Based on my experience, I can confidently say, that unlike unorganized jewellers, Tanishq doesn’t befool its customers by making money in any of the illegitimate ways.
The beauty about being in investing profession is that your mind is always curious and observing even when you aren’t ‘working’. Any occasion — a family holiday, house renovation or wedding — can effortlessly translate into scuttlebutt (primary research) where you experience so many products and services as a consumer, get to interact with dealers and also get to observe your family and other consumers engaging with those products and brands.
I had one such wonderful experience recently. There was a wedding in my family and like all Indian weddings, it meant shopping jewellery for the couple, relatives, gifting, etc. My family and relatives have been traditionally dealing with two jewellers in our neighborhood who belong to same community (Sindhi) - one of them specializes in gold jewellery and other in diamond studded.
This time my family wasn’t happy with the designs these two stores offered and so they visited six-seven other mom & pop stores only to find none as a good place to buy from.
I was then consulted to suggest a jeweller, and being in stock markets and having read so much praise about it, I instantly suggested Tanishq (India’s leading jewellery brand operated by Titan, a Tata company).
The suggestion was instantly turned down saying it levies a very high making charge (a common perception among masses buying jewellery from traditional/unorganized channel). I had never been to a Tanishq store earlier so I did not want to lose an opportunity to visit. Luckily, I found online that during that time period Tanishq was offering up to 30% discount on the making charges which helped me convince my family to give this place a try.
What transpired next is an amazing set of experiences which I am going to share in this post
We visited a store about three kilometers from our residence – it must be 12,000 square feet spread over four-storey building. There was a 30-minute waiting as the entire store was full. We were made to sit in the lobby and were promptly served refreshments.
The business model of Tanishq is predominantly around ‘making charge’ levied over cost of gold. It varies from 8.5% (on coins) to as high as 35% of the value of gold (on ornaments like necklace or bangles). The quoted rate which we see on financial portals, currently around Rs 32,000, is per 10 grams (equivalent to tola) for 22 karats (a sign of purity, maximum is 24 karat).
So, if you buy an ornament of 20 grams (22 karat), the value of gold will be Rs 32,000 per 10 grams * 2 = Rs 64,000 plus 25% making charge + 3% GST = Rs 82,400. Effectively, the gross margin here is the 25% making charge (Rs 16,000) from which Tanishq has to cover all its craftsmanship, store, employee, promotional and other administrative expenses and keep remainder as net profit.
The unorganized/traditional jewellers may make money in many other ways - some legitimate, some unscrupulous:
1. Their claims regarding their gold’s purity, may not be true and they could very conveniently be selling 18 karat gold at price of 20 or 22 karat, earning the balance 10% or 20% to their pockets, in addition to the ‘low’ making charge they earn from the customers.
2. Similarly, when customers exchange their old gold ornaments, they could pay as per 20 karat even though gold is of 22 karat purity.
3. Further, they deduct 8-10% from the value of exchanged gold. If one were to return the 20 gm gold ornament illustrated above, he would get Rs 57,600 after 10% deduction from gold value (purchased for Rs 82,400). Jeweller can further short-change by paying less based on purity check.
4. They may even peddle this ‘used’ ornament after polishing, to another customer and again earn 10-30% making charge on that same piece.
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