August 9, 2019 By King
I can tell you two things. One, not all sectors have faced this kind of impact. In our case, it is jewellery. Gold price suddenly rose in the second half of June and that had an effect. But we have had good performances even in the apparel sector, etc, during the quarter including our own watch business and eyewear business. So, I think the fundamental aspiration of Indians for improving the quality of their life is still holding out and there is no slowdown in that. But there is a temporary lull. There are some stressed savings and people are holding back a little.
Our own business, jewellery, felt the impact in the second half of June. In fact, these were growing at a good clip until then and then the gold prices spiked. When prices rise suddenly, consumers prefer to wait and watch. It was also the end of the wedding season and there was no real occasion to go out and buy jewellery. That should correct itself towards the second half of the second quarter and we should have a good festive season.
Overall, the jewellery business should be good in the second half of the year. Sentiment wise, I would not say it is negative. It is certainly positive in some sectors, for some companies. Companies which have had a long standing relationship with their customers, get back customers for themselves.
Are are confident of achieving this 20% jewellery growth guidance for FY20?
No. What we have lost is very difficult to get back. What we believe we will be doing is a combination of pursuing 20% growth in the second half. It may not happen in the first half because already four months have gone by. However, the company is embarking on a combination of very aggressive growth as well as working on cost control.
Can I say the new guidance for the full year could be 15%?
Well it is difficult to state at this point in time because we are in the middle of this uncertain period but 20% guidance for the second half for jewellery will hold.
Why are you confident that in the second half demand will come back?
We have analysed this current phenomenon and there is nothing to believe that it is anything other than the volatility of gold prices which is making customers stay away. This has happened twice in the past — 2007 and 2013 — when prices spiked. After a while growth came back because the fundamental demand for gold still has not got affected by these price hikes or customs duty hike which has happened in July.
So based on past experience and the fact that almost 75 days of growth was at a fairly good clip. In fact, the south region which is the most competitive, has grown handsomely for us. It is the west region and to some extent in the north that we have had problems.
There was a 20% growth in watches. Would you say that this was a result of the promotional activity and the ad spends that you undertook?
No, we should break that into two parts; one, there was a specific order from TCS which partly got executed and we should remove the effect of that. If we take that out, we have a 12-13% growth which is also healthy and yes, there was a rescheduling of activations by some of our channel partners and they have advanced it and therefore there is that effect.
Therefore July is not as good as June but again the undercurrent of demand is reasonably healthy and there we are not looking at very high double digit growth rate. The pace of growth that we have been achieving last year and what we have talked about in the early part of the year is what we will get and the margins are holding out, even improving in that business. New product launches are contributing to the growth.
So sans the TCS order, what kind of growth number do you think you will be able to clock for the watches segment for the entire year?
Auto companies are resorting to production cuts. They are not feeling confident of a demand pickup in the second half. What extraordinary measures are you resorting to in order to cut your expenditure?
Let me answer your question in two parts; one, the demand and sale of auto is affected by a lot of other things which is fundamentally the hire purchase scheme, where money has dried the market. Consumer finance companies have got affected here, which is not the case for discretionary purchase products like ours — both watches and jewellery.
In jewellery, the Golden Harvest scheme among the most attractive schemes for consumers to buy jewellery with. Therefore, what matters really is consumer sentiment for that category. We have not seen a change in that for jewellery in the first 75 days as I told you as well as in watches through the quarter. Yes, consumers want a deal to buy these products which means a discount or something attractive. So innovative schemes are needed to get consumers into the store and because these are reasonably low-ticket items, compared to a car or house, we still believe but cost control measures are possible.
I am not saying we waste a lot of money but at any point in time, you can renegotiate material costs with your vendor partners because of the scale of this company. So growth is important and once you ,grow you can negotiate better prices for raw material, bought out items including media costs can be brought down as you buy more and more. So there are opportunities in this company and we will pursue those.