We are committed to reaching normalcy by Q4 of FY21: Titan MD

Now that the lockdown is easing, how are sales looking and what are the early trends that you are picking up?

The stores started opening from the first week of May and as of yesterday nearly 80% of our stores have opened and some of them had seen a four-week run. We are trying to get a sense of the trend and it seems the trend is currently varying across different formats perhaps because there are underlying reasons for people to buy those products. For example, there is a wedding season on and therefore there is a need to buy jewellery. So, perhaps jewellery is showing greater traction because of that. Watches are taking a little longer. But the range is between 50% and 75-80% of the pre-COVID sale or comparable period in last year. So, it is quite encouraging because given the constrained circumstances in which the stores are working and the likely mood of the public about shopping, the trends are quite encouraging.

Margins have been a positive surprise as well. You have managed to control expenses. But do you expect to see a contraction going forward? What is it looking like as we move ahead? What is the expectation at these levels?

The company had started on a cost erosion programme in the end of CY19, without any idea that Covid is going to come our way and therefore it was a very good thing that we had reached a certain momentum and some of that showed up in quarter four of FY20 performance and that momentum will continue to carry that effort into FY21 as well.
It is very difficult to speak today about the margin for FY21 because the sales levels of FY21 are very uncertain. We are only committed to reaching normalcy by Q4 of FY21, but the manner in which we will go from quarter to quarter will determine what share of FY20 sale, FY21 will actually represent. That will determine the profit margin we will be finally able to deliver. At the moment, we are not seeing any major impact on the gross margins of the various product categories despite pressures. The operating margin or the profit margin for the business will be determined by the final sale level we will reach for the year which at the moment is very-very difficult to determine.

What is your outlook in terms of demand that we could see across segments?

With regards to the Covid crisis and the psyche of the public about needing products as well as buying products, we have one challenge in our hands. We need to work on creating desire for products in their minds even when they are sitting at home. It would involve either getting them to come to the stores or enabling them to buy from home.
For example, on the delivery side, whether it is video demonstration or try-at-home or accelerating our journey into the augmented virtual reality for people, allowing them to perceive their products by wearing them virtually, we are nudging people to buy from home.

Our safety protocols have been interpreted by customers as the gold standard in each of our categories and there has been so much of sharing by customers about that. We are using it to reassure customers that it is totally safe to step out and come to any Titan Company store so that those who are a little worried will come. So, that is the current situation. But we are very confident that there are other forces at work in some of our categories to help us accelerate towards normalcy faster than most people.
For example, gold and jewellery are both safe haven product categories and therefore there would be a share of wallet from an asset class distribution point of view. The second is that the wedding season this year was expected to be good. Some of it would have got postponed from quarter one because of what happened but the weddings will happen and even if they happen in a muted way from a celebration point of view, with a 50 people cap, the budget that the family has had for spending on weddings is not necessarily going to be dramatically reduced and we can expect and hope for a better share of the spend on jewellery.

And what about the watch segment because this quarter it has done quite well. Are these margins sustainable?
We need to distinguish between the gross margin of the business and the operating margin of the business. The operating margin will be influenced by the level of sale. So, the first two months of this year were bad and recovery is just starting and therefore the level of sales, if we will reach a normal level of sales in FY21. That is a very difficult question to answer at this stage for any business.

A lot of categories like food, apparel have managed to migrate from the traditional retail format to online. In the case of jewellery, do you think migration will take a lot of time? When you are buying jewellery, you are in a sense circumspect about delivery, security and other factors.

Buying purely online is going to take quite a long time because it is not comparable at all to apparels as we are talking about a Rs 100,000 ticket size product as opposed to a Rs 2,000 ticket size product. Also, often we are talking about group purchases as opposed to individual purchases in the case of apparel. Therefore, it is going to take a long while before people start buying a Rs 100,000 product online. Even globally it has not happened.
But what can happen and what we are starting to enable is that if I can demonstrate a product through video to somebody or a family sitting at home. then it becomes easier for them to choose or if I take the products home like she shortlists from a range of 20 pendants to maybe four and if the sales staff of the company take those four pieces home or if the customer comes to the store so that she spends half the time or less than half the time looking at the four products that she has shortlisted and therefore get over her fear about spending too much time outside home.
So, these are the possibilities that are not only being conceived but also being explored to increase the share of online in the total purchase. The sale will come substantially from physical visits to the stores in case of Tanishq brand, but in case of CaratLane, where the customer is very different, the ticket size may be a fifth or even less, things can significantly improve.

On the automation and the cost cutting front and on the rental front, how much can you bring your cost down which will indirectly protect your margins? Is this an incremental delta which you will gain because of automation, staff cutting and rental costs going down?

It is a little difficult to speak on those things at the moment because the conversations are dynamically happening with hundreds and hundreds of landlords and mall owners and all that. Obviously, it is an opportunity for every company to look at the retail model and format to format it will differ. For example, in the watch business, the share of online Omni can significantly increase because of the nature of the customer and ticket size. In eyewear, it is a little difficult because of the need to go to test your eyes so it will be difficult to give a blanket answer on that at the moment.

You have just said that you expect demand to normalise by end of this financial year. What is your definition of normalisation? Should we compare normalisation with what you did in the last financial year or should we compare normalisation with what you did let us say in 2019 before the slowdown had hit us?

Certainly, everything is currently being compared to the pre Covid days, even when we are reporting our rate of recovery, we are talking the comparable period in FY20. So, normalcy to me would mean at least the comparable period in FY20 and therefore, quarter four of FY20 level would be the minimum for us to say that we have reached normalcy.

Marriage/ jewellery demand plays a very large role for Titan. Marriages this year will not be such an exponential factor and there is a social distancing compulsion. Could that have a very large impact also going forward in Titan jewellery business?

You can look at it in multiple ways; one could say that because there is no large ceremony, people will not buy jewellery but one very large role that jewellery plays is that it goes with the bride as a safe haven for her, for her family and all that. So, the marriage could happen only with 50 people but the jewellery given to the bride, particularly the kind of traditional jewellery that the jewellery represents, can still be for the same amount.
In fact, we are betting that it is likely to be higher because the marriages are now going to be less grand and the families are going to have more money in their hands which they have not spent on five star hotels or catering for 2,000 people at lunch and dinner and so on. A good part of it could well be influenced by us as well and by the industry to flow into jewellery purchase.

In terms of customer preference, where do you see the incremental change happening because of crisis?

I actually do not know honestly what this new normal is because there is going to be some hesitation about people wanting to socialise and the products that we make are products which are a part of socialising — whether calling people home, going to a party, dining out and all that. Now people are going to take some time to get used to calling people home and so on. So, demand is going to be sluggish but the basic need of people to socialise is not going to go. I am sure three, four months from now, people will start doing that and our products will become part of that socialising. So, this whole new normal that people will now stop seeing people and everything will be done through Zoom or whatever is for a few months, not for many years. We need to tighten our belts, innovate and that innovation will help us in CY2021. People have certainly started buying, exploring in a different way but not necessarily in being with other people.

Courtesy: ETRetail.com