Retail Jeweller India Forum 2017

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By retailj December 29, 2017 11:20

Retail Jeweller India Forum 2017

The IIDGR Retail Jeweller India Forum 2017 (RJIF), in its third edition, offered jewellers a firm understanding of the consumer, market drivers, tax policies and competitive retail landscape to orient them for success in the new and more organized retail environment. Looking back at a turbulent year that witnessed several policy changes and reflecting on issues that dominated the industry, RJIF 2017 themed “Modern Retailing” brought together experts to discuss and debate on topics that will help retailers develop a deeper understanding of business.

How to create brands that consumers love:

It never pays to presume that the consumer is a timid and unchanging entity, constrained by tradition because jewellery is a high ticket-price category. In this session of the Retail Jeweller India Forum 2017, two brilliant marketing strategists gave examples from their own experience to show how a brand can rethink its approach from first principles — with a lot of attentive preparation — to break genuinely new ground in winning over women consumers.

Winning the woman consumer

For most jewellers it is becoming essentially important to understand how to build more value for their customers. How to become the brand of choice? Richa Singh, an expert marketer with 15 years at cosmetics major L’Oreal, in her presentation described what it takes to create a brand that women dream of owning.

Speaking of Turner Road, Bandra, Mumbai’s acknowledged “jewellery high street”, she said, “Every shop there has a celebrity brand ambassador, so how does a customer decide which shop to go to? What is it that you can do differently so that she chooses your outlet?”

Having placed that question front and centre, she changed tack, to offer insights into the psyche of the modern customer.

“Women invest a lot of emotional trust in their support groups, which include family, friends, anybody in her circles,” Singh said. “More than 20 per cent of women in India are employed full-time. About 40 per cent of Internet users are now women, of whom 70 per cent connect via the mobile phone. Women consumers have moved from saving to spending, and their spending becomes more impulsive and more guilt-free as they are influenced by digital media. Women consumers also influence the buying decisions of others in their family.”

This newfound importance of women consumers, said Singh, means that “A brand needs to find a way to directly communicate with them, as celebrities are no longer the reason she will buy a particular brand. Brands need to make the effort to make her feel special.”

Singh’s suggestion to brands was to consider how beauty salons delight their customers. “Everything is personalised. Giving a client a free foot massage on her birthday can buy her loyalty for a lifetime. Rather than an automated birthday message, the retailer should take the trouble to make the occasion memorable.”

When deciding on promotions and offers, Singh advised, build relevance and customise your offers. For example, “If a customer comes to the salon for hair colouring, give her a hair colour–specific offer.” Singh asked retailers to think differently, because a “50 per cent discount on jewellery may not excite customers anymore”. The brand must offer something “for me”.

She recommended subtlety and restraint. “Customers do not want to avail discount offers that are publicly announced. She does not want to be seen as a woman who is entering a shop because of a buy-one-get-one-free offer.” Singh suggested that leaving a sign on the counter about a special offer would encourage a customer to ask the sales staff about it, as she would be more comfortable asking privately.

Singh gave the example of the international jewellery brand Hearts on Fire. “Their display counters allow customers to interact with the sales staff directly and not across the barrier of a counter.” Brands need to be able to “speak with” the customer, she emphasised, and not “talk to” her.

New-age women, said Singh, feel they are well-informed and will want to test the retailers. “If it is Oscars season and Aishwarya wore a particular designer, or it is Fashion Week and cocktail rings are flashing, women want to talk about these things. Jewellers need to know the trends and what’s happening in the market.”

There are other subtleties to be aware of: “When it comes to celebrity influence, India is the second-biggest market. But don’t forget, these days, the stylist who manages a celeb is also a celeb in her own right.”

Competition is being redefined, said Singh. “A customer will choose between categories she wants to spend on. It’s no longer about outdoing your neighbouring jeweller. It’s gone far beyond price comparisons. You have to find ways to place your product in the ‘consideration set’, against several other categories.”

Summing up, she said, “Catchment planning and targeted communication are now easier, because of digital media. Jewellers can build the persona of the kind of customer they wish to communicate with.” There is a possibility, in other words, of selecting from a database customers who prefer LVMH — or any other brand that fits your brand’s imagery — and then targeting those customers.

Building the diamond bride

In her presentation Shazia Khan, [Bio!] explored a case study from her own career. A client had assigned her agency the task of turning around the conventional outlook for gold and increasing consumers’ preference for diamonds for weddings. A tall ask, you might imagine.

To show how gold-dominated weddings have been for centuries, Khan had this statistic: “For every 13 pieces worn by a bride, eight were gold and less than two were diamond. Gold is deeply associated with auspiciousness, and connotes transfer of wealth.” In India, she said over 90 per cent of marriages are arranged. Horoscope, family background and social status all push personal choice to the background.

“Knowing that the challenge was as much market-based as social and contextual, we redefined our task. It was not about just choosing stone over metal, it was about creating the persona of a new kind of bride and a new kind of wedding.”

Taking a closer look at the markets, she said, revealed that “All communication for weddings are targeted to parents. With good reason, because the parents are the financiers and organisers of weddings.” At the same time, “We observed that brides have a growing role in wedding planning. The typical bride is now far less shy, and wants her point of view appreciated.”

So, said Khan, “We conducted a quantitative survey. The findings confirmed our belief, and we decided to make the bride our target audience, even though conventional wisdom dictated that we target the mothers.” This exercise helped her team to a better understanding, by the method of projective association, of how “a bride adorned in gold differs from a bride adorned in diamond”.

The survey also revealed some interesting associations. “On the surface, gold is about rightness,” Khan explained. “At the same time, gold is a glittering ‘cover-up’ that suggests conformity and vulnerability. Diamond, on the other hand, denoted happiness and freedom of expression. Diamond was the stone for a bride with spark.”

To influence brides’ behaviour, she said, it became important not only to have the right creative but also other associations. “We worked with designers to create looks which brides could shop to. We asked top-notch designer Ritu Kumar to create a look for the diamond bride.” Simultaneously the lifestyle press was inundated with content to promote this new bridal look.

As a result of the campaign, three out of four brides-to-be said they were willing to replace gold jewellery with diamond. There were notable shifts in attitudes and behaviour, and a whopping 95 per cent of the women surveyed wanted to be the diamond bride.

The campaign resulted in “growth in the client’s business, and it imbued fresh meaning in the category.”

Learn the smart ways to maximise social media and mobile marketing

Lavin Punjabi, CEO and co-founder, mCanvas Advertising

Mobile telecommunications are changing the world for marketers. Mobile phones are becoming the default choice of channel for brands that wish to connect with younger consumers. Millennials spend some three hours a day on their mobile phones.

“The mobile is with us 24 hours a day,” said Lavin Punjabi, CEO and co-founder, mCanvas Advertising, in his presentation at the Retail Jeweller India Forum 2017. “It is no longer [just] a phone; it is a calendar, watch, book, shopping tool and whatever else you may want it to be.”

Mobiles beat out the TV as well as desktop computing as a marketing channel, he said, because “Storytelling on mobiles is easier and more impactful. The device’s sensors and functionalities allow me to engage more actively with the user.” It is possible, for example, for a brand’s app to use a mobile’s tools to “augment reality” and present a product in a user-specific way.

“A user can take a selfie, drag a piece of jewellery from an app onto the selfie, and upload [the personalised image] on social media,” said Punjabi, describing a promotion by Platinum Guild of India that “allowed users to take a photo of their own hand, drag and drop a platinum ring onto a finger, and share the composite image on social media.”

The mobile medium offers other kinds of interactivity too. Fast-food chain “McDonald’s introduced a feature to their app that allows a user to mix up an individualised milkshake on their phone,” he said. “Tapping on different icons adds ice-cream into the glass, tops it up with strawberries or bananas, until the final milkshake is ‘prepared’ and can be ordered online.”

Diamond brand Forevermark, he said, has also used the medium thoughtfully. “For the Capricci collection of nose pins, while a user is reading content online, a subtle prompt asks him or her to take a selfie with nose pin and upload it, for the chance to win a diamond. The uploaded picture is published with the messages ‘Selfie with Capricci’ and ‘Forevermark’ superscribed on it.”

Over 65,000 people were exposed to this advertisement. About 15 per cent of them took selfies, and 5 per cent shared the resulting composite images on social media.

Retailers considering mobile promotions are used to thinking only of social media and banner ads. To these jewellers, Punjabi sounded the following warning. “The same generation of millennials that is hooked to this device is also installing ad blockers. About 37 per cent of Indians [using mobile Internet] have installed ad blockers on their mobile devices. You may spend your money on banner ads, but they’re not going to be seen.”

He also urged advertisers to create channel-specific content. “Most companies create separate ads for television and print but not for mobile. It is a different medium, so one should not re-purpose content. One has to create a whole new message.” He called this the single biggest problem with mobile branding.

Poor viewability is another big problem. “As per the Internet Advertising Bureau, an industry body, if 50 per cent of an advertisement shows on screen for more than one second, the ad will be called viewable,” said Punjabi. “Viewable” does not mean “watched”. Unfortunately, “Viewability on mobiles these days is under 40 per cent, which means 60 per cent of banner ads don’t even appear on the screen.”

The third chronic problem is “banner blindness”. “Even if a banner ad is viewable, 86 per cent of us don’t even notice it. The ‘clickthrough rate’ in this industry is as low as 2 per cent. And what’s worse, 60 per cent of clickthroughs are accidental.”

“Do not just do branding on simple video, simple visual,” Punjabi said. “Jewellery is art. Your ads should be more interactive, more engaging, more sensory.”

GST and it’s impact on credit, capital and balance sheet and the way of conducting the jewellery business in future

India’s new tax system was the anxiety-inducing subject of the third session of RJIF 2017, titled ‘GST and its impact on credit, capital and balance sheet and the way of conducting the jewellery business in future’. Five experts outlined in practical terms the shape of this looming new reality.

The latest challenge to India’s jewellery industry as a whole is the goods and services tax (GST). Set to come into force nationwide on 1 July, GST is aimed at lowering inter-state trade barriers, boosting tax compliance and encouraging private investment. It will replace a number of central and state indirect taxes, including excise duty, service tax, sales tax and octroi, with what is essentially one tax. But will it comfortably accommodate the complex, traditional world of the jewellery industry?

In this session, five experts spoke on the practical impacts of GST on the jewellery industry, laid out how jewellers at various levels should adjust their practices to comply, and drew attention to the challenges and areas of uncertainty.

Trajectory

“We have been hearing about GST for years,” said Jatin Arora, executive director, PricewaterhouseCoopers India, in his presentation. “Multiple white papers have come into the public domain, multiple discussion drafts, draft versions of the law. But we are still confused.” And it is just two months to the rollout.

“You’re really looking at the Y2K of tax,” said Rohan Shah, counsel, Shah Chambers. “In Delhi, where acronyms are popular, the perception of GST is as a ‘good and simple tax’. Anybody else’s perception of it here is ‘god save the taxpayer’. I think we will reach a stage where it becomes ‘god save me from my tax consultant’.”

He explained the background. After the 2016 agitation against excise, “the central government began to see this industry as non-compliant. The intention is to ensure that, as a business and consuming community, our every transaction is monitored and accounted for. That’s the heart of GST.”

“There are more than 300,000 jewellers in India,” said Sanjeev Agarwal, CEO, Gitanjali Exports, the session’s opening speaker. “In 2006, national and regional players had an 8 per cent market share. Small retailers had 68 per cent. By 2025, 45 per cent of retailers will be national or regional. Large local players will also grow, but their market share will shrink to 20 per cent. The most affected will be small jewellers.” In short, GST will accelerate the twin trends of organisation and consolidation, and woe betide those who fail to adapt.

Shape of GST

Excise is levied on manufacture, VAT on sale. In GST the taxable event is supply. This is a fundamental change. “There will be no differentiation between a manufacturer, retailer, trader, importer,” said Arora. “You are a supplier, either of goods or of services. And ‘supply’ does not require you to receive anything from the other person. If there is a change in the title of the product you are liable to tax.”

GST will be a destination-based tax. This is the second fundamental change. “Taxes will accrue to the state in which the supply ends or finds a consumer,” and not the state of origin.

The GST Council, comprising the Central and state finance ministers, has announced five slab rates, of 0, 5, 12, 18 and 28 per cent, with the highest intended for luxuries and “sin goods” like tobacco. The final “fitment” of goods and services into these slabs is set to take place in May.

“Higher rates are not conducive to stability in this industry,” said Arora. “Jewellery, gems and gold the world over are taxed at extremely low rates,” Shah confirmed. “The moment you have high tax on a high-value item there is migration away from legal transactions.”

For the jewellery sector the GST rate is likely to be 5 per cent, hence 2.5 per cent CGST and 2.5 per cent SGST. This is a significant bump from the prevailing rates, and much steeper than the 1 per cent excise that caused such shock last year.

“VAT is 1 per cent in most states,” said Shah, for context. “Kerala has it at 5 per cent, but also has a composition scheme. Heavy producing and consuming states like Gujarat do not have VAT at all, because the nuances of business make it difficult to administer.”

“Today there is excise duty and on the goods value plus excise duty there is a VAT. So there is a tax on the tax,” said Arora, referring to “cascading”. “In GST the value base will stay fixed, and on that base there will be CGST and SGST.”

Compliance: registration

Today an enterprise has to register separately for excise and VAT in each state of operations, and file two sets of returns accordingly. After 1 July there will be one registration per state, covering CGST, SGST and IGST. Each state will require one set of GST returns. Each state will have its own litigation and auditing mechanism.

Arora spoke in depth about compliance. “As a single-state entity, taking all supplies in-state, you will register in that one state,” he said. “You will file a single return for all your supplies, and pay taxes in-state. Taxes will accrue to the destination state, but you do not pay in that state.”

Compliance: returns

When you supply a product, you will file an outward supply return on the GST Network portal. Your outward supply return will become your customer’s inward supply return. Your vendor’s outward supply return will be your inward supply return. (GSTN is a private limited company with 49 per cent government participation, set up to build and run the IT infrastructure that will underpin GST.)

The data will auto-populate on GSTN’s network. When the supplier files his outward supply return with details about you as the buyer, the data will auto-populate your GSTN account. “You will have to match this inward supply data with the supplies actually done by your vendor,” said Arora, so that “your credit eligibility is captured.”

The vendor will have to file his outward supply return by the 10th of the following month, and you your inward supply return by the 15th. Similarly, you will have to file your outward supply return by the 10th. Your outward supply return must include any advance payments from your customers, which will be taxable.

Data from your two returns will auto-populate the final return for the month, due probably on the 20th. In this third return you will check and correct your numbers for imports, exports and reverse-charge liabilities. You will not be able to file this consolidated return until you have paid the taxes.

So, even though it means 36 returns per state per year, the GST is going to make life simpler for you.

Compliance: inputs and invoicing

“Under GST,” said Arora, “almost everything you purchase for further use in your business will be treated as an input and credited. The government is looking at introducing a reverse charge mechanism. If you as a business receive certain specified categories of input services, you will be able to self-compute the tax on the amount you pay the vendor, pay it to the government and take it as an input tax credit.”

The mechanism will apply also to certain specified goods. The final “fitment” of different goods and services in the five rate brackets is to be hammered out in May.

“Those who set up a new business, showroom or unit will have contractors doing the work,” Arora said. “You will be liable to withhold tax on the payments you make for their services.”

If you as a registered MSME purchase goods from an unregistered MSME, than you have to raise an invoice. “This is linked with the reverse charge mechanism. Therefore, it will matter how many unregistered MSMEs you deal with,” said Arora. “You may want to convince your vendors to start compliance on their own so that you can get proper credits and do less compliance.”

Unresolved questions

To reduce their burden of compliance, smaller, single-state enterprises can consider the composition scheme under GST. It is limited to Rs50 lakh annual turnover. “We should urge the government to increase this to Rs2.5–5cr,” said Arora. “In this scheme you will pay a lower rate of tax (1–3 per cent) but not be eligible for input credits.”

During the actual transition, however, “What happens to your goods lying in the warehouse, or at the retail level, on 1 July when GST comes into force?” he asked. “What happens to the taxes already paid, and the credits?”

It goes without saying that you will need to reconfigure or “patch” your IT systems and enterprise resource planning (ERP) tools. “How you raise purchase orders, book inventory, compute taxes, raise invoices, your management information system (MIS) and report capturing, all will change,” said Arora.

Credit flow

“What is going to be the credit flow?” under GST, asked Rohan Shah. “Every input must result in a tax payment. The vendor records a tax payment, you as a purchaser record what you have paid, and the reconciliation of the two completes the circle of credit.

This is the flow today: “You have a principal manufacturer, brand owner, retailer. You go to jobbers depending on how complex the piece of jewellery is — maybe three jobbers, maybe 11. The finished goods come back to you and you sell them directly, remove for sale on an approval basis to a wholesaler, or stock-transfer to another outlet you have,” Shah summarised.

He added a caveat for the future under GST. “For export goods the government says, pay tax first and then on proof of export take a refund. Everybody knows that the refund actually costs. Also, I should be confident that the government can afford to pay. Between December and March, if the government hasn’t earned enough money, I will not get my refund. So this is not an exemption, as under Rule 5 or Rule 19 currently.”

“Today, on imports we pay the basic custom duty, which is in the range of 10 per cent,” said Arora. “Some products are subject to CVD [countervailing duty]. Now the CVD and customs duty will be replaced by the IGST, which will be fully creditable for output liabilities. So it’s not going to be a fixed cost.

What’s more, said Shah, “If you don’t raise an invoice you’re not taxable, but within six months you have to generate an invoice whether or not the goods are sold. If anybody makes a mistake while entering details, the tax payment occurs but the credit doesn’t.”

Ideally, any excess tax payment in a unified system should be creditable towards any other tax due. However, the GST setup is designed to ringfence the Centre’s revenue. Consider the following description, as laid out by Shah.

“If you sell from one state to another it’s IGST. If you sell within a state you pay SGST and CGST, and CGST + SGST = IGST. When you pay IGST on behalf of your supplier, you can use that credit towards IGST and it’s fungible, you can use it to pay CGST or SGST. If what is paid is a CGST, however, you can only use it to pay IGST or CGST. And if you pay an SGST you can use it towards an SGST or an IGST, which effectively means the CGST cannot be used to pay SGST, and vice versa.”

Concerns: working capital

Your working capital is going to be impacted by GST.

“Today you purchase the gold or goods for your business at a 2 per cent tax rate. Tomorrow you will pay 5 per cent GST, upfront,” said Jatin Arora. “If you are a retailer, you realise the value from the customer immediately. What if you are a manufacturer or trader? If you purchase something today and pay on the input side, you take a credit but you’re not utilising it, so it’s in your books. Then you have conversion time, supply chain, warehousing and inventory holding period. Even stock transfer is subject to IGST.”

Ecommerce marketplace operators, like Amazon and Flipkart, will be required to collect 1 per cent tax at source on all sales made through their platforms. “So if you supply your finished goods to customers through the ecommerce route,” said Arora, “the platform operator will hold 1 per cent from the net payments to you.” Until the operator files its return and you get the credit, this will remain as a 1 per cent cost for you. “This will add to your working gap requirements.”

Other GST compliance questions, too, will concern ecommerce players. Arora had examples: “Where is the order coming from? Where am I sending the goods from? Where are my warehouses? I’m raising my invoice on a person, so how will taxation apply?”

“If you had a credit on goods of 90 days,” said Shah, “please be aware that the tax of your supplier has to be paid in 30 days. So tax payments are in 30 days even if on the sale price you get 60 days more.” (For services you can take three months.)

Concerns: job work

Job work is integral to the jewellery sector. “Job workers’ supplies that you release will count as inputs, and no tax will be payable if you bring them back within one year,” said Arora. “But if you want to remove the manufactured product directly, this has to be subject to tax. Who will pay the tax, the job workers or you? The government would say the accounting responsibility is yours.”

In the current system no karigar pays tax, because the principal manufacturer pays excise. In GST, however, said Shah, “a karigar is not a contributor towards manufacture; he is a service-provider. Any karigar who goes over the Rs20 lakh threshold of turnover will pay tax himself.”

Shah was a member of the high-level committee appointed for discussions with the government on excise last year. He said, “We are debating with the government whether Rs20 lakh should be his mazdoori or include the value of his goods. If the latter, he is out of the bracket within a few days.”

His point was difficulty of compliance. “The moment your karigar has to pay, at the very least he has to be on a computer. You both need to speak the same language on each transaction. He needs to log it, you need to log it, that circle needs to be complete for you to get your credit.”

Karigars may not be familiar with computers and the upload process. Therefore, in the short term, “You are likely to lose a lot of money,” said Shah. “Your whole ecosystem must be compliant before you say you are compliant.”

There is yet another concern about accounting for job work. “If job work charges are the value-adds, and if one karigar charges RsX and another charges RsY, this is also going to be very hard to explain,” said Shah. You could well be challenged, “Why is this labour charge separate? Why does this design cost lakhs of rupees, and that one only Rs3,000?”

His recommendation? “You need to pre-prepare your whole basis of pricing. If you can’t get consistency, get answers as to why one is different from the other.”

There is one positive. “In the high-level committee,” said Shah, “we learned how powerful and national is the network of karigars. The government must realise that it is a votebank. Their number is a strength.”

Concerns: anti-profiteering

“The government says any benefit you derive from a reduction in tax or an increase in input credits should be passed to your customers in terms of prices,” said Arora. “This is to limit consumer price inflation as a result of the transition to GST.”

“Anti-profiteering concerns are relevant if your tax rates fall,” Shah pointed out. “Our argument would be that the effective tax rate is 2 per cent, if you make it 5 per cent where is the question of profiteering?” Even so, the government is set to scrutinise your pricing before and after GST comes into force.

Concerns: traditional practices

What happens to remaking? “If a customer brings old jewellery to remake,” observed Shah, “effectively they get back a new piece of jewellery. That is taxable. How do you account for it?” There is no such thing as a standardised valuation for old jewellery.

What about the relationship between supplier and recipient? “In our industry I transfer to myself, I transfer to a cousin, I transfer to my sister, I transfer to my aunt,” said Shah. “The moment you sell to a related entity, that is not a genuine price.”

But what will replace it? “If you don’t have an actual sale price, you then have surrogate value, which means the price of a comparable good. In jewellery the artistry, design, making skills all vary. How will you find a comparable good?”

Shah recommended that “instead of selling to a related entity, now sell to an arm’s-length entity. If you must sell to a related entity, get your pricing right, otherwise you will face a lot of scrutiny.”

And what happens to discounting under GST? “How will you justify a diminishing value when the goods remain the same?,” Shah pointed out. “Be very careful. Your discount policy must be pre-stated, clear and uniform. The government is not going to accept ad hoc discounting.”

Opportunities: finance

The pressure on working capital under GST had been flagged as a concern. In his presentation, Jyoti Sharan, general manager–Mid Corporate Group, State Bank of India, Mumbai, offered reassurance regarding access to finance.

“When we fund your working capital, we take into account the existing tax, a transportation cost, and the basic price of the materiel that you are buying,” he said. “If there is any additional cash outflow on account of GST, that will be taken care of by the lenders.”

“Two things will improve your ability to get finance,” confirmed Shah. “One, the extent and valuation of your inventory will be far superior. Second, the value of your receivables will have a greater integrity. Events for which you need to be funded can be predictable, and the quality of data will improve over time.”

“Those of you who are presently non-corporate may like to be corporate going forward,” Sharan recommended, “because there will be no distinction in compliance level. Once you are in an automated system, the information flow starts. That is a big comfort to any financing bank. I feel the credit flow to the sector will go up.”

Opportunities: hedging and listing

Entering the organised economy would offer even small jewellers valuable opportunities, such as access to commodity exchanges. Listed companies are already required by the Securities and Exchange Board of India (SEBI) to undertake risk profiling and risk management.

“Month-on-month over the past year, bullion has seen a volatility of 15 per cent on average for gold and 22 per cent for silver,” said Shivanshu Mehta, head–bullion, Multi Commodity Exchange of India (MCX), in his presentation. “Exchanges are a platform for the transfer of risk from the physical industry, which wants to avoid gold price fluctuations while maintaining its markup, to the speculators, who take on that risk.”

He gave two examples, with solution. “You have given a fixed price for an order, and don’t have the metal. Or you have a priced inventory but you don’t have an order. In either case you utilise the commodities exchange platform by doing a long hedge or an offset hedge. The advantage, apart from the efficient use of capital, is that you block only a certain margin. Companies that have a solid hedging mechanism enjoy better valuation. You protect your profit margins and you protect your inventory from a fall in prices.”

MCX, said Mehta, can help hedge against fluctuations in bullion prices and currency rates, and even changes in the customs duty.

Ranjith Singh, assistant general manager, Bombay Stock Exchange (BSE), was well positioned as the speaker after Mehta. He laid out the opportunity as well as the criteria for listing on the BSE, whether main board or SME board — criteria including IPO size, company size and track record, assets, profitability, balance sheets, post-paid capital, dematerialised shares, website, and so on.

With the multi-front push towards transparency and accountability, of which GST is the major engine, there is little doubt that a number of jewellery players will be exploring this option in the near future.

Clarity and trust

GST offers the prospect of a smoother and freer economy for India — at the cost, for each and every enterprise, of being transparent to the government. The impact of so radical a tax reform on this diverse and deeply traditional industry is not wholly predictable.

And yet, warned Shah, there is little clarity on the details. “The tax collector knows as little as you, the taxpayer. The only people licking their lips are lawyers.”

Having the government’s hands so greatly strengthened in its dealings with any enterprise is a particular risk. The high-level committee on excise, said Shah, was “very concerned that seizure, search, confiscation of goods on the road, going to a karigar’s premises, all this would not happen, and that even if my shop was raided my goods would be given back to me immediately.” Various provisions were agreed to protect against overly aggressive excise tax collectors. Those changes are not available in GST.

“If we have conveyed a sense of fear,” said Shah, “trust us, you should be scared. Having said that, change is inevitable, and we have a terrific chance to embrace it. There will be GST software, there will be government support. This industry can talk to the government as it has done so many times in the past and get to something we can live with.”

The responsibility goes both ways. “You, as the government for five years, give us five years. Don’t ask endless questions, don’t make our lives miserable. Once we are in the system our businesses are innovative enough, we are compliant, we can adapt well.”

Undisclosed mixing of Lab Grown Diamonds in Jewellery: How to protect your business for consumer confidence

The 20th century messed with the perfect metaphor of the diamond as immortal and changeless. The first synthetic diamond was produced in 1954, by applying high pressure and high temperature (HPHT) to graphite. Synthetics were and are meant mainly for industrial use, typically as abrasives. But the first gem-quality diamond was made in 1970. In 2005, CVD (chemical vapour deposition) diamonds were developed.

Today the gems and jewellery industry experiences synthetics as a threat. Given the great expense of mining natural diamonds, and the inflexible supply, synthetics are comparatively cheap to produce. Unscrupulous traders mix synthetics with natural stones, pricing the entire batch as natural.

This subject was tackled by four industry leaders at the fourth session of the Retail Jeweller India Forum 2017, titled “Undisclosed mixing of lab-grown diamonds in jewellery: How to protect your business for consumer confidence”. It was moderated by the magazine’s publisher Samit Bhatta.

“Synthetics in rough form are easy to distinguish from natural,” said first speaker Ashish Mehta of the Gem & Jewellery Export Promotion Council (GJEPC). “But high-quality HPHT and CVD synthetics can be cut into gems. These are difficult to distinguish from natural diamonds.” Synthetics use is going up in Surat, Gujarat.

The industry acts

The Natural Diamond Monitoring Committee (NDMC) was formed two years ago by the GJEPC, All India Gems & Jewellery Trade Federation (GJF) and Mumbai Diamond Merchants Association (MDMA), jointly. It includes representatives from the Gemological Institute of America (GIA) and Gemmological Institute of India (GII).

The NDMC’s main objectives are to coordinate the trade players and industry bodies, secure consumer confidence and centralise knowledge dissemination on synthetics.

“In 2012 we saw media reports about big quantities of illegitimate synthetics in the market,” said Mehta, who is convener, NDMC. “In 2013–14, the GJEPC hired consulting major A T Kearney [ATK] to study the issue. The GJEPC and BDB [Bharat Diamond Bourse] hosted seminars by De Beers, the GIA and GII on the detection of synthetics. They organised a demonstration of detection instruments in Mumbai. The GJEPC held several more sessions around the country. It is currently planning a 21-city synthetic awareness programme.”

According to the American Free trade agreement’s (FTA’s) new guidelines, the word “diamond” will now signify a natural diamond only. “Anything but natural,” said Mehta, “and you’ll have to use an adjective like ‘lab-grown’, ‘man-made’ or ‘synthetic’.”

To counter undisclosed mixing, ATK proposed a fourfold approach.

  • Regulatory: change the access code and check the consumer protections.
  • Commercial: any diamond transaction between two parties should involve a standardised, written declaration.
  • Process: check for authenticity and detect synthetics at the time of sale.
  • Technological: improve testing equipment to make checks cost-effective, speedy and reliable.

“We tested the constitutions of the GJEPC, BDB and MDMA,” said Mehta. “They have been tightened. If any member is found to be behaving fraudulently, the association may expel the member and inform other members.”

BDB has bound trading of synthetic diamonds within its premises. The GJEPC and BDB have set up a redressal committee. “Members are encouraged to report undisclosed mixing,” said Mehta. “The committee gives all parties involved a fair hearing. In three cases it has found parties guilty of mixing, and BDB took appropriate action. One party subsequently sued BDB for Rs500cr and wrongful hearing, but the court ruled in favour of BDB.”

“The people in Surat who were trying to mix are finding it more difficult,” said Mehta, “because a lot of these goods pass through BDB, and we run checks at the retailer level as well.” However, “Some of these synthetics may be getting set for the regional market.”

Will there be support from the government? “The Ministry of Consumer Affairs has specific standards on what qualifies as a diamond and non-diamond,” said Sabyasachi Ray, executive director, GJEPC, in the second presentation. “We’ve worked with them to refine the standards and give them teeth. But, for the government, this is like any other product. We cannot expect much enforcement from there.”

Annually, said Ray, “120–130 million carats of rough come into India, of which an estimated 2.5–3 million carats are synthetic. Synthetics are predicted to reach 5 million carats in the near future.

Detection and technology

Gem-quality synthetics can be distinguished only with the right equipment. The GJEPC helped establish the Diamond Detection and Resource Centre, housed in BDB, which offers a quick testing service to identify synthetic diamonds. “With 10 machines available, it also trains operators,” said Mehta.

“Today, enough devices are paired with skilled operators, so the machines are achieving better throughput,” he added. “In 2014, when we started, the machines cost €70,000–80,000. Now they are Rs3–4 lakh. The testing machines now can handle not just loose stones but also stones set in jewellery.”

You are responsible

“Each of us has to change our buying behaviour,” said Sachin Jain, president, Forevermark India, a De Beers subsidiary, the third speaker. “You have got to have complete confidence in your suppliers. Today’s technology will give you accurate answers.”

“If you are the point of sale,” agreed Ray, “you are responsible legally, you have to do due diligence. You cannot outsource your responsibility to your supplier.”

“Deal only with people you trust,” said Mehta. “Minimise the risk of contaminated goods entering the pipeline. Adopt the standardised declaration recommended by the World Federation of Diamond Bourses [WFDB] to affirm that all the invoiced diamonds are natural and untreated.” The WFDB recommends a 30-day window after which a buyer can be assumed to have conducted independent testing.

“Maintain KYC/KYS records,” Mehta added. “In some customer complaints received by BDB, there was no proper billing or documentation. In such cases it is not possible to take action.”

The gift of trust

“For us the most important moment is when a customer walks into a store,” said Jain. “A father looking for bangles for his daughter’s wedding, a couple selecting an engagement ring. We can take so much inspiration from our business.”

And from the product. “Diamonds are gifts of Mother Nature. They are miraculous, precious, finite and have enduring value. From De Beers’ standpoint, sustaining consumer confidence in diamonds is the foundation of our business. If that gets shaken, it’s the end.”

“Our research shows that 79 per cent of US consumers say that knowing that their diamonds are responsibly sourced is important to them,” said Vikram Merchant, director, India Representative Office, Rio Tinto, in the final presentation. “Ninety-two per cent of Chinese consumers say that knowing their diamonds’ country of origin is important. Seventy-four per cent of Indian consumers say that knowing their diamonds’ mine of origin is important.” Clearly, undisclosed mixing is a major risk.

Major miner moves

“De Beers anticipated that synthetics would play a larger role in the market,” said Jain. “Forevermark was one of our answers. Every Forevermark diamond is strictly evaluated and certified, and the best companies in the world use them.” Every Forevermark diamond of 10 points and up carries a unique inscription. Customers value this certainty.

“At Rio Tinto we manage the diamond production from our Argyle mine in Australia and Diavik mine in Canada in separate product streams,” said Merchant. “We have a proprietary chain-of-custody system with independent auditors, traceability and segregation of diamonds from mine to marketplace. We track the gems throughout the manufacturing process so that you, the retailer, have a sense of assurance. You, in turn, can convey this assurance to your customers.”

Tracking each stone is a complex task. “For the production from our Australian mine alone,” said Merchant, “we have a supply chain of 520 diamond and 27 jewellery manufacturing units.” Since the chain-of-custody programme was launched in July 2016, 2 million carats of rough have gone through the system. “Each diamond comes with an Australian diamond certificate of authenticity,” said Merchant. “The consumer can buy with confidence, and wear with pride.”

The work doesn’t stop there. “We also prepare marketing materials to support retailers,” said Merchant. “We have a whole raft of devices for in-store marketing and visual merchandising. We use digital media, websites and social media to promote this initiative.”

“We are not saying that synthetic stones cannot be allowed,” said Mehta, “but there has to be clear differentiation” — in everybody’s interest.

Cross-category retailing

Second-generation jeweller Nakshatra Mehta has come a long way. From a small shop at Zaveri Bazaar he now runs a one-stop bridal luxury couture jewellery store. In the fifth session of the Retail Jeweller India Forum 2017, he laid out the novel strategy he applied when he joined the family business, Mehta Emporium, and explained how it increased profitability.

Step one was a 30 per cent reduction in inventory, which increased both profit and turnover. “The sales staff would routinely take lots of boxes out of the strongroom, and put them back in at end of day,” said Mehta, describing how he spotted this opportunity. “When I asked, I learned that these were goods that no customer ever bought. A quick valuation showed that they comprised as much as 30 per cent of the total inventory. This was pure dead stock.”

After having the dead stock valued, Mehta decided to liquidate it and use the freed-up capital to create a new line of high-end designs. This was a first for his firm.

“We invested in setting up our own design team,” he said. “We stopped buying from our vendors the standard designs that they created. Instead we gave them exclusive designs from our own team to manufacture. This helped us get the designs that we knew our customers would like. To my surprise, our business grew by 45 per cent after this exercise.”

Simple calculation, he explained, told him that “earlier, for an investment of Rs100, we got a sale of Rs100. Having reduced this by 30 per cent we were still getting a sale of Rs100. On top of this, the new high-end line was yielding an incremental sale of Rs45.” In effect, sales had increased to Rs145.

“We found that a lot of customers who walked in to the store felt an impulsive urge to buy our unique new designs, as they had not seen them anywhere else. Over time, we acquired a number of new customers through reference.”

Contrary to popular belief, Mehta explained, consumers do not prefer a very large and varied inventory. “Our customers started appreciating the smaller assortments to choose from,” he said. Less products meant being able to impress his clients with fewer and better pieces. Mehta was quick to pivot accordingly: “We shifted our focus from quantity to quality in terms of design. We became more aware and sensitive to current trends and changing client tastes. This increased the acceptability of our designs to our elite clients.”

There was a direct effect on his employees. “Our staff was now motivated, as they had to deal with a smaller number of products. They gained the confidence that even with fewer products they could get higher sales. As we kept evolving the concept of ‘less is more’ in our own practice, we realised that we were making more out of less!”

Not long into this exciting turnaround, Mehta got the opportunity to expand his business onto the second floor of the same building. “At first I saw expansion as simply extending the store to another floor — more of the same! But I began to see it as an opportunity to create a new niche.”

After analysing his customer profile and buying trends, Mehta understood that “the main occasion for buying was weddings, and the main buyer the modern bride.” He had also observed that “The mother or mother-in-law is no longer the decision-maker in jewellery. The family is no longer our main client. It is the bride who is now the key decision-maker.”

As Mehta described her, the new-age bride is “Confident, fashion-savvy and looking for something rare and exclusive.” Having both sets of parents and the modern bride in agreement even on which jeweller to patronise, he grasped, is becoming more and more difficult. This suited him just fine. “We realised that our ancestral goodwill would bring in the parents, and our new concept would attract young brides.”

Last but not least, this innovative young businessman had noticed that wedding shopping, which in the past took a family months to complete, now had to be completed in weeks if not days. This told him that “Brides need a one-stop destination for weddings. Our new brand, Rare Heritage by Mehta Emporium, is about providing everything that a bride might want, under one roof.” Accordingly, Mehta brought in “an exclusive line of bridalwear; bejewelled accessories including clutches, purses, wallets and stationery; silverware; and jewellery.”

Thus updated and perfected, Rare Heritage by Mehta Emporium is the talk of the town, drawing clients from far and wide as “a specialty store that not only offers exclusive bridal jewellery but extends the idea of jewels into all must-haves for a trousseau, making it an exclusive as well as a unique experience for brides.”

Internet shoppers: Challenges and opportunities of selling beyond known boundaries

The jewellery industry, generally considered slow-paced, is in the midst of a handful of rapid transformations. In some of them the pace of change is propelled by technology and its eager adoption by consumers.

Ecommerce has transformed the way retailers approach business. Offline brands are investing in online retail, and online retailers are opening bricks-and-mortar “experience centres” and physical showrooms.

“Indians have actually jumped an entire generation, from the personal computer straight to the mobile phone,” said Vijay Jain, CEO, Orra, who moderated this session of the Retail Jeweller India Forum 2017. “This influences not only how they consume information but also how they buy.”

The session was titled “Internet shoppers: Challenges and opportunities of selling beyond known boundaries”. Quite aptly, in his remarks Jain observed that some traditional family jewellers, when they went online, did not simply leverage their brand equity in a new space. Instead he identified Zaamor and Stylori as two powerhouse online jewellery brands that were created by the well-established family enterprises Vummidi Bangaru Jewellers (VBJ) and NAC Jewellers, respectively.

In his presentation, Mariappan Muthiah, vice president–business operations, Zaamor, explained why the parent company VBJ launched the new brand: “Going forward, we may want to raise funds, which may require diluting ownership. Second, the major market for ecommerce is in the west and north of the country and VBJ is better known among South Indian customers. Launching a new brand seemed reasonable, as long as the VBJ lineage was woven into the new brand story, to build trust.”

Anand Ramanujam, CEO, Stylori, in his presentation made a similar case: “Besides keeping open the option of funding, we wanted to tell a different story which would have conflicted with that of NAC, a 50-year-old brand. Even the quality of jewellery, target audience and product designs are unique to the new brand.”

Mayank Shivam, category leader, Amazon Fashion, India, presented the perspective of a marketplace operator displaying a number of online and offline jewellery brands. “A known brand typically has higher conversion even if it is regional. Having said that, online customers are very different and it’s important to customise the product mix and get the product story right. It is far more important than brand familiarity, but — everything else being equal — there still is an advantage for established brands.”

He had statistics. “Eighty per cent of the audience is 18–35 years of age, and more than 50 per cent of jewellery sales are to towns with a population of less than 100,000.”

Jain asked the panel of experts what back-end infrastructure a jewellery retailer must invest in, to operate an ecommerce platform. Minesh Shah, MD, Effission Software, explained in his presentation that “There are various layers. It really depends on what a retailer wants to build. One can settle for a basic site or one that is cloud-computed, with a monthly subscription. Retailers will have to invest also in analytics to know their customers better, and in customer service, to elevate the buying and post-order experience.”

“For our VBJ site we have basic cataloguing,” said Mariappan, “but Zaamor is a fully fledged ecommerce site with wider requirements.” Technology aspects of online retail are, he said, “akin to visual merchandising in stores: a higher level of technology-enabled merchandising is required for ecommerce.” Zaamor diamonds has, for example, “IP technology that shows customers different products according to where they are located.”

Ramanujam emphasised that the investment is linked to the vision. “It took us four months to build Stylori.com because we wanted the customer experience to be very different to that of all the other sites in the same space. We wanted to build something that stayed in the consumer’s mind and wasn’t quickly forgotten — not just another me-too jewellery portal.”

Building the best possible core team for online operations is crucial, said Aditya Pethe, director, Waman Hari Pethe Jewellers. “We made the mistake of starting out with 25 people, but now we keep a core team of four or five. The team need not be big because jobs like digital marketing, software and logistics can be outsourced.”

Pethe clarified that outsourcing does not mean less investment. “As jewellers, we lack the IT skill sets. It becomes important to hire the right talent and align it to one objective. Some of the talent is unaffordable, and it works better to have such people on board as consultants.”

Just being online and active is not enough. “It is very easy to get ‘likes’ on social media,” said Pethe. “It is the conversion to sale that is important.” In other words, a sound marketing strategy is essential.

“One has to spend on acquiring customers,” said Ramanujam. “That is the oil for the ecommerce engine.” According to Mariappan, traffic can be built quite easily “but conversion is based on the experience of the website. So if the retailer does not invest in enhancing the experience of the site, the cost of acquisition increases.”

“For a marketplace like Amazon.in it’s relatively easy to drive customers,” said Shivam. “It has a lot of categories and is heavily invested in marketing.” Many of Amazon’s decisions are based on technology-driven intelligence, he explained, an advantage not available to individual retailers, who will find it much more difficult to understand customer behaviour and acquire customers. “Our data analysis allows us to know exactly what each customer is searching for. The scale is indeed a challenge, as online customers may be anywhere in the country.”

Post-order service for ecommerce, Shivam said, is not easy to master. “In the offline space a customer will come back to the store and you’ll make sure the problem is resolved. But in an environment where you do not know the customer, maintaining a 100 per cent clean customer experience is the key.”

This matters more, he said, because “Jewellery is one category where we see a lot of repeat purchase, which is based on the shopping and brand experience. Retail customers with one single bad experience will never return, particularly because these are high-value items.”

Being online is empowering consumers, he said. “A lady buying jewellery worth Rs10,000 gets over 500 options to choose from, on one site. At a single store she may not get more than two trays of designs.”

For their part, he said, jewellers should have realistic expectations from the online channel. “A lot of retailers seem disappointed that the average price is not moving up. But online customers today are looking for lower base prices, of Rs15,000–20,000. We will see it gradually go up over the coming years.”

Understanding the new order in modern jewellery retail

The final session of the Retail Jeweller India Forum 2017 explored the growth drivers of modern retail. Panellists representing independent family jewellers, as well as regional and national chain jewellers, focused on consumption growth driven by rising population and urbanisation — specifically, how it presents new opportunities to those who are able to define their market and position themselves effectively. They shared their positioning strategies and how they allowing them to increase their market share.

Saurabh Gadgil, CMD, PNG Jewellers, a fast-expanding retail chain from Pune with stores across Maharashtra, laid out, against the backdrop of rapid urbanisation, how middle-class Indians with surplus money are seeking more fashion and value from jewellery.

Gadgil used to be known as a quintessential Maharashtrian jeweller. At RJIF he said that “Community-based buying is on the decline. Our inventory is a mix of what an urban middle class consumer may fancy. We have positioned ourselves very clearly. It is a big segment that promises volume business and de-risks us as we expand into new markets.”

To gain a larger share of this segment, he said, “we are penetrating deeper into the families of our existing customers”.

Anand Jewellers of Indore, MP, has claimed a whopping 1 tonne of gold jewellery sold in 2016. “All of this without any discount strategy,” said Gaurav Anand, its managing director.

“Modern retailing is about creating relevant products and transparency,” he said. “Jewellers need to view the business from a customer’s perspective. As per our market survey, trust remains the biggest deterrent to growth in this industry. We overcame that in our case with robust, consumer-friendly policies.”

The market has potential, said Anand, but consumers are not spending much of their disposable income on jewellery because of the lack of trust in jewellers. “If we are able to establish trust we will be able to capture the market.”

“We have taken a larger perspective of the market and positioned ourselves as an aspirational brand selling diamond jewellery,” said Vijay Jain, CEO, Orra, a national chain. “Fifty per cent of our sales come from diamond jewellery.” He admitted there was a tradeoff in terms of reduced footfall, but “There is a certain kind of customer that you capture, by way of taking this position on products.”

Notwithstanding Orra’s focus on diamonds, Jain pointed out that the brand is aspirational yet affordable. “Customers get very high design value and a superior buying experience at each of our stores. They can buy diamond jewellery for as little as Rs1 lakh and still feel gratified at the idea of owning a brand.” The message? Aspiration is no longer associated solely with high price.

Taking his point further, Jain said that brands need to look at the entire lifecycle of their customer. Orra, he said, has introduced Denim diamonds for the younger segment and solitaires as a category apart from all their other diamond jewellery. “Knowing that retailers cannot be everything to everybody, they need to segment the market, acquire customers and then partner them through the life stages.”

Ramesh Narang, director, Hazoorilal Legacy, the foremost aspirational brand in North India, certainly knows what it takes to position a brand in the premium segment. “We do not sell one design more than two or three times,” he said, whereas “a brand positioned for the masses does not have to make that kind of design effort. With minor variations, the same designs can continue for years.”

Even in his rarefied orbit, “The competition is definitely increasing. Besides products, one has to invest in all aspects of the brand.” For example, “with smaller items, we sometimes make no profit, because the cost of the packaging far exceeds the cost of the product. But that’s what we do to build the experience of Hazoorilal.”

The takeaways for the audience from this session were not the specific details but how every strategic choice in each of these very different cases reflects the clarity, audacity and insight of not just the businessperson but also the brand.

retailj
By retailj December 29, 2017 11:20
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