Mktg - Interview Titan Head

Fifty-three-year-old Bhaskar Bhat, Titan Industries’ dapper Managing Director, has been with the company virtually since inception in 1986. Along with the company’s erstwhile legendary founding Managing Director, Xerxes Desai, Bhat had moved from Tata Press for the initial spadework on the watches-to-jewellery maker and now eye wear retailer. Having seen the company transition from its initial success to a difficult time in the early part of this decade, Bhat says Titan, a joint venture between the Tamil Nadu Industrial Development Corporation and the Tatas, is on a strong wicket now and is ideally positioned to take advantage of the huge demographic and lifestyle changes the country is undergoing. BrandLine stopped Bhat’s watch for an hour in his busy day for a candid overview of the company’s plans and the direction it is taking. Excerpts:
There was a time in the early part of this decade when Titan seemed to be in a state of stasis. Foreign brands were entering at a quick pace but there didn’t seem to be much innovation coming out of Titan. Observers thought it was time up for Titan. You were also saddled with huge losses from your European ‘mis-adventure’. How did Titan bounce back?
For our European business we had committed to a 11-country launch; costs were high while our products too were not easily accepted, primarily because of the country of origin issue. Then in 2000-01 because of the problems of profitability we had cut back on innovation and brand investments and that was when the brand began to drift. The fundamental assumption we made was that these foreign brands will develop the market and we will ride the wave because we are a dominant brand. That doesn’t really work; when you are in the driver’s seat you have to drive, you can’t let somebody else do the job. I think we abdicated a bit at that time. Fortunately, the result was not too harsh because the competition truly was rather inept. Global brands can’t struggle for ten years and end up with 1.5 lakh watches sales a year unless for strategic reasons you occupy the high ground.
When did the process of course correction start?
In 2002, the year we had to revisit our entire fundamental operating principles. We had a high wage island in Hosur (where Titan’s main factory is located), high interest costs, high debt equity ratio and a flagging Titan brand while the jewellery business too was not making money — Tanishq was just out of the red, it didn’t make money for seven years.
Then we did a cost compression, engaged McKinsey and developed a very focused approach on improving business performance, which is the sheer matrix of the business. But we were clear that we should not cut back on two things — one is investment in brands and investment in employees. If you see, during that period nobody jumped ship. Our people made the big difference.
In today’s market with raging inflation, do you see an impact on the brand and consumer spends?
There is no question about impact on consumer — they are affected, how much that impacts your brand is the next thing. If your brands are strong, and strength to me means not just brand image, but a desire to acquire, we’ve got to generate demand, with an increased pace of new product introduction that creates desire for consumers to own a Titan. The second is providing access by opening more stores. Are we better than the next shirt guy, the shoe guy or the wellness clinic? I’ve got three stores around Indira Nagar (a shopping and residential district of Bangalore), so we’ve got to catch the consumer somewhere. This (store network) is helping today.
Gold prices have been volatile, how has that affected the Tanishq brand?
While the market has dropped by 50 per cent in plain gold jewellery the decline is only 4 per cent in Tanishq and we have grown in top line and margins. When prices were $970 a troy ounce it was a difficult price but it’s coming down. The gold prices are passed on to the consumer, and because of the high prices there has been a 50 per cent decline in (purchase of) plain gold jewellery. However, our diamond jewellery has seen 28 per cent growth in this quarter.
While the Tanishq brand is twice the size of Titan, the margins are still low … do you intend to correct that?
Correction is a gradual process, we can’t transform the market from plain gold to diamond jewellery, margins are better now. We are investing in diamond jewellery growth; our return on capital (ROC) is very high at 60 per cent; in watches and jewellery ROC is the same and the potential is much bigger.
What about your other businesses, in precision components manufacturing and eyewear?
In precision components we have an order book far higher than last year; we will cover this year’s target. It’s small still — Rs 56 crore out of Rs 3,000 crore; this year it will be about Rs 85-100 crore. We should have been about Rs 225 crore, by now but we are two years behind because of the processes in that industry. We are supplying to the aero space and automation business; word has to spread since it’s an industry application, we need to have feet on the street and tell people that we can deliver solutions. It’s not yet making money. In eyewear we will be about Rs 50 crore this year. We have 20 stores and should have 80 stores or so by the year end.
While you seem to have a watch for every segment how come Titan is not looking at the kids’ segment?
We are exploring, we had a brand called Dash; at that time it was still not making money but potential for sale was there and that window was not going to close. Not that someone could come and dominate the market. We postponed it but now people are willing to spend a decent amount on kids — this year will see a kids’ brand.
Would you look at tapping clients from outside for your design studio, to leverage your design strengths?
We could, but frankly speaking, our effort even today is to be able to bring out exceptionally good designs for the Titan stable and deliver it on time. However, the opportunity is there to go out. You won’t see it happen this year, perhaps next year or the year after.
Would you say that Titan today is rightly poised to take advantage of changing demographics?
Completely ... if there is any company that can take advantage of that it is Titan. We have a youth brand, we will soon have a children’s brand, we are in the mass market with Sonata, we have a women’s-only brand in Raga, mid-market with Titan and high-end Xylys, and we are fantastically distributed. We appeal to the Indian habit or Indian way of dealing with products providing them very good after sales-service. The importance of this is not known, this is a below-the-watermark kind of advantage — other brands don’t have the access points such as Titan. We don’t gyp people or cream the market.
You feel the foreign challenge will be restricted only to the top end?
I think so. You see, no one wants to come into the Titan space. It’s too difficult to emulate the Titan network and the width of offering — it’s very tough. Below Titan the margins don’t afford, above Titan it makes sense. Between Sonata and Titan we dominate in the Rs 1,000 to Rs 10,000 watches market.
You already retail licensed brands such as Tommy and Hugo Boss. Any more in the pipeline?
We may bring in a couple more — that’s to complement our range — pure play retail, buy and sell. It’s doing very well for us. We don’t have space in the store, so we may have only a few more. We don’t want to be unfair to the brands. We have been talking to Lacoste, D&G, but nothing is finalised. Not a clear yes yet.
Looking at your numbers you have shown strong revenue growth despite costs going up...?
It’s our access and brand strength. Despite inflation if you look at the individual customers they are so widely spread — if we were present only in the cities perhaps we would have got hit more. We are in 60 towns and jewellery is so intrinsic to our culture that during festivals people will buy. While jewellery contributes 70 per cent to revenues profits are almost equal between watches and jewellery.
What would you say are Titan’s strengths and weaknesses, and what are the opportunities you can look at?
Our strength today is our combination of owned brands and retail; we earn profits on account of being in the retail space which is booming but we are doing it our way because we own our brands, so we get the benefit of both. And, we manufacture our own products so we get a manufacturing margin which retailers don’t. We are highly risk diversified, even in our distribution the business model is of franchising and as a company too we are in multiple businesses.
I would say our balance sheet is a weakness. Opportunities are huge. While we are an India-centric company, and that is a strength, it is also a weakness as we are not sufficiently globalised. Our success in a way is a threat; we dominate the market, the number two brand is minuscule so we are likely to get complacent. The other problem is that we attract competition; people look at the extraordinary multiple that Titan is getting and see our margins, and everybody wants to get into the act. The moment we get into eyewear everyone wants to get into the business. Overall our biggest strength is our extraordinarily committed people and their talent