Can Nirav Modi Win New York?

Nirav Modi, chairman of Firestar Diamond, tells me he doesn’t believe in Plan Bs, when I ask him what he would do if his big bet on building a global luxury jewellery brand backfires. The bravado is common to many entrepreneurs, but Modi’s merits particular scrutiny. For starters, this is not the best time to be a jeweller. Luxury retail and gold are in a slump, and the pullback in Chinese consumption is sending shockwaves around the world. Modi’s brand is young, causing his splash overseas—he launched his first store on New York’s Madison Avenue last month in a glitzy ceremony, attended by the family of maverick tycoon and U.S. presidential candidate Donald Trump, among others—to raise eyebrows. Then there’s the shroud of mystery around him. And finally, there are the recent allegations that he violated import-export norms, bringing him under the government’s scanner. Modi, however, thinks little of such distractions. To hear him say it, the only thing that matters is supplying the one missing piece in the $100 billion (Rs 6.64 lakh crore) global jewellery market: an Asian luxury brand with international appeal.

He has the chops to deliver. It’s perilously early for lofty comparisons, but Modi’s ascent—building a Rs 10,000 crore company that employs 1,500 people worldwide—has echoes of British diamond king Laurence Graff’s. A high-school dropout, Graff became a jeweller’s apprentice before launching his own label catering to the top end of the market, and later achieving vertical integration with a stake in a diamond miner and 50-plus stores worldwide. Modi also dropped out of college, and barring mines, has a finger in almost every other piece of the value chain, including wholesale, cutting and polishing, trading, and private label. The big difference: Graff belonged to an immigrant family and saw penurious beginnings. He has burnished his reputation for decades, like the Bulgaris, Cartiers, and Van Cleef & Arpels of the world. Modi, on the other hand, has illustrious family links to the business, as we will see, and at 44, his journey has just begun.

But then, it’s precisely his ability to hold his own against hoary conventions that has made Modi one of the industry’s most exciting names. Nowhere is that trait more evident than in his refusal to peddle Indian exotica, unlike, say, a Gem Palace or an Amrapali, focussing instead on international sensibilities. That means no ethnic, flowery embellishments on his packaging, and no mention of jadau or jhumki in his catalogues. His product lines mostly bear agnostic names: Celestial Collection, Lotus Collection, and so on. Even his new 6,000 sq. ft. store in South Mumbai’s Kala Ghoda art district was designed by Spanish architect Jaime Hayon, and is decked out in white with chic jewellery windows and a private viewing room, shorn of any Indian accent. The books on his shelves: histories of Bulgari, Cartier, and Joel Arthur Rosenthal.

The only hat-tip to desiness is in the colour of his bags and boxes, which come in a vermilion hue reminiscent of the “Mumbai sunset”. But that too is stripped of unnecessary mawkishness: It is the city’s pollution that gives the sunset the unique tinge, he says.

He is also a staunch contrarian in the way he pushes his products. If a Bandra jeweller came across a top-notch 9-carat stone, he would likely send out an SMS to half a dozen Bollywood actresses. Not Modi, who would rather spend a year to design a necklace that complements the stone. Then, he could have taken the franchise route and boosted visibility—a la maternal uncle Mehul Choksi who founded the Rs 11,500 crore Gitanjali Gems—but he chose to own everything and set up shop only in super-luxury locations, even if it meant slower growth.

The fastidiousness has paid off. In 2010, when Vickie Sek, then head of Christie’s Asia jewellery department, examined a necklace that Modi sent her, she was “stunned by the exceptional quality of the centre diamond”. Centering upon a pear-shaped D/IF (perfectly colourless and internally flawless) Golconda diamond weighing 12.29 carats, within a pear-shaped diamond surround, extending to a flexible lattice-work graduated band of rectangular, intense-to-vivid pink diamonds, the necklace not only became the first work by an Indian jeweller to be featured on a Christie’s cover but also went under the hammer for $3.6 million. Modi has also been on a Sotheby’s cover.

With that start, he could have easily become a purveyor of coveted limited-edition pieces, like the other Mumbai-based jeweller Viren Bhagat. But an e-mail from an admirer from Ludhiana nudged him towards an alternate course. “Dear Sir,” it read, “I love your jewellery, but can you make some pieces for the not-so-rich?” Modi says the mail gave him sleepless nights. It also bolstered his plan to let go of the exclusive aura of the “gentleman jeweller receiving clients in the salon”, in order to accommodate the more accessible retail channel. There was also the lure of retail’s fatter margins: 25% and up, compared with 2% in diamond trading, and 8% in wholesale. (Firestar’s overall margins are 3.6%.)

Sometime around 2011, Modi started exploring a mid-level gold jewellery brand priced between Rs 50,000 and Rs 5 lakh. But poor profitability projections scuppered the idea, making way for an ensemble starting at Rs 1.5 lakh for a pendant. The thinking behind the global rollout is to sell pieces priced between that and Rs 20 lakh, which most high-income customers can buy. “My client is someone who owns a Mercedes, an Audi, or a BMW and can buy a jewel from me every year,” Modi says, emphasising it’s not just the Lamborghini or Bentley rider that he’s after.

That opens up the thorny question of brand positioning. In his bid to build a more inclusive business, will Modi end up turning away his elite patrons who pay a premium to see him in his private salon? He says he will eventually redirect them to his new Kala Ghoda store.
A press note on the New York launch, meanwhile, adds that Modi “displayed the renowned Maharani Diamond Necklace and Earrings set, valued at $1.65 million, in the window, setting the stage for the kind of luxury items now available at the boutique. Visitors at the store will discover a full selection of exquisite Nirav Modi designs.”

The New York move will be the sternest test yet of Modi’s retail nous. At one level, it makes complete sense because close to half the world’s polished and cut diamonds are consumed in the U.S. It’s also a hedge against China, West Asia, and India, where Modi plans stores. But equally, the spotlight and competition for attention will be a big shift for someone who has revelled in carefully cultivated obscurity for much of his career.

The first few years he sold his jewellery, most people didn’t even know what Modi looked like, says Gauri Narang Malhotra, a luxury brand manager and jewellery designer. “There has been a sense of mystery around his jewellery because he has taken his time to build his brand the way he likes it,” she points out. Madison Avenue demands a new approach—“a heightened level of sophistication and visibility”, as Gita Mirchandani, owner of brand consultancy Gita & Associates, puts it. This is, after all, the High Church of consumer brands: home to the likes of Dolce & Gabbana, Jaeger-LeCoultre, Ralph Lauren, Gucci, Prada, Hermès, Tom Ford, and Christian Louboutin, as well as revered jewellers such as Kwiat, Chopard, Cartier, and Graff.

John Brash, CEO of London-based brand strategy firm Brash Brands, says: “Just because a brand calls itself luxury doesn’t mean it is [seen that way by customers], and this is truer of new brands.” Angelina Ypma, global president at Nirav Modi, Firestar’s consumer arm, acknowledges the challenge. Ypma, who has worked for Bulgari, Cartier, and Chanel, says the larger luxury players like LVMH Moët Hennessy Louis Vuitton have “relentless waves of brands with cash cows backing them”. So Louis Vuitton is the cash cow, backing up-and-coming stars such as Loro Piana and Celine. For any new brand, let alone an Indian one, jostling with these heavyweights can easily get harrowing.

For one, it will test Modi’s financial resilience. In high jewellery (priced above Rs 25 lakh), the retail inventory cycle can stretch as long as three years in the appointment-based business. That’s almost three times what it is for fine jewellery (between Rs 3 lakh and Rs 25 lakh). “Inventory turns go faster in the West,” says Vipul Ambani, Firestar’s chief financial officer, but it’s still a costly affair when you consider the high rentals ($1.5 million a year for New York), staff salaries, and so on.

Modi admits the strain. “Every time you open a store, you lose money,” he says, adding that he got possession of his New York store in September 2014, and it took him a full year to formally launch. The capex for that store alone is pegged at Rs 25 crore. He hopes to be profitable by year three.

Finally, there’s history. Pankaj Jagawat, managing director of wholesaler Shanti Gold, says, “No Indian brand has succeeded in launching a premium global jewellery brand. The world at large still [swears by] Tiffany, Cartier, and Harry Winston.” The machines to give a superfine finish, the micro-pave diamond touches can all be bought, but ultimately Modi’s fate rests on whether he can fend off his fabled rivals.

To make sense of the risks Modi takes, one has to first understand the man. Located at Kamla Mills in South Mumbai’s Lower Parel commercial neighbourhood, Modi’s 26,000 sq. ft. office is part private art gallery, part modern office space, and the address where his high-profile clients—like Hollywood star Sharon Stone—call on him. Underneath that façade is a soft-spoken man with a knack for punchy rejoinders.

Modi’s grandfather, diamond trader Keshavlal Modi, was among the first generation of Indians to settle in Singapore. His father Deepak Modi shifted to Belgium where he runs a small operation trading diamond roughs. Modi, who attended the Antwerp International School, grew up wanting to be a music conductor. He spent 18 years in Belgium, visiting India from time to time, eventually joining Wharton to major in Japanese and international finance. The goal was to become an investment banker. “If anyone was geared for that sort of white-collar corporate work in the family, it was Nirav,” says his younger brother Neeshal Modi, head of rough diamonds and manufacturing at Firestar.

But he dropped out of Wharton abruptly. This is where the bio begins to get hazy, and it’s clearly a difficult subject for Modi. When I prod him, he only hints that his father’s business took a nosedive and he felt it was his responsibility to come back home and pitch in. His initiation in the business was a decade-long apprenticeship under uncle Choksi, where he got a ringside view of everything, from polishing to retail, before starting Firestar (then Firestone) in 1999.

The company’s first foray was in the humble but cash-rich business of fluting. Fluting in the gems trade refers to the bagging of diamonds according to customer requirement. It couldn’t be done by machines and was a service every player wanted. Modi made some $30 million a year from it. In 2004, revenues crossed Rs 400 crore. Modi says that gave him the thrust he needed to move on to bigger things: manufacturing and distribution.

Almost immediately he began a dizzying acquisition spree in the U.S., presaging his future bets on the market. In 2005, he acquired the wholesale division of Frederick Goldman, a national diamond retailer. Two years later he bought Sandberg & Sikorski, the largest jewellery supplier to the U.S. Armed Forces, and A. Jaffe, a 120-year luxury bridal jewellery label, at a valuation of $50 million. The acquisitions fed his private-label business, supplying to the military, as well as to department stores Costco and JCPenney and jewellery retailer Zales.

There were other early punts that gave away Modi’s aggressive, contrarian streak. Firestar used to buy roughs from the world’s largest miner of diamonds, De Beers. But in 2009, Modi started strengthening ties with the new Russian miner Alrosa. It proved a masterstroke as De Beers’s production dwindled and Alrosa’s increased. Sometime that same year, the Lehman Brothers meltdown shook up corporate America, hitting the diamond business hard. Large stones between 5 carats and 10 carats bore the brunt; prices fell by as much as 40%. Still, they found few buyers as spooked jewellers held back. But Modi, who says he was “very liquid at the time”, jumped in and started snapping up large, high-quality stones wherever he found them.

In particular, his aggression at auctions for “fancies”—the industry term for coloured diamonds—made waves. Argyle, the Australian miner owned by Rio Tinto, conducted two tenders around 2010, one for pink diamonds and one for blue. For the blue stones, Modi says he paid $2 million and bought the consignment without even seeing the stones, recalling how Argyle would keep calling him every two days to make sure he hadn’t changed his mind. For the pink batch, he paid close to $15 million. (Note: pink diamonds are so rare that their entire annual production would barely fill a champagne flute.) There was another stock load of high-quality colourless and yellow diamonds for which he collectively paid $40 million. Once again, the investments paid back in spades, with the value of the pink stones appreciating by some 300% and the whites and yellows by 100%.

During our conversations, Modi indicates that his role in the company now is to evangelise this aggression. “I see myself as a catalyst who comes in and says how do we become 5X or 10X,” he says. He is also big on “empowering people”: 70% of the company reports to Mihir Bhansali, CEO of Firestar Diamond, 20% to Neeshal, and only 10% to Modi himself.

These days, Modi spends three quarters of his time on the Nirav Modi brand. For 20 days in the month, he is on the road scouting new store locations in Macau, Beverly Hills, Hong Kong (where he has his other international boutique), and New York, often supervising designs remotely via a robot. Ambani confirms that Modi is in a hurry to beef up the brand. (Branded sales, including Nirav Modi jewellery, currently account for 5% of total sales.) “He will come to my office and say we need to get to 100 stores fast,” Ambani says, adding that it gives him palpitations because he is still thinking of the next five or 10.

In a sense, Modi's entire career has been a build-up for his global ambitions. Some of his early gigs may have been standard contracting jobs, but for him they were a means to an end: seeing his name light up on Madison Avenue. Neeshal says the overseas focus also makes perfect business sense. “In India, leaving aside taxis, restaurants, and hospitals, people ask for a discount everywhere else.”

Few in the notoriously tight-lipped industry will speak on record (including Choksi, who didn’t respond to my messages), but most agree that Modi’s jewellery have what it takes to wow foreign audiences. The designs have an international hue and the finish is machine-precise, as it would have to be to put together a bangle with over 100 components and 1,300 pave-set diamonds. Everything is GIA-graded (GIA stands for the Gemological Institute of America), and the company only uses D-G (high-colour) and IF-VS (highclarity) diamonds. The stones are sourced from key sourcing offices in Moscow, Antwerp, Johannesburg, and Armenia, designed in Hong Kong under Modi’s sister and the company’s design director Purvi Mehta, cut and polished in Surat, and finally crafted in a state-of-the-art 7,000 sq. ft. factory in Andheri. The pieces use minimal amounts of metal, giving the diamonds maximum exposure.

At the Andheri factory, master craftsman Jeffrey Kantra, a New York native, supervises some 200 employees. He shows me a diamond necklace with several large solitaires embedded in it. “It’s worth about Rs 65 crore,” he says, and I hand it back to him promptly. Kantra says that in New York, he felt like the most beautiful woman in a gay bar, because there was a lack of appreciation for what he could do. That comment got Modi’s attention, who made him an offer to come and set up a factory in India. He says Modi doesn’t let his aggression come in the way of perfection. “Despite his rush to get things done, I can pick up the phone and tell him that I’m not going to send him a piece because it’s not ready, and he’s okay with that.”

That’s all quite hunky dory—except no assessment of Modi’s big-bang plans can be complete without intrigue. Take for instance the swirl of rumours that he was on the verge of bankruptcy in the aftermath of the recession, and that his banks forced him to restructure the company. Then there is the recent investigation by the Department of Revenue Intelligence for alleged diversion of duty-free cut and polished gems and diamonds; reports suggested that the department suspected the firm was misstating the value of imported stones and exported jewellery. There’s also chatter that the Ambanis, India’s richest family known for intricate investments across industries, are backing him.

Modi dismisses the bankruptcy talk as vicious gossip. “My situation with banks is good. It’s rubbish that there are defaults,” he says. “There were rumours of defaults and financial problems when I started in 1999, then in 2009, and again in 2011, but there has never been a single one.” In fact, Modi claims that his credit rating is among the highest in the trade. He’s equally unaffected by news of the financial irregularities. “There was a difference in opinion on the valuation of the diamonds and pearls,” he says. On the Ambani connection, he smiles. It is easy to see how the murmurs would have started: Modi’s parents were friendly with Reliance Industries founder Dhirubhai Ambani, and Vipul, the CFO, is his nephew.

In all of this, what is surprising is how so few people in the tiny diamond community—dominated by a handful of Palanpuri Jains and Marwaris—know Modi personally. “Ask any jeweller in Mumbai if he has met me in the last decade,” Modi challenges me, “and the answer you’ll get is ‘no’.” To make sure it isn’t an exaggeration, I call three jewellery CEOs. Each had an opinion on Modi, but none had met him.

Modi knows that beneath the glamour the jewellery business can be unforgiving. His uncle is a good example—he was once the poster boy of the industry with ambitions to make Gitanjali a world-class luxury retailer, but has since hurtled from one financial crisis to another (see ‘What’s Choksi Smiling about?’ in Fortune India’s October 2013 issue). What will give Modi the best chance to pull off his bold bets?

Sachin Jain, president of Forevermark India, a diamond marketing outfit owned by De Beers, says the first thing would be to focus on “simple opulence”. The large clunky pieces that women would buy and throw into their bank lockers after wearing them twice are passé, Jain says. The other key trend is the popularity of signature pieces and branded jewellery, which account for more than 70% of sales in the high-end jewellery segment. Modi has taken note. So if Bulgari has its B.zero1 collection, and Cartier its Love ring, priced about $1,000, Nirav Modi features pendants at $2,500.

Jackie Manglani, president of luxury lifestyle company Stefano Ricci India, says wooing the West merits its own set of rules. Manglani narrows it to three simple things. First, stay above national politics and don’t get bogged down by country of origin. Equally, don’t deny or underplay foreign roots. Second, avoid promoting personalities, regardless of how tempting a shortcut it may appear, and do not get arrogant at the first glimpses of success. Finally, create an air of aspiration around your products among the American elite. “He’s got to get really famous, influential women he’s not paying money to wear his stuff,” Manglani says.

What are the odds of that happening in a land where Audrey Hepburn and Breakfast at Tiffany’s are often the last word in a woman’s relationship with jewels? A New York-based jeweller visiting Mumbai for the Indian International Jewellery Week says there’s always room for a fresh label that has a different story. In Modi’s case, a brand that allows you to meet the real human being behind it, rare in a world where most storied diamond labels are owned by private equity companies or luxury conglomerates. “After your third Cartier bracelet or necklace, you might be more than willing to try something different,” she says.