Customers are spending 10-15 percent more on wedding jewellery as restrictions on the number of guests because of the pandemic have reduced other costs, leaving more money available for ornaments, Ramesh Kalyanaraman, executive director of Kalyan Jewellers said in a telephonic interview with Moneycontrol.
Kalyan Jewellers, which recently raised Rs 1,175 crore with an IPO, is attracting customers to its standalone showrooms because of better hygiene and social distancing compared with crowded markets and small shops, he said. The company’s listing began on a tepid note as its shares fell 15% below the issue price of Rs 87 and have remained well below that level.
Ramesh, 41, a graduate in business studies and a fourth-generation entrepreneur, leads the marketing, sales and HR functions at Kalyan Jewellers.
Q: What are your expansion plans?
We are set to virtually launch 14 showrooms on April 24 spread across seven states as a part of the expansion plan and currently spread over 21 states. We want to utilize the brand which we have built. We have to utilize infrastructure, the processes in place, etc. while catering to our customer base. So, the whole idea of expansion (is) to utilize what we have built till today.
We are strengthening our presence in key metro cities like Chennai, Delhi, Mumbai and Hyderabad. The other cities where we are inaugurating are Noida (Uttar Pradesh), Nashik (Maharashtra), Jamnagar (Gujarat), Pathanamthitta (Kerala), Nagercoil, Madurai and Trichy (Tamil Nadu) and Khammam and Karimnagar (Telangana).
Q: Tell us about your size and capex of your flagship and mid-size showrooms?
The flagship store that we are opening in Chennai’s North Usman Road is about 20,000 square feet. Chennai has a very good demand for jewellery and this flagship showroom is again in the jewellery hub. We already have five showrooms in the city and one of them is a flagship showroom which we started in 2013.
The mid-size format showroom size will be in the range of 3,000-5000 square feet. The capital expenditure of 5,000 sq. ft. store will be in the range of Rs 5-6 crore.
Q: What is the operating expenditure and breakeven point for a new showroom?
We already enjoy a strong consumer base in the markets where we are set to open showrooms this quarter. Therefore, we wouldn’t be spending much on marketing and brand building activities as the customers are familiar with the products and services offered by the brand. This means, our operating expenses will be restricted to salary of the staff, showroom rent and other minor day-to-day expenses which will not amount to much, overall. On average, the salary of the staff members is 2-2.5% and rents are around 1.2% of the revenue.
In recent years, we have undergone a significant expansion and have successfully gained substantial market share across the country. The large variety of hyperlocal offerings and lucrative schemes backed by service-driven shopping experience has enabled us to create a niche for ourselves in these focus markets. In this phase of expansion strategy, we are leveraging the pre-existing infrastructure. Our gross margins have been in the range of 17% and store operation expenditure (opex) is not going to be very high -- so breakeven starts from day one.
Q: What will be the impact of reduced customs duty on gold buyers?
There are two ways. One is from the customer point of view, it is only one more reason for the gold price to come down. If you look at retail point of view, especially organized segment, the more the gap between outside India and India, the gap reduced by 2-2.25% now because customs duty came down. The more the gap is reduced the better for organized segments because the unorganized segment will get hurt because of that. So for the organized segment always the gap should be lesser than compared to outside India.
Q: What is your view about mandatory hallmarking and standardization of jewellery that comes into effect from June 1?
Mandatory hallmarking of jewellery is a very good step for the organized segment. Now why a customer is going to an unorganized segment? There are two major reasons: One reason is that people think that in the unorganised segment they will get it some cheaper. But now it is not getting cheaper. It is an inferior quality which they are buying. Now nobody will be able to sell inferior quality. So they will not be able to sell cheaper.
Q: Is online buying gaining traction, and what is its impact on brick-and-mortar stores?
People do a lot of research online and they come offline for buying. We have seen a new vertical called gifting for our online segment. Earlier they used to gift mobile phone or a handbag or something else. But now because this online thing has come for jewellery, a lot of gifting is happening in our segment. That’s the new vertical for us. That is happening through the online business for their purchase and especially for high ticket items, they come to the showroom after a lot of research online. For online as a platform, revenue growth is very good and growing year-on-year.
Q: Gold has fallen 18-20 percent in rupee terms from its peak. What is the impact of volatility?
Gold volatility is not a new thing for any customer. It has always been going up, coming down etc. But for customers, if they buy gold, after 4-5 years they see the price would have gone up. That is what is happening for the past many years. So, people are happy with that. Any other product which you buy like a car you or a mobile phone, after five years when you go an sell it, it will be 50% value or lesser than 50%.
And there is liquidity also. If you want to sell something you will have to wait two-three months then only it will sell. But from jewellery you get instant money. You go to the shopkeeper and in five minutes your amount is transferred to your account. If you want to mortgage, you go to any moneylender (gold loan company or bank) they give you immediate money. So, number-one is liquidity. Number two is an asset which you can use, enjoy and also it becomes an asset over four or five years if you see the rate would have gone up. Number three it’s a part of the culture of our country.
Q: How is the pandemic impacting the summer wedding season demand?
Last year, when strict lockdown restrictions were being imposed, we had presumed that people would postpone their weddings. However, a new trend of DIY or intimate weddings emerged with people opting for smaller and simple celebrations. As a result, the wedding-related expenses on venue booking, catering, etc. reduced and customers had more disposable income, which was allocated to gold jewellery. This is because gold has been historically seen as a safe haven. This is why wedding jewellery shopping as a segment was not impacted by last year's lockdown. We are hopeful that going forward, strong consumer demand will continue.