Titan keeps winning

From watches to jewellery to accessories to eye care, Titan Industries keeps evolving successfully.

When Titan Industries began life 22 years ago as Titan Watches, it saw before itself a single formidable challenge — a dominant public sector watch maker which had become a household name. Today, Titan is the dominant player in watches in India with an over 60 per cent share of the organised watch market.

For any ambitious company this would have been achievement enough. But Titan in the last decade has gone on to become the number one player in jewellery also, with a 40 per cent share of the branded jewellery market. Scoring a double first would have been exceptional by the standards of even exceptional companies, but this has not been enough for Titan. It has in the last four years successively entered the sunglasses and prescription glasses market and has become the first in the former and the second in the latter.

Even this does not appear to have taken Titan’s breath away as there is one more item to add to its list of achievements. The company, which began as a manufacturer, has over the years become the country’s number one speciality retailer with nearly 500 exclusive outlets taking up 600,000 square feet of floor space and doing an annual business of over Rs 3,000 crore (in terms of what the customer pays) through its own or exclusive franchisee outlets.

Today, Titan straddles the entire value chain encompassing design, manufacture, distribution and customer-facing sale. What is more, in keeping with the foremost global firms which see the maximum value in brands, intellectual property and processes, outsourcing has come to play a significant role for it. Titan still remains an integrated manufacturer — the way it began in watches — but now outsourcing plays an important role in Tanishq jewellery, and the entire Fastrack range of accessories is outsourced.

Being the first in various fields has come to Titan almost by default as it has virtually created the field itself. There was no organised jewellery business of any consequence in the country before Titan. It is now the only brand with a truly national footprint, with the rest of the organised sector being made up of local or regional brands or players who are just in metros. Similarly, there was no organsied Indian player of any consequence in the sunglasses business before Titan entered the space. And now, in the eye care business, Titan’s entry has livened things up and there is keen competition.

Where it has not been the first to enter, as in large-scale watch making where HMT had come long before, it has changed the rules of the game. With its strong design content right from day one, it has made watches do more than just keep the time. They have become accessories and fashion statements and touched the subconscious of the consumer by saying about him more than what he is, helping him state what he wants to be. Encapsulating all this in a single phrase — Titan says that it helps the customer “be more”.

In watches, Titan first started with its design, manufacturing, marketing and distribution operations and working through dealers. But it soon realised, recalls managing director Bhaskar Bhat, it has good products and very good advertising but there was something lacking through letting the last leg of the journey to the customer be done by others. While advertisement creates the brand awareness, it is through the quality of the retail experience that the impact can be maximised. The retailing initiative was born out of the desire to set some standards in customer interface through their own stores and franchises which would show how to sell in a good environment.

Perhaps even more important, “retailing was a learning process. It helped us keep our ears to the ground and enabled us to notice trends earlier than others through our proximity to the customer.” And the final bonus that has come from aggressive entry into retailing is to capture a higher portion of profit from the entire value chain. According to Bhat, 75 per cent of the company’s profit before tax comes from marketing and distribution.

This invaluable lesson which was learnt through retailing watches led to the next line of business, jewellery (through the Tanishq brand), which is a quintessential retail business.

The only major country in the world where jewellery is sold somewhat as a commodity in an impersonal sort of way is the US. Elsewhere, and in particular, India where heavy and ornate jewellery is a part of its cultural heritage, captured in innumerable sculptures, buying jewellery is a personal experience which people look for as much as the actual items themselves. Additionally, as the integrity of the gold Titan is selling is an important part of its message, a retail presence is essential to eliminate the chance of counterfeiting.

Emboldened, as it were, by its success in jewellery — its revenue is way ahead of watches though the margin is greater in timekeeping — Titan has in the last few years embarked on eyewear, eye care and most recently accessories. Fastrack first began as a line of watches targeting the young and about four years ago came the range of sunglasses which took a further step in developing a “cool” youth brand. Having got close to the customer, Titan, it seems, wants get even closer and two years ago has come the Titan Eye+ showrooms that test the eyes (offer optometry through staff trained by Shankar Netralaya), sell frames, deliver prescription glasses and, of course, sell sunglasses too. And on the horizon is Fastrack stores which will sell a range of accessories like wallets, belts and laptop covers.

Fastrack is the newest milestone in Titan’s journey to offer contemporary design to get away from looks that seemed to have been frozen in time and fit for the not-so-young. It first made watches stylish, embodying both the heritage and avant garde look, then it created the Tanishq range that took the traditional design base, lightened it up and made it look elegant and thereafter in sunglasses, it has created something which is entirely for the young. In keeping with the machismo that the young want to flaunt, the Fastrack range of watches has adopted the army look to convey both power and style. This process is making Titan an increasingly accessories company.

“We need to transform the market, the same way we did when we got into watches. We want to bring in style, make eyewear a fashion accessory. This ties in with Titan being in the fashion space,” says S Ravi Kant, chief operating officer, eyewear business. The same sentiment is expressed by C K Venkataraman who emphasises that the Tanishq jewellery “offers not just quality and purity but also a more modern brand, a 21st century brand. There is a fair amount of fusion which grafts modern aesthetics on traditional form.”

Titan Industries is obviously getting it right because it is currently doing very well at the market place. In two years, turnover has more than doubled from Rs 1,481 crore in 2005-06 to Rs 3,041 crore in 2007-08 and net profit by similar magnitude to Rs 150 crore. In the current year, it expects the topline to grow by 33 per cent to Rs 4,000 crore-plus and the bottomline likewise. While this was the projection in December in a presentation to analysts, there has been a national economic slowdown.

What is interesting is how this has affected Titan. Jewellery sales, which now accounts for two-thirds of the topline, are likely to rise in the last quarter of the current financial year by 20-25 per cent, compared to 40 per cent in the first three quarters. These have been particularly hit by the rise in the price of gold by around 25 per cent in the last three months. In watches, the growth momentum may have lost 3-4 percentage points from the earlier level to reach 14-15 per cent during the October to February period.

Thus, at a time when many sectors are contemplating a decline to marginal growth, Titan has slowed down just a little. Harish Bhat, chief operating officer for watches, offers a nuanced explanation based on the psychological profile of the consumer. There is a “recession psychosis” but also the “lipstick effect” — wanting to look and feel happy and bright simply to beat the downbeat mood. The beneficiary in this is the lower budget items of discretionary spend like a watch or a shirt, when you cannot afford a new car or a posher apartment.

Titan has been a great success as a brand almost from day one and carried it right through, with both Titan and Tanishq being the most admired brands in India in the last four years. But this has not always been reflected in the bottomline. In particular, the earlier years of this decade were marked by substantial write-offs having to be made for the losses incurred in trying to develop and market a watch for Europe.

The downside of this was, however, compensated by the whole exercise turning out to be an invaluable learning experience, which prepared the company for the challenge from foreign brands that came in after the economic liberalisation of the 1990s. By besting the foreign competition, Titan stands out against the decline and fall of many Indian consumer electronics brands, most notably BPL (also Bangalore based), which in the 1980s and 1990s was a highly successful brand.

After the provisioning ended, Titan’s net margin has picked up but still remains low at 5 per cent compared to many other industries. But it is able to compensate this by managing to run on very low capital requirements. Franchisees and outsourced manufacturers bring in their capital, thus allowing Titan to post a high return on capital employed of over 50 per cent. This, plus the long-term prospects of the company, have enabled it to enjoy substantial investor support as reflected in its price-earnings ratio, which is consistently ahead of the market.

Investor support makes for a bright future, but for that to be delivered, two areas need long-term attention. Harish Bijoor, CEO of Harish Bijoor Consults, endorses the perception of Titan as the force that opened up the watch market in India by introducing differentiation — taking watches beyond timekeeping to making them a fashion accessory, and also introducing watches for people at all levels. It has also achieved brand extension in a seamless manner from watches to jewellery to eyewear to eye care. “This seamless movement from one accessory to another has made the mega brand ubiquitous and solidly successful.”

He also points to one challenge ahead — in the functional area of timekeeping. “With digital time display in more and more gadgets from the cell phone to the car, the timekeeping role may become redundant. You will need a watch less and less to find out the time. So for watches to survive, their fashion quotient will have to become predominant.” Titan has to remember that “timekeeping can go out of fashion but fashion will never go out of fashion.”

The second challenge before Titan is to do a Nano, announce the equivalent of a Rs 1-lakh car in watches. This is because the future of mass-producing consumer goods industries will lie in emerging economies such as India where the challenge will be to meet the need for branded, reliable products that are affordable to those emerging out of poverty at the bottom of the pyramid. Harish Bhat agrees that the challenge is “to take the watch to the same level in rural India that has been achieved by the transistor radio and now the cell phone.”

In a period of rapidly rising per capita incomes, Titan has been steadily bringing down the price of entry level watches, thus making them affordable to larger and large numbers. Its cheapest watch in 2006 was priced at Rs 495, in 2007 at Rs 395 and in 2008 at Rs 275. The challenge of lopping off Rs 100 at every step on a falling base gets bigger. Titan has not yet announced the Rs-100 watch but is moving fast in that direction.