After a tough May, are we in for a normalised June?
I think it is a little too early to say that because June itself the lockdowns are lifting. I mean states have been lifting it over a period of time and as you can see. I am in Bangalore and only essential stores are still open. From that perspective it is going to take some time. Our view is that only by the end of June would most of our stores actually get opened up across the country.
Of course, there are other states where we are already open and revenues have started streaming in. We are doing that. But I think only by the end of June would we possibly see most of our stores actually open. Early signs are reasonable, I would say, in terms of customers coming back. But how much of that is because of a pent-up demand is a little too early to say.
In the stores and in the states where the lockdown was not there or has been lifted two weeks ago, have things normalised or are these regional lockdowns also impacting sales and footfall to stores where the COVID impact was not very high?
No, for example the overall impact in the month of May, some of our stores were open but sales were very low because sentiment was poor and people were scared of getting COVID. More importantly we saw a lot of death. This time it was close to family who are close to us. We lost colleagues in Titan and a lot of us have deaths in the family.
This year it is a little different from last year in terms of sentiment. I think it is going to take a little time for people to get back to a sense of normalcy. Having said that, if there is an event which is there like a wedding, people will come and buy if they can and if the stores are open. To that extent there may be some element of pent-up demand, but otherwise sentiment in our view, at least the discretionary part, is clearly going to be a little weak for some time.
Is jewellery one product category where the migration to digital would be very hard?
Yes, that is right, fundamentally because of the ticket size. I mean ticket size is very high particularly if I were to take our own jewellery business. We have Tanishq which has a ticket size of Rs 1,00,000 or more. So, there you would expect the customers and the customer does digitally explore the product through our websites or maybe through video conferencing. All of that is done possibly from a digital site, but the transaction finally gets completed at the store by and large.
Therefore, in high ticket size items you generally think people would come to the store to consummate the transaction whereas in CaratLane, which pretty much started as a digital entity, you would find things are a little different because ticket sizes are lower. Over the last one year we have seen our online sales grow quite substantially. While in CaratLane also we have a lot of brick and mortar stores, we have seen that boost there. But that would still be at far lower ticket sizes and therefore as a category I do not think online sales for jewellery will go up very substantially, though it will keep inching up over the years.
About 30% of gold jewellery in India is hallmarked and with the mandatory guidelines, do you see that coming into effect? Do you expect more market share vis-à-vis unorganised players on the back of this?
Hallmarking is actually effective right now. While the government has given some time for smaller entities and, of course, it is in some districts, but it is not in all the districts. Some 250 districts have hallmarking now applicable and the government has also said there will be no penalties till possibly August. This is the circular that we have all read.
The bigger issue has been that most of the smaller players and the unorganised players are the ones who are lagging behind in getting the hallmarking done. Of course, to some extent the COVID situation also might have impacted them, but larger players like us are ready. The question is therefore what is going to happen over this period. I think because of this wavier of penalties it is likely that the smaller players and unorganised players may continue to sell non-hallmarked gold, but post August that would not be possible.
They are given essentially a few more months to get their act together and that would be an advantage to organised players like us, but it is a short-term thing. I do not think this is going to be a very big game changer. Over a period, we will pretty much have a level-playing field because even as hallmarking would ensure that purity levels in the unorganised trade is much higher, people trust that we also expect gold rates and making charges to go up to make up for the difference in karatage. Overall, we believe hallmarking could be neutral to all of us and to level the playing field in a big way.
How are you looking at trends in July, in jewellery particularly?
Sequentially, July should definitely be better than what we have seen in June so far because most stores would be open. We are assuming that will happen. So sequentially, it should be better. But are we looking at a year-on-year growth against last year? Perhaps not because, as I said, the recovery here from May-hit will take time to get back to a sense of normalcy. We expect it to take a couple of months at least.
We would generally get back to a sense of normalcy in the second half of the year and hopefully from October onwards provided, of course, there is no third wave or disruption due to any other issue like that but otherwise second half we think we should be back to a sense of normalcy.
How do you deal with your fixed cost challenges at this point in time?
We started on this programme last year, well before even the pandemic hit us. We had identified a lot of costs which we should be optimising in any case. That programme was done even before, as I said, the pandemic and finally last year it rolled out very well. A lot of the cost initiatives that were taken forward last year continued this year. They are part of our plans and part of our strategy going forward. From that perspective, a lot of the fixed cost elements we have been focussing on and starting to control.
Last year we did get some waivers on rentals because our stores were shut. This year we may get some of that. We may not be pushing it so much this year because the disruption is not as extensive as it was last year. To that extent, we will have some waivers coming in. Secondly, we have to also deal with this situation because you never know when this is going to happen and we look at multiple stakeholder perspective. In Titan we say that our vendors and franchises and everybody else that we do business with also should go along well during this pandemic. We therefore support them. We give them grants. We give them loans. We ensure that their businesses also sustain.
From that perspective I think it is a question of give and take here and we did it quite well last year. The amount of goodwill that you get from something like that is amazing and you recover much faster than you would otherwise have recovered. Those initiatives will continue this year as well and I am hoping that we get back to a sense of normalcy quickly. The biggest advantage this year is the vaccination with the momentum picking up, we think by September, October a sizable population, at least adult population, would have got at least one vaccine and that should possibly be the game changer this year.
How different do you think the festival season will be this year from the last? Do you expect W-shaped recovery?
You are right, last year we did get a V-shaped recovery; it was pretty fast. We came back very quickly. By the third quarter – the Diwali quarter – we were actually growing last year as a division. We were growing at a company level also. This year I think we will grow, but only in the second half. The second quarter which is your July-September quarter maybe a little flattish, it may not grow as fast as it did last year and this is coming only from the perspective that we have seen too much of pain this year.
There has been a lot of death. I think the sentiment could be low. I may be wrong because early indicators in June are fairly decent, but we do not know how much of that is just pure pent-up demand for weddings and so on. Overall, I think sentiment may be a little weak at least for the next two-three months till people get vaccinated and things start getting back to a sense of normalcy. If that were the case, I think Diwali season this year could be as good as it was last year.