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Once toasted as a pioneer in India’s largely unorganised and fragmented jewellery industry, Tanishq, Titan’s flagship brand and growth engine is in a bind. Traditional players such as Kalyan Jewellers, Joyallukas and PC Jewellers are pushing aggressively into the branded category that used to be Tanishq’s domain. To add to its woes, demand has slowed down – the revenues of listed jewellers including Titan is down 12 per cent to Rs 90,049 crore in FY15 from Rs 1,02,078 crore in FY13.
A bruised Tanishq is hurting Titan. Its revenues dropped for the second consecutive quarter during June this year and its near-term outlook remains subdued. Experts say that the company has been hit since it was the jewellery business that fuelled Titan’s growth in the first place. It accounted for four-fifths of the company’s revenues last fiscal, up from less than half a decade ago. The division has reported a double digit decline in revenues in the last two quarters. In FY15, the division accounted for 82.6 per cent of consolidated profit, up from a quarter a decade ago.
The golden touch
Tanishq helped Titan Company (earlier Titan Industries) transform from a mid-size consumer company to a lifestyle behemoth and the third most valuable Tata company within a decade. According to experts, the brand broke new ground as it focused on trust, reliability and style in a segment that was dominated by small operators and wedding sales.
Between FY04-05 and FY13-14, Titan’s net sales jumped ten times, operating and net profit rose 14x and 35x, growing at a CAGR of 30 per cent and 42.7 per cent respectively. Tanishq’s golden run made Titan the darling of investors. But soon times changed and smaller jewellers began nibbling at its market share using the very tactics the company used to grow big in the first place. ‘Till a few years ago Tanishq was the only branded jewellery player with a national visibility and sales network, now customers have many brands to choose from. The impact has been magnified by a general slowdown,’ says Amnish Aggarwal of Prabhudas Liladhar.
Follow the leader
Taking a leaf out of Tanishq’s book, erstwhile regional and second-rung jewellers began splurging on brand promotion. They went a step further, investing in large format stores at prime locations and bringing in brand ambassadors from Bollywood. PC Jewellers and Tribhovandas Bhimji Zaveri nearly doubled their ad spends in the last three years. Amitabh Bachchan endorses Kalyan as do several South Indian stars, Joyallukas. In sharp contrast, Titan’s ad spend has been flat during the period though it has signed Deepika Padukone as its ambassador in May this year.
Titan shrugs off the threat. It says that its unique positioning ensures brand loyalty. ‘Tanishq is targeted at modern women who buy jewellery for fashion and style value rather than to keep it in lockers. Most of our competitiors are branding the saving aspect and are focussed on volumes rather than value,’ says C K Venkataraman, CEO Titan jewellery division.
The difference in positioning, however, is fast disappearing. ‘Tanishq is a pioneer brand. It is now losing this uniqueness as other brands adopt a similar branding and sales strategy while Titan has turned conservative,’ says Arvind Singhal, chairman Technopak Advisors.
Tanishq’s positioning allowed it to command a premium. This is reflected in the fact that its making charges (the mark up over the gold price) are among the highest in the industry. The jewellery division’s PBIT (profit before interest and taxes) margin at 10 per cent is nearly twice that of TBZ (5 per cent), Kalyan (6 per cent) and Joyallukas (3.4 per cent).
Customers, the company says, are willing to pay the price for assured quality and contemporary designs. ‘Even if a fifth of customers are willing to pay a premium, we still have a large market to play,’ Venkatraman says. However many jewellers offer lower making charges for similar designs and quality assurances. And this is forcing a rethink in strategy.
Venkatraman is loathe to admit however as he believes that the recent decline in volumes and revenues has little to do with pricing or competition. The closure of the Golden Harvest Scheme that used to bring nearly a third of the jewellery sales has led to the fall, he says. The new Companies Act that came into force in April last year outlawed the deposit scheme.
Despite the company’s protests, making charges have come down and Titan is opening new stores in prime locations. Most importantly, there is anurgency to emphasise its unique brand positioning. Tanishq’s recent campaigns have all been about the people instead of the metal itself. Buteven as the brand distances itself from its competitors, it is being forced to operate by the rules being set by them and therein lies its big challenge.