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How Tanishq turned around
Priya Ganapati in Bangalore |
July 04, 2003
Jacob Kurian, chief operating officer (jewellery), Tanishq isn't tired of saying that the story of his company mirrors a Bollywood movie.
There's drama, celebration, then betrayal in the family, followed by action and, of course, a happy ending.
Tanishq, the jewellery business group of Titan Industries, is the blockbuster action thriller from the Tata group.
After five years of consistent losses, the company, on Thursday, announced the completion of a dramatic three-year turnaround culminating in annual sales growth of 39 per cent and profit growth of 318 per cent.During 2002-03, Tanishq recorded a sales turnover of Rs 389 crore (Rs 3.89 billion) -- at consumer prices. By 2007, it hopes to take that to Rs 800 crore (Rs 8 billion).
Today, Tanishq has already become one of the top five retailers in the country. It contributes 40 per cent to Titan's business and is expected to account for 55 per cent by 2007.
By then, Tanishq's profitability will also be good enough to offer 28 per cent return on deployment of 25 per cent of the capital.
Sales (Rs crore)
It's a long way for a company that almost folded up before it could turn in its first ever profit. Since, its launch, Tanishq has not only been grappling the tough market conditions but also internal strife and Doubting Thomases.
"Many people believe we should not be here today. They have kept telling us that the business logic is against what we set out to do. But I am glad we have proved them wrong," says Kurian proudly.
The estimated Rs 40,000 crore (Rs 400 billion) gold jewellery market in India is a rough one. There are over 300,000 jewellers, each powerful in his neighborhood.
Till the last two years, national players were almost non-existent.
One of the largest consumers of gold, the Indian household had a marked preference for 22-karat gold, as opposed to the 18-karat designs that jewellery chains worldwide chose to do their designs in.
Not surprisingly, the skeptics were asking what was Titan doing in the jewellery business?
In the late eighties, when India was facing a massive foreign exchange crisis, Titan, the watches division, was told to look for a way to earn its own foreign exchange.
Jewellery seemed like a huge and interesting market to get into and Titan decided to set up Tanishq as a jewellery division that would be focused largely on exports.
However, by the time it acquired the skills and set up the plant, the world had changed. India no longer had a foreign currency problem, imports were easy to come by, demand had come down in the global market, supply had grown in Asia and margins had become very thin.
Tanishq then decided to focus on the Indian market. In August 1992 a pilot plant was set up and production started in two years later. In 1996, Tanshiq launched its first store.
It was a hitherto untried concept. The jewellery business in India was highly fragmented and ruled over by local players. There was no national jeweler that people could buy from, despite that India is the largest consumer of gold in the world.
Clearly, the local satraps had a very tight stranglehold on their markets and it was difficult for a pan-Indian player to break into.
Being ethical too was a problem. Titan estimates that up customers and the Government is defrauded of up to Rs 5,000 crore (Rs 50 billion) annually due to unethical business practices like under-karatage of gold, misrepresentation of quality and tax evasion.
As a company which was part of the Tata group, known for maintaining high ethical standards, Tanishq prided itself on delivering customer value through a fair and transparent business model.
But that wouldn't help.
Till 2000, Tanishq could not find its feet in the market and its losses were mounting. In 1998-99 it showed losses of Rs 10.40 crore (Rs 104 million) though sales turnover was increasing.
May 2000 turned out to be the defining period in the company's history.
The then managing director of the company, Xerxes Desai had a choice between Bhaskar Bhat and Vasant Nangia when it came to deciding who would succeed him.
Bhat won and was anointed as the next managing director by Desai himself and Nangia became the chief operating officer.
Nangia was the hands-on man at Tanishq. A twenty-year veteran of the group, he was the one who had charted out the expansion plans, which included increasing the number of exclusive boutiques to 67 from the then 30 and launching a new men's range of accessories.
But a day after Bhat was announced at the successor to Desai, Nangia quit. He took along with him six senior executives of Titan. It was a blow that many thought would sink the company.
"The entire sales and marketing team resigned on that day. The company was rocked by what happened. Many thought this would be finally the way Titan closed down its jewellery business. After all, we were in our fifth consecutive year of losses then," says Kurian.
It seemed an ignominious way for a Tata company to go. And like Kurian says it was too soon for the movie to end.
So, a new and admittedly inexperienced team was put together. The team had an onerous task on its shoulders. It had to not only stem the increasing losses shown by Tanishq and but also show some profits if the company was to remain in business.
Tanishq had quite a few problems on its hands then. Its high decibel media advertising wasn't working. A stream of adverse media reports had instilled the fear that its shareholders would pull out anytime. And worse, it had very little time on its hands to show a turnaround.
But as Kurian saw it, Tanishq's woes were rather simple: There were just not enough customers in its stores.
"For a retailing chain, that's the worst thing that can happen: having no traffic in the stores," says Kurian.
A customer survey revealed multiple problems. Despite its high-blitz ad campaign, many didn't know what Tanishq was about, others found it too expensive and some felt that the product was not for people like them.
Either way, getting customers back into the store became a priority.
Profits generated (Rs crore)
Kurian and his team then decided to launch the fifth anniversary celebrations of Tanishq that would offer discounts to customers and induce them to come to the store.
The ploy worked. "We had customers waiting for the store to open. Sometimes we had to call the security guards because of the crowds. We just couldn't believe it," smiles Kurian.
There were other minor tweaks made too. Ad campaigns now started to list out the products that Tanishq had. So bracelets, rings, chains, pendants were explicitly mentioned in each ad. A range starting at Rs 399 was launched.
The aim was to bring down the price barrier significantly. Collections for the working women and a new set of contemporary designs were brought into the stores.
Almost all of the efforts paid off. A year later, Tanishq had made its first ever profit in the entire existence of the company. It was a measly sum of around Rs 2 crore (Rs 20 million), yet it was a beginning.
The next year, the company decided to write off some of the financial baggage it had been carrying. Profits generated dipped as a result but Tanishq was clearly on a revival.
The company changed quite a few of its original strategies along the way.
Tanishq had its first showroom in Chennai in 1996. Today it has over 60 showrooms in 47 cities. Only six of these are owned by the company. The rest are run by franchisees.
The model has helped take away capital costs from the company and pass them on to franchisees who will invest money to help the company grow. In all, Tanishq managed to limit its fixed asset investment to Rs 27 crore (Rs 270 million).
Contribution to Titan's growth
Tanshiq contribution to Titan (in percent)
Post September 11 attack on the World Trade Center, the volatility in the gold prices led to a steep decline in the demand for gold. In 2002, the gold demand declined by 19 per cent, from 843 tonnes to 680 tonnes.
However, Tanishq was on a roll. It grew its retail sales during 2002-03 to Rs 332 crore (Rs 3.32 billion) from Rs 239 crore (Rs 2.39 billion).
Almost Rs 57 crore (Rs 570 million) came through corporate sales and exports. Corporate and institutional sales had become an unexpected money-spinner for the jewellers.
Today, Tanishq counts companies like Hindustan Lever Limited, Pfizer, National Panasonic, UB Group, Tata Tea and Tata Chemicals among its clients.
"We saw corporate sales as a new route to customer acquisition. Institutional sales help us beat targets," says Kurian.
Since the last three years, Kurian and his team have brought in quite a few changes to the way Tanishq operates. A steady stream of jewellery collections each with its distinct target audience has been launched.
Aria, for seven stone diamond jewellery, Hoopla, focused on diamond studded hoops and Collection-G for lower priced gold jewellery with an interesting twist are just a few lines that have come out of the Tanishq stable in the last three years.
Manufacturing has been made more flexible. New Japanese manufacturing machines have been introduced at the Hosur, Tamil Nadu plant of the company. The emphasis is now on customisation according to customer demands.
The challenges remain. Profit figures have yet to rise significantly. In 2002-03, on revenues of Rs 389 crore (Rs 3.89 billion), Tanishq made a profit of only Rs 7.82 crore (Rs 78.2 million).
A slew of national brands have sprung up. From Nakshatra to TBZ to Carbon, Tanishq has to battle a lot more at the market place.
Yet, Kurian says now it's a great time to be in business. "We believe jewellery business is one of the few 'China-proof, WalMart-proof' kind of businesses," he grins.