Nearly three decades ago, when Kalyan Jewellers Ltd (KJL) wanted to set up its second showroom at Palakkad, in Kerala, it faced a dilemma: should it go for exactly the same format and product offering like the first outlet, or something different? Its first showroom in Thrissur, next to the famed Paramekkavu Bhagavathi Temple in the heart of the city, targeted the traditionally wealthy Hindu and Christian households. In stark contrast, the fort city, nearly 70km off Thrissur, lying in close proximity to Tamil Nadu, bore a vastly different culture and ethnicity.

The gold retailer took a collective decision to transform internally to provide a completely different store experience in the new outlet in sync with the city’s own culture and ethnic values. The store displayed a look and feel distinctly unique to the city, once part of the historic Mysore province, which was once ruled by the legendary Tipu Sultan. A sizeable community of Tamilian upper caste Hindus has had a crucial influence on the city too.

Prior to entering the market, Kalyan carried out a time-consuming research to understand the local preferences as well as the jewellery offerings of the then existing jewellers in the city. It then engaged third-party local artisans as contract manufacturers with a sole aim to manufacture jewellery with localised designs.

As the company later decided to foray into other states, the process of identifying the region-specific ethnic values and their favourite designs was coalesced into a routine protocol. Kalyan established itself as a hyperlocal jeweller, turning the skill to operate localised stores into a key competitive strength.

T.K. Ramesh, promoter and executive director, counts it as a fundamental asset of the company. “When we opened three stores in Maharashtra—Borivali, Thane, and Navi Mumbai, we had different target audiences in mind for each city—Gujarati, Maharashtrian and South Indian, and predominantly Malayalees, respectively,” he tells Fortune India.

In each store, Kalyan tried to cater to customers’ unique preferences, which often varied significantly by geography and micro market. “We engaged local artisans to manufacture jewellery (based on our specifications) that is suited to local tastes and attempted to curate a localised product mix and store experience to suit the customer’s preferences in the immediate micro market,” he adds. They also employed region-specific marketing strategies and advertising campaigns.

“We appeal to a wide audience by attempting to understand the local market preferences and trends in various geographies,” argues Ramesh.

According to a recent Technopak report, the hyperlocal strategy has enabled them to cater to a wide range of geographies and customer segments jewellery consumption patterns in India are highly localised with customer preferences varying significantly by region. The report argues that this industry characteristic has acted as a significant barrier for jewellery brands to scale up in India as it demands a nuanced understanding of local customer needs, region-specific procurement, and inventory models, which require operating at sufficient scale to attract the best artisans, and significant investments in localised and region-specific marketing campaigns to build awareness and trust with consumers.

Within India, Kalyan’s 13 procurement centres across key jewellery manufacturing regions of the country allows them to access local artisans at competitive rates.

A jewellery set from Kalyan Jewellers.
A jewellery set from Kalyan Jewellers.
Image : Courtesy of Kalyan Jewellers

Strategy for success

Kalyan is a pan-India jewellery company today, with 107 showrooms located across 21 states and Union territories in India, and also has an international presence with 30 showrooms located in the Middle East as of December 31, 2020. All the showrooms are operated and managed by the company.

“When we started our jewellery business in 1993 with our first showroom in Thrissur, the industry was plagued by issues of quality, pricing, and others. The pricing was unorganised. We introduced several fair practices such as BIS hallmarking, rate tag, and transparent old gold exchange,” says Ramesh.

The gold retailer has also attempted localisation through their ‘My Kalyan’ network, which is a popular customer outreach programme. Under `My Kalyan’, its employees approach communities and households with their localised jewellery designs for a direct sale. The network is as vast as 766 centres spread across rural and semi-rural areas in the country. They consist of multiple smaller centres that serve as satellite locations situated in a wide radius around their showrooms.

“We generally hire ‘My Kalyan’ employees from the communities in which they serve, and with relevant language skills and local relationships. Through our strategy of catering to local preferences, we compete with both unorganised and organised jewellers in markets in which we operate by establishing customer rapport on a local level,” says a senior Kalyan employee.

The localisation strategy has helped Kalyan to cater to a wide range of customers across geographies, age groups, socio-economic status levels, and genders as well as across urban, rural, and semi-urban markets. What is more, a significant proportion of India’s gold jewellery demand originates from rural and semi-urban markets where the penetration of organised jewellery companies has historically been lower. The network has contributed 21% of their total revenues during the first three quarters of 2020-21.

IPO story

The company, which recently hit the primary market with a ₹1,175 crore issue, is held by T.S. Kalyanaraman (27.41%), his sons T.K. Seetharam and T.K. Ramesh (each owns 22.17% stake). Warburg Pincus holds around 24% stake in the firm. Post-IPO, the promoters’ stake will be reduced to 60.5%.

Kalyan has managed to get its long-awaited IPO oversubscribed 2.6 times despite several analysts raising concerns over high pricing, lower earnings margins compared to its peers, and the stock’s future performance in the volatile gold market. After the share allocation, the company will commence trading on the bourses around March 26.

Though its hyperlocal strategies have helped the retailer scale up its operations across the country, it faces several challenges. “We note that gold metal loans have declined from ₹1,950 crore in 2017-18 to ₹800 crore in third quarter of 2020-21. Net debt has increased from ₹1,100 crore to ₹2,300 crore, while gross borrowings, including gold metal loans, are ₹3,670 crore as in December 2020. Resorting to higher cost borrowings at interest rates of 3.5%-11.8% shows weakness in the balance sheet to provide guarantees and deposits for gold metal loans,” says analysts at Prabhudas Lilladher, a Mumbai-based stock broker.

The localisation strategy has helped Kalyan to cater to a wide range of customers across geographies, age groups, socio-economic status levels, and genders as well as across urban, rural, and semi-urban markets. What is more, a significant proportion of India’s gold jewellery demand originates from rural and semi-urban markets where the penetration of organised jewellery companies has historically been lower. The network has contributed 21% of their total revenues during the first three quarters of 2020-21.

Though Kerala-based Geojit Financial Services listed some key risks, it had given a thumbs-up for the IPO. “Given forecast improvement in profitability and balance sheet, India’s appetite for gold, strong pan India presence, brand recall and diversified product offering, we assign a ‘subscribe’ rating on a long-term basis,” it said in a report.

Analysts believe that Kalyan’s revenue performance has been a disappointment. Over the last two financial years, the company’s revenues have declined by 2% annually. The company attributes this to a weak financial year 2019 when financial performance was affected because of floods in Kerala and Tamil Nadu. The first two quarters of 2020-21 have been a complete rout because of the pandemic.

The company has posted a consolidated loss of ₹79.9 crore for the three months of 2020-21 on total income of ₹5,549.8 crore. Geography-wise, its U.A.E. subsidiary posted a loss of ₹120 crore and Oman subsidiary, ₹21.5 crore. Kalyan had reported a ₹142.3-crore profit during 2019-20 on the total income of ₹10,181 crore.

An industry official pointed out that the vendor payments are delayed beyond a month. “In fact, Kalyan had reduced the margins to the local artisans with a promise of quick payments,” he says.

A few other gold retailers are keenly awaiting Kalyan’s performance on the stock exchange to take a final call on their plunge into the IPO market.

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