 43 stores that we are planning to set up, there will be 25 large and 18 small.