Consumer spending in India is back on track

Written by Shobhana Subramanian | Shobhana Subramanian | Updated: Dec 30 2009, 05:01am hrs
Over the past decade or so, Titan Industries has built up a portfolio of strong lifestyle brands, including the top-end jewellery brand Tanishq and the watch brand Xylys. The Rs 3,800-crore firm has positioned itself to cater to consumers growing incomes and aspirations, recently venturing into eyewear. The Bangalore-headquartered company not only addresses the top-end, but also has brands for the masses such as the Gold Plus chain of stores. In a conversation with Shobhana Subramanian, managing director Bhaskar Bhat talks about how high-growing disposable incomes appear to have cushioned the impact of high food inflation. Bhat observes that high gold prices have hurt jewellery volumes and it could take a while for volumes to stabilise.

With the economy recovering much faster than probably anticipated, how do you read the trend in consumer spending

We have seen retail growth in the past three months and its not only because of the festival season. Consumers are willing to spend even in November and December. While in July-August, it was mass brands that were doing better, of late even the top-end brands like Titan are growing.

Do you think high food inflation could impact consumer spending

Income levels have gone up fairly sharply over the past few years because of which food isnt really a very big part of the consumption basket any longer. So, food inflation of 15-20% doesnt really pinch like it used to be earlier, except for lower income groups. I havent really seen food inflation hurt spending too much, especially for the families that we cater to.

So, would you say consumer spending is back like before

I think so, but I dont know if its a trend because there is a fear that this prosperity may be short-lived. However, I dont really agree with that. That fear is there more in the west because governments there have injected very large amounts of money into the economy whereas in India, its been more an effort to reduce taxes. Here, I do feel the spending is genuine, but I would wait until mid-January to pass any kind of judgement because the period between December 15 and January 15 is a low demand period. But sales havent fallen too much.

High gold prices seem to have hurt your jewellery volumes rather hard...

Gold prices have affected volumes, but the wedding season was fairly strong and helped volumes. What has happened is that because of the high price of gold, there has been a small shift to diamond jewellery because the difference in prices has narrowed. So, in the urban markets, diamonds have become relatively more attractive than in the past. And diamond jewellery fetches us better margins. So, in some ways, high gold prices have helped. But gold volumes will not pick up unless prices come down.

Has the Gold Plus model stabilised and are you ramping up

The Gold Plus was affected more than Tanishq when gold prices went up because that brand is driven primarily by the wedding season. We are steadying that business and havent opened any new stores this year. We like the stores to break even, which takes about two yearsby the end of the year, all of them should have broken even. We will start expanding only next year. Currently, we have 30 Gold Plus stores though we may close down some if we feel the capital is not being well-used.

How do you read the trend in gold prices

I think gold prices will hover around at the $1,000 mark, though I feel they could fall below that mark. My opinion is based on the decrease in consumption in important markets like India. There has been a fall in gold imports and in India much of the consumption of gold is for jewellery. Therefore, I cant see how consumption in one large part of the industry coming down wont affect prices. After all, its a fundamental demand; otherwise, gold in the ETF form is just a financial asset. Any financial asset has to have an underlying utility.

Do you believe more people will buy gold as an investment after such a strong appreciation

I think so. I observe more men buying gold in the form of coins and certainly not discouraging their wives and mothers from buying gold jewellery. The returns have been very good and, therefore, I do feel that apart from the fundamental liking for jewellery, there is now a rational basis for buying gold jewellery. However, its also true that after gold prices started moving up, people preferred to exchange old gold into new jewellery because they wanted to conserve cash. In fact, that trend still continues.

Titan has reorganised the distribution for Sonata watches by reducing the number of dealers. This move gives each dealer a bigger catchment area and reduce costs for Titan. How has this worked

We have been doing this for about six months now and its an ongoing process. The strategy has brought in more efficiencies. A larger territory means that we can defray the fixed costs over bigger volumes and, therefore, their returns are now better. We also brought down the stock in the pipeline. Investments are now more reasonable and hence, the profitability has increased. Were doing this in a phased manner and hope to complete the exercise by March next year.

How are the top-end brands of watches doing

Both Xylys and Nebula have grown significantly because we have been promoting them aggressively. Xylyss competitive advantage vis-a-vis Swiss brands is its presence in the World of Titan stores, of which there are around 275 outlets. That reach exceeds that of any of the Swiss brands. We had planned to roll out 40-odd Fastrack outlets and 40-odd World of Titan stores by March and we are on track to achieve this.

What kind of distribution reach are you looking at across brands over the next three to four years

Today,were at a little over 500 stores across our brands and we are already the countrys biggest specialty retailer in terms of reach. By March 2010, we should have a little over 580 stores and in the next three to four years the number should hit 900 stores.

Are lease rentals coming down

Theyre not going up. Theyre steady, but in some places we have been able to renegotiate downwards. But I would say that in only 10-15% cases we have been able to bring down the rates. We dont encourage revenue-sharing models, unless the mall owners insist on it because malls are important. But most of our contracts are straight rentals and at times, we run the stores ourselves and we also have franchisees.

How big will the Titan eyewear business be in three or four years

The goal is to open 200 stores in three years time, but we are holding back our expansion in the current year and plan to roll out just over 80 stores. We are not in a hurry to expand because this is a new business for us and we want to ensure that the customer experience is good because thats the differentiator. At the business level, it could take at least three to four years to break even because new stores will be rolled out. Currently, about a fourth to a third of the stores have broken even.

Is media inflation an issue

I dont think so. Weve kept our spends in check. We benefitted in the downturn because outdoor advertising became cheaper and our categories lend themselves to outdoor advertising. We have changed our mix and the cyberspace is very interesting and were putting in more money there.

One area which is more expensive is brand ambassadorsbut its a strategic choice and part of our budget.