Jewelry Retail in India - Example

Jewelry Retail in India 0 Executive Summary The government of India has recently approved foreign direct investment (FDI) in Multi-Brand Retail Trade (MBRT) in the country. While this development has sent the local retail industry in jitters, it has opened a mouth-watering opportunity for many foreign players who intend to grab a pie of the lucrative retail industry in India. The present paper attempts to create a business plan for an imagined new business which will gain entry into the Indian market and operate a chain of jewelry retail stores. The new business, Gems Paradise, is a joint venture between an Indian and a US based company. The said company will set up a chain of retail stores that sell different brands of imported jewelry under one roof. The various objectives of the Gems Paradise have been laid down in the paper. The organizational structure and the man-power requirements have also been detailed in the paper. An attempt has been made to discuss the marketing strategy (segmentation, targeting, positioning) of Gems Paradise. The paper also discusses the business model of the retail chain and projects the future sales, revenues and costs. 2.0 Introduction The Indian retail industry has grown by an impressive 10.6 percent from 2010 through 2012. It is expected that the sector will maintain its growth trajectory in the coming years and will become a $750-850 billion industry by 2015.  At present organized retail constitutes merely 8 percent of the total retail industry in the country. This proportion is expected to touch 20 percent by 2020. Apparel, Food and Grocery, Mobile and Telecom, Consumer Electronics are the major contributors in the organized retail sector in the country. Organized jewelry retail constitutes less than 4 percent of the pie.   The approval of the Foreign Direct Investment (FDI) policy in Multi-Brand Retail Trade (MBRT) has been a recent development in India even though the Indian government had been contemplating on this issue for many years. The Department of Industrial Policy and Promotion released a discussion paper in May 2010 seeking public opinion on the issue of MBRT. The proposal finally saw the light of the day as the union government passed and enacted the new FDI policy on multi brand retailing in September 2012. The new policy presents a lucrative opportunity for foreign players to enter the Indian turf, set up a business here and vie for a share of the Indian consumer’s wallet. 2.1 Jewelry Retail in India The purchase of jewelry constitutes 6 percent of the private consumption in India. However, most of these purchases happen in the unorganized sector. A jewelry retail firm is said to be in the organized sector if it has a minimum of ten outlets in the country or has an annual turnover of minimum $ 10 million. At present, there are close to 80 retail chains operating in the organized jewelry sector in the country. Put together these chains have 3,150 outlets and generate an annual turnover of $ 154 billion. Indians have always displayed a penchant for jewelry. The reasons are not too far to seek. Firstly, possession of jewelry accords social status to the individual/household. Secondly, jewelry is considered to be a safe, secure and long term investment by the Indian society. In this way, purchase of jewelry serves a dual purpose and therefore the Indian consumer hankers after it. In light of this attitude of the Indian consumer, it was thought appropriate that the new business should be started in the jewelry sector. 3.0 Company Summary Gems Paradise is a joint venture between Seattle based Paradise Inc. and New Delhi based Malabar Gems Private Limited. Under the agreement, Paradise Inc. and Malabar Gems Private Limited will contribute equally towards the finances required for setting up Gems Paradise. The profits and losses of the new venture would also be shared equally by the two parties. The company would set up a chain of retail stores that would sell various brands of imported jewelry. 3.1 Objectives of Gems Paradise The objectives of Gems Paradise are 3.1.1 To import high quality jewelry and other accessories made from gold, silver, platinum, gems, stones etc, from internationally recognized brands. 3.1.2 To make available the items imported from different countries to the people of India and eventually become a supermarket of jewelry items. 3.1.3 To distribute these products through retail set up initially and subsequently through an e-boutique. 3.1.4 To open up four retail stores in the first year of operation, ten in the second year of operation and make the online selling model operational by the third year of operation. 3.1.5 To capture 3 percent market share of the organized jewelry retailing industry in the first year of operation. 3.1.6 To increase the market share to 7 percent and 15 percent by the end of the second and third year of operation respectively. 3.1.5 To achieve break-even in 5 years. 3.2 Mission The endeavor of Gems Paradise is to become a trustworthy name in India. The company aims to provide authentic jewelry and related accessories from the leading international jewelers. In the long run, the company intends to become the worlds leading retailer in jewelry items that appreciate in value. 3.3 Keys to Success 2.4.1 One of the most important requirements for the success of Gems Paradise is to identify and purchase land at locations that are ideal for setting up jewelry retail stores. 2.4.2 Gems Paradise will have to win the trust of the consumers since it is dealing with expensive, imported products. 2.4.3 Gems Paradise will have to import designs and styles that are appropriate for the diverse and multi-faceted Indian culture. 3.4 First Year Budget Summary The initial years of foray into the Indian market will entail a huge capital expenditure for Gems Paradise. At the outset, the company will have to purchase land in each of the four metropolitan cities; Delhi, Mumbai, Chennai and Kolkatta, where the stores are to be set up in the first year. The other important component of the planned expenditure would be the marketing expenses, especially the brand building initiatives. The various expenses that will be incurred in the first year are detailed in Table 1. Table 1: Details of First Year Expenses The capital outlay of $30.20 million on purchase of land seems enormous. An alternative arrangement is that Gems paradise does not buy land. In such a case, it will have to operate through rented premises. Rents for commercial property in India are extremely exorbitant. Furthermore, these fix costs tend to erode operating profits especially when the sales are down. In the ultimate analysis, Gems Paradise intends to carry out business operations in the long run; hence the investment in land is justified. This capital asset will only appreciate in the future and will not result in any kind of loss even in the unlikely event of Gems Paradise exiting from Indian terrain. In case Gems Paradise is not able to find the requisite land at the stipulated rates and is left with no choice but to open up its stores in rented accommodation, it will opt for rented space in luxury malls. The second big challenge that Gems Paradise would face is the import duty of up to 30 percent that is levied on imported luxury jewelry. This component is likely to jack up the prices of the final product. 4.0 Company Locations and Facilities To begin with, Gems Paradise would commence operations in the four metropolitan cities of India, namely New Delhi, Mumbai, Chennai and Kolkata. In the second phase of the expansion, scheduled after one year from the date of inception of the company, the retail chain would expand to the other prominent cities namely Bangalore, Ahmadabad, Hyderabad, Pune, Surat, Kanpur, Jaipur, Nagpur, Indore and Ludhiana. This phase of expansion will give Gems Paradise an all India presence in quick time. In terms of strategy, Gems Paradise would be set up in cities with population of more than one million. As per the current statistics, 53 cities have a population of one million and above. The locations for expansion in the third phase of expansion would be chosen in the Financial Year 2015-16. This would give the top-level management sufficient time to conduct feasibility analysis on the potential locations. The stores set up in the first and second phase of expansion would also be fully operational by then and would be decent indicators about the potential demand in their respective regions. 4.1 Future Locations The aforesaid discussion on company locations and facilities elucidates the plan for the brick-and-mortar set up. Gems Paradise however intends to eventually join the online commerce bandwagon that is making waves in India at the moment. The e-retailing of jewelry is still at a nascent stage in the country. Since jewelry buying is a high involvement product and consumers are extremely cautious of the quality and finish of the product, they tend to go to physical shops and refrain from buying online. Gems Paradise would attempt to buck this trend by offering a vast array of products and giving better price options for customers. The company also intends to give third-party lab certification on all its products so as to win the trust of the customer. The company would ensure that its e-commerce portal is foolproof and there is no threat of any kind of misappropriation or fraud when it comes to online shopping for jewelry. 5.0 Product Portfolio Gems Paradise would house the popular international jewelry brands including Cartire, Tiffany, Enzo, Oxette, Boucheron, Swarovski, Mikimoto, and Pomellato. Established more than 150 years back, Cartire has been credited with the creation of numerous works of astounding beauty. While the US based Tiffany brand has become synonymous Classic, the Enzo diamond epitomizes steadfast love. The Oxette brand is handmade in Europe and is well-known for unique product design and excellent quality. Paris based Boucheron is a world leader in luxury characterization and consistently delivers high quality jewelry that has been made through exquisite craftsmanship. Swarovski, Mikimoto, and Pomellato brands are also shining stars and have mesmerized customers with their beautifully crafted products. All these brands would be available under one roof at Gems Paradise. 5.1 Future Products Gems Paradise will, in the long run, market all kinds of jewelry items, accessories and gift items made up of gold, silver, gems, and stones. Thus over a period of time, the product portfolio of Gems Paradise would include diamond studded watches, pens, eye glasses, wallets and purses. In addition to this numerous other precious mementos would be sold through the retail chain. 6.0 Competitive Comparison India is amongst the largest consumer and importer of gold in the world. Since time immemorial, Indians have displayed a penchant for gold. In fact, the acquisition of gold and jewelry is deeply entrenched in Indian culture. Purchase of gold and jewelry forms a huge component of an Indian wedding. In addition to social considerations, Indians buy jewelry as an investment option. Jewelry is also bought during festivals like Diwali. So be it gold, diamond or gemstone studded, Indians embrace jewelry with open arms. Traditionally, the consumers of India have been buying gold from the unorganized sector. A household knows one jeweler or, at best, a few jewelers. The family buys all its jewelry from these jewelers. In fact, many generations of the same family continue to buy gold from these set of jewelers. The basic purpose of buying jewelry from known jewelers is the authenticity of the material purchased. Thus jewelers operating in the unorganized sector dominate the market and account for majority of the sales. However, there has been a discernable shift in trend in the last decade. Many domestic corporate houses have ventured into the market and have set up retail stores that sell branded jewelry. Reliance Jewels and Tanishq are two domestic behemoths to reckon with. De Beers, Asmi are big names when it comes to diamonds. Tag Heuer, Cartier, Mont Blanc serve the needs of the customers who are looking at luxurious accessories like watches and pens. Nakshatra, Gitanjali Gems, Sangini and Porrati are also serious competitors in the marketplace. The growing number of organized players has provided the customer with more product and design variety. 7.0 Market Analysis Summary The jewelry consumption is on the rise in the country. At one point in time, the country was divided into the haves and the have-nots. However, the opening up of the economy has bridged the gap between the rich and the poor. The country now boasts of a huge middle class that has the inclination as well as the money to buy discretionary items. 7.1 Segmentation and Targeting Traditionally, the main buyers of jewelry in India have been women. However, latest reports suggest that the men’s luxury jewelry market is growing at an astounding rate. The said market is reported to have grown 36 percent in 2012. The men’s luxury jewelry market in India, with a market size of $194.4 million in 2011, has already become the world’s third largest market. This data suggests that Gems Paradise would have a huge and booming market potential. Broadly speaking, the Indian jewelry consumer can be divided into three categories; an investment buyer who purchases gold and jewelry to reap long term capital gains; the necessity buyer who buys during a wedding or other festival and finally a consumption buyer who spends on jewelry purely on a discretionary basis. The market for Gems Paradise would be segmented on the basis of demographic factors (age and gender) as well as economic factors (income and private consumption). 7.1.1 Demographic Segmentation The young adults and the middle aged people would be targeted for the contemporary products being offered by Gems Paradise. The age-wise bifurcation of the Indian population is presented in Table 2. Table 2: Age-Wise Bifurcation of Indian Population The data reveals that more than 40 percent of the population in India is aged between 25 and 45 years of age. It is noteworthy to mention that men constitute close to 52 percent of this age bracket. Gems Paradise would benefit as the men’s segment is growing faster than the women’s segment. 7.1.2 Economic Segmentation A study by McKinsey Global Institute (MGI) suggests that middle class of India, which is currently 5 percent of the population, would zoom to 40 percent of the population by 2025. The resultant increase in private consumption would catapult India to the fifth largest consumer market. The report suggests that real average household income in India nearly doubled from 1985 to 2005. This rise in income has led to an increase in the proportion of the upper middle class and the rich people who are the potential buyers of Gems Paradise’s products. 7.2 Positioning Gems Paradise would be positioned as a ‘one stop supermarket for all the luxurious jewelry needs’. With this positioning statement, the jewelry retail chain would be able to attract consumers who have the ability to pay for high end jewelry items and need a variety of international brand options to choose from. 7.3 Pricing The jewelry available at Gems Paradise would be awe inspiring. International jewelry brands that have made a mark throughout the world would be available at these stores. These pieces of top-notch jewelry would be highly priced as the Gems Paradise retail stores caters to the higher income group of the society. This pricing strategy would complement the positioning of Gems Paradise. 8.0 Business Model The business model of Gems Paradise explains how the joint venture would make money. Apart from the initial investments, the running expenditure of Gems Paradise includes marketing and administrative expenses. The company does not have any production facility as it will import jewelry and other items directly from the foreign companies. These items of marvel would then be displayed and sold at the retail stores of Gems Paradise. The business model of Gems Paradise is thus pretty straightforward. The venture will make a profit when its revenue exceeds its costs. As planned, Gems Paradise would open an e-boutique in the coming future. At that juncture, Gems Paradise will earn additional revenue through paid advertising on its website. The logistics expenses like packaging and courier charges would be incurred by the firm at this stage to ensure the safe and timely delivery of the product to the customer. 8.1Financing Schemes Gems Paradise would offer financing schemes to consumers to boost its sales. Such financing is likely to attract a large section of the society. People who are really interested in buying the authentic jewelry of Gems Paradise but cannot do so as their pockets do not allow such purchases would benefit tremendously from such schemes. The financing scheme would accord two benefits to Gems Paradise. In addition to attracting new customers, these schemes would enable Gems Paradise earn interest on the credit so given. Gems Paradise would offer credit to its customers after a thorough credit check. 9.0 Strategy The ultimate aim of Gems Paradise is to win the trust of the Indian consumer and become their preferred outlet for jewelry shopping. This objective can be achieved by offering the best quality product and world class customer service. Gems Paradise recognizes the fact that building long-term strategic relationships with customers is a sine qua non for organizations to survive in the present day competitive market place. 9.1 Loyalty Scheme With the objective of boosting its revenue, Gems Paradise would roll out a loyalty scheme wherein customers would win $1 as loyalty point for every $100 worth of purchases made. The points (dollars) so accumulated by the customers can be redeemed against future purchases. A customer will have to accumulate at least 1000 points before being eligible to redeem such points. This model is essentially entails giving a nominal discount to the customer, albeit not upfront. The discount so given by way of loyalty points ensures that the customer remains loyal to and makes all his jewelry related purchases from Gems Paradise. 9.2 Kitty Scheme Gems Paradise would offer kitty schemes to customers whereby they can give a certain, predefined amount of money to Gems Paradise every month. After the lapse of one year, these customers can buy jewelry at a discount of 3 percent. For example, if a customer paid $200 every month as a part of the kitty scheme for 12 months, he is eligible to buy jewelry worth $2400 from Gems Paradise at a discount of 3 percent. This plan works as a reverse financing scheme. The customer, in a way, pays advance equated monthly installments, and in turn gets a discount from Gems Paradise. The company meanwhile gets additional customers and guaranteed money sans the risks associated with financing schemes. 10.0 Sales Forecast The sales forecast for Gems Paradise has been detailed in Table 3. These forecasts are based on the assumption that Gems Paradise would achieve its market share targets set out for the first three years of operations. Table 3: Sales Forecast The capital expenditure on purchase of land has not been included under the head ‘expenses’ in the sales forecast table. The expense of $ 2 million to be incurred on the launch party has also been excluded as it is a one time expense. The expenses shown in Table 3 include marketing expenses, salaries and other administrative and general expenses. 11.0 Management Summary The present section details the top management of Gems Paradise, the organizational structure and the staffing requirements over the next three years. 11.1 Chief Executive Officer (CEO): Mr Ajay Humpari Mr Ajay Humpari, who is presently at the helm of affairs at Malabar Gems Private Limited, will be the Chief Executive Officer (CEO) of the joint venture Gems Paradise. 47-year-old Mr Humpari has a rich experience of 22 years in the jewelry retail industry. Born and brought up in India, Mr Humpari is well versed with the Indian culture and knows the market like the back of his hand. He is well versed will all facets of the trade and is currently serving as the Vice-President of the Jewelers Association of India. His interpersonal skills and healthy relations with business partners across the country will help be of tremendous help to Gems Paradise. 11.2 Organizational Structure Gems Paradise has a lean organizational structure with a store manager being responsible for all the activities being carried out by a particular outlet. The major key responsibility area (KRA) of this store manager would be to ensure profitability from the outlet. The sales staff, accountant and security personnel would report to the store manager. In the second year, when ten new stores would be opened, Gems Paradise would employ four regional managers; one each for North India, West India, East India and South India. These regional managers would take care of all the outlets falling in their region. The regional managers would be responsible for regional level revenue and profit and the store managers will report into them. A separate vertical would be created for online sales. A national manager would be hired to take care of this segment. The marketing manager would be required to support the brick-and-mortar stores as well as the e-portal. 11.3 Personnel Plan As Gems Paradise expands in India, it will require additional work force. The staffing plan for the first three years of operation is detailed in Table 4. There will be six sales personnel and two security personnel in each store. Table 4: Staffing Plan 12.0 Financial Plan As Gems Paradise moves to entrench itself deeply in the Indian market, it will need additional financial resources to meet its expansion objectives. The jewelry retail chain will have a mix of debt and equity in its capital structure. The company will issue debentures worth $75 million after the second year of operation. At the same time, it will come out with an initial public offering (IPO) whereby it will offer 7500000 shares at a price of $10 each. This will generate an additional $75 million for Gems Paradise. The amount so raised through shares and debentures will be used to fund the expansion plans of the company. The working capital requirements will also be met from the said amount. Gems Paradise will meet its working capital requirements through regular cash inflows generated from sales proceeds after the fifth year of operation when it is expected to break even. 13.0 Financial Statements The year-wise financial position of the Gems Paradise is depicted in Table 5 on page 17 of this report. 14.0 Conclusion The fast rate at which the Indian retail sector is growing will enable Gems Paradise attain a steady rate of growth right from inception. The political, economic and social environment appears propitious for the jewelry retail business in India. The detailed planning is in place and the target market is huge. Gems Paradise will break even in five years. Post that the retail chain will reap benefits for a long time. 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