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Sep, 07 2010

BEJEWELLED WITH BENEFITS

INDIA holds a significant position in the global jewellery industry but still there is an immense scope for further growth in the domestic market.

INDIA holds a significant position in the global jewellery industry but still there is an immense scope for further growth in the domestic market.  With the branded jewellery market expected to touch Rs 10,000 crore by the end of this year as per McKinsey report, surfeit opportunities can be looked at. With high returns on investment and a shorter period to break even, aspiring entrepreneurs should jump on to this bandwagon without further apprehensions.

Business potential

The Indian jewellery market is pegged at Rs 80,000 crore and is further growing at a rate of over 10 per cent per annum. With a mere three- four per cent share in the pockets of organised players; the organised industry is growing at a rate of 25-30 per cent to keep pace with the retail market.  The industry is still dominated by unorganised family jewellers that have been trusted over the years. The government has also supported the growth of this business by allowing 100 per cent FDI in gems and jewellery.  Mitesh Gajera, Managing Director, Cygnus Jewellery tells, “The gems and jewellery industry occupies an important position in the Indian economy. It is a leading foreign exchange earner, as well as one of the fastest growing industries in the country. Besides, India is known as world's largest cutting and polishing industry for diamonds, well supported by government policies and the banking sector with around 50 banks providing nearly $3 billion of credit to the Indian diamond industry.” Taking care of varying consumer preferences and buying patterns along with the swiftly developing organised sector, franchisors are penetrating into tier I and tier II cities to reach out to greater number of people and offer entrepreneurial options for aspiring franchisees.

Loopholes

The biggest challenge that the industry faces is due to the fluctuation in the prices of gold. Being at an all time high, gold prices is what keep customers aloof waiting for the price to drop. However escalated sales can be witnessed and cashed upon during the festive and wedding season when sales shoot up. Another challenge that needs to be monitored in this industry is pilferage. Pilferage can lower down your margins steeply as the merchandise cost is relatively high. Highlighting the same, Gajera says, “Challenges are huge in this market as the delicacy level of the jewellery is too high so it has to be handled with care.”

Taking up an Multi Brand Outlet (MBO) makes more business sense as customer gets multiple choices at various price points. An Exclusive Brand Outlet (EBO) offering an extensive variety with plenty price options will also work. Presently 52 per cent of jewellery stores are  MBOs and shop-in-shops. Currently standing at 66 stores, Shrenuj & Co. plans to reach 170 stores over the next two years.

Franchisability

The opportunity in franchising in jewellery industry can be segregated as per the categories, from gold and diamond jewellery to silver jewellery to art jewellery.  Govind V Raj, Vice President - Integrated Retail Services, Titan industries says, “It is a fragmented industry with over a million jewellery vendors. It would be very difficult for someone without in-depth knowledge of the industry and business to get into and therefore taking up a franchise of a reputed brand is the way to start a jewellery store.”

Diamond jewellery store remains one of the most preferred franchised concepts followed by gold and silver jewellery. The ratio of the retail composition of company-owned stores and franchised outlets stands at 30:70 clearly spelling the success of franchising in the segment.

Effectively putting to use their experience, most of the franchisors offer complete guidance and support in operating the store to the franchisees. Informs, Hemant Chhabria, Head Operations, Shrenuj & Co.Ltd., “Generally one manager and seven sales people are required to run a jewellery store of 500 sq.ft. One can take help from placement agencies.” The franchisor offers assistance in store design and visual merchandising, recruitment of staff and their training as well as advertising. They also facilitate negotiating of lease agreements and chalking down ideal locations for store openings. Raj, tells, “We offer end-to-end assistance in selecting properties, designing of stores, training and merchandising.”

Financial viability

The investment in this sector is relatively higher than other retail franchise concepts, but the low risk and high returns are indicators that venturing into the jewellery business will be a profitable opportunity. According to Chhabria, “Depending on location one can expect to recover initial capex between one to five years.” Location plays a vital role in determining success. High streets, well established markets and shopping malls should be the options that one must look at when searching for an apt location for opening a franchised outlet. The geographical density points towards the western side of the country with a share of 34 per cent with North India being a close second at 27 per cent.

Exit option

This business offers handsome returns along with brand names that have now become trusted household names. But in case you wish to exit the sector, a discussion with the franchisor will help you to take the call. In case of a franchise of Tanishq, it is the management that will take the call as to what should be done in this respect. For Cygnus however, you have the option to sell your business further.

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