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Bringing Diamond Jewelry to India’s Masses

Q&A with Mithun Sacheti, CEO of Carat Lane

Mar 22, 2015 3:39 AM   By Ronen Shnidman
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RAPAPORT... Carat Lane is a start-up retailer in India focused on selling diamond jewelry, primarily online. The company raised $31 million from Tiger Global, an early investor and venture capital fund, in its fourth round of funding that ended in January 2015. Titan Jewellery, a major Indian jeweler, is also rumored to be in talks to purchase a significant stake in the company. Mithun Sacheti, co-founder and CEO of Carat Lane, recently spoke with Rapaport News about what motivated him to establish Carat Lane and how online retail can bring diamond jewelry to India’s masses:

Rapaport News: How did you decide to go into selling diamond jewelry online?

MS: I grew up in Mumbai where my father has a jewelry store. My family owns Jaipur Gems, which manufactures high-end jewelry that is sold in our own retail stores.

After I received gemology training, I moved to South India to open a Jaipur Gems store there. I opened a second Jaipur Gems store in South India in 2007, but it had taken me seven years to reach that goal. I saw that if we kept expanding the traditional way it might take 15 years to build the next six stores. That was way too slow for me.

We saw the online jewelry retail market develop in the U.S., so we thought we might be able to use the Internet to run a better distribution system in India. We decided to find a way to sell jewelry and diamond solitaires online. It was an obvious bet to make given the growing internet-savvy younger generation in India.
The other trend I noticed was that until the mid-2000s, the diamond jewelry business in India was focused on selling to upper middle class and wealthy customers that make up the top 5 percent of the population. All of the stores and diamond jewelry brands were marketing toward that demographic and were aggressively promoting bridal diamond jewelry in particular.

In the U.S., jewelry brands advertise and sell across a wide spectrum of price points. There is something for everyone in the U.S., while diamond jewelry in India is very elitist. At Carat Lane, we provide jewelry at a price point that is very different from what the Indian customer was used to before we started the company.

RN: What is the size of the domestic jewelry market in India?

MS: The estimated size of the domestic jewelry and bullion market in India is somewhere between $30 billion and $40 billion. About 70 percent of this consists of gold jewelry and gold bullion sales.

In terms of Carat Lane, if even 1 percent of the market will be willing to buy jewelry online, that means potential online annual jewelry sales of $400 million. If that figure were to reach 10 percent, it would translate into an online jewelry market that generates around $4 billion per year in sales. The market is growing but it’s still small as online sales of fashion and fine jewelry combined are expected to reach $150 million in 2015, while last year it was $125 million. In 2013 it was not even $2 million. This part of the jewelry market is exploding.

RN: Why focus on selling diamond jewelry online in India if gold jewelry has a much larger share of the market?

MS: We made an important strategic decision early on to focus Carat Lane on diamond jewelry and not chase the larger gold jewelry market.

We chose diamond jewelry because India is becoming more and more Americanized. The middle class jobs that are growing rapidly in India are IT-based and in every aspect of life we have a lot of technology. Our clothing is also becoming a lot more westernized, which we believe means that India’s jewelry requirements are also going to become more westernized.

When you manufacture Western-style jewelry you can create jewelry at a wider variety of price points than you can with Indian bridal jewelry, where the potential for online sales is limited. I think that most Indian people will still only buy bridal jewelry in a store and not on the Internet.

RN: How is Carat Lane different from U.S. online retailers?

MS: What distinguishes us from some U.S. etailers is that we do not utilize a drop-shipment model, where a third-party supplier ships directly to the end consumer.

We manufacture close to 80 percent of the jewelry we sell. We procure the raw materials to create our jewelry, including gold in different purities and diamonds in various sizes, colors and clarities. Our factory works on a just-in-time manufacturing model to minimize the amount of finished jewelry we have to hold in inventory. The amount of inventory we hold is roughly equivalent to 5 percent of our total turnover.

In addition, if you look at diamond jewelry etailers in the U.S., their product mix is heavily weighted toward solitaires, even though diamond jewelry is a business with much healthier margins. As a result, their profit margins are very thin. In 2010-2011, we saw that we were going to run into the same problem as these U.S. companies, so we switched our model so that solitaires comprise 30 percent of our business and jewelry makes up the remaining 70 percent.

The jewelry business is not a business that you can run at a loss. You need to make money by the second transaction. If you follow that principle, you are pretty certain to make money in the long run. At Carat Lane we are fairly confident that when we are about five times our current size we will have a profit margin between 7 percent and 8 percent.

RN: Who is Carat Lane’s target demographic and what is your average price range?

MS: Our core customers are forward-thinking people, who typically shop for other retail goods online as well. They are working professionals who have never been tied to the concept of a family jeweler, but have always had an interest in jewelry.

If you look a bit closer at the demographic breakdown, 70 percent of our shoppers are women and 30 percent are men. With our jewelry offerings in particular, we are targeting working women between the ages of 30 and 45, although in reality they could be younger or older. These are women who like to wear jewelry often in their everyday life, not just for weddings, and they are pleasantly surprised by our price points, which are typically between $300 and $600.

In terms of our solitaire sales, we have a vision to democratize the concept of a diamond engagement ring in India. India may be the global center of diamond polishing, but to this day, very few Indian men buy diamond engagement or wedding rings. Part of the reason is because diamond rings are out of reach for Indians earning an average wage. We want to change that.

In the U.S., the rule of thumb is that an engagement ring should cost the equivalent of two months’ salary. We believe the same rule of thumb should apply in India. Until now, diamond solitaires in India was really targeted toward people earning more than $2,000 per month. But if the average Indian salary is $1,600 (INR 100,000) per year, then we need to offer solitaire products that cost between $250 and $500 to appeal to most Indians. In order to reach that price point we decided to expand our range of solitaire sizes to 0.25-carat and up, rather than our initial model of starting at 0.50-carat sizes.

RN: Do you expect foreign online jewelry retailers to try to penetrate the Indian market in the near future?

MS: I don’t expect any of them to try because they have yet to reach their potential in their own home markets.

The jewelry retail brands have become really strong online over the past couple of years. The amount of online orders processed by Helzberg, Zales and the entire Signet group, is far outpacing what the pure online companies are doing. But if these omni-channel companies come to India they will establish a full presence here and not just an online one. I don’t think they view India as an opportunity right now for the same reason that American diamond merchants do not enter India to set up shop. They know they will never see the margins in India required to maintain their operations.

RN: What is your plan for the near future? Do you anticipate expanding outside India?

MS: We have three sales channels that we are developing: online, which we have been discussing, try-at-home shopping and our brick-and-mortar stores.

Our try-at-home sales channel appeals to consumers who would rather buy something in the comfort of their own home than drive to a store. In India, because of the traffic congestion in most major cities, this is a potentially large segment of consumers.

For this channel, we have a sample line for every product that we sell. You can use the sample line to select any five products and a well-trained salesman will come and display those products to you for purchase. We were the first to launch this sales channel for jewelry in India, but I am sure others will also adopt it.

Regarding our brick-and-mortar sales, we already have five physical stores. They are very different from the typical Indian jewelry store, which tend to be very large, with a guard and an usher who walks you in. They are elitist by nature. Our stores are designed for the customer who walks into a mall or a duty-free shop. There is no glass and you can walk right up to the products. You can touch, feel and play with the jewelry.

It's more inviting than what the retail store environment currently is in India and our stores are already doing very well.

Altogether, India is a very large market in which we can grow. We anticipate that Carat Lane can grow into a business with annual sales of $400 million per year and we have a plan to reach that scale in India in the next four years.
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Tags: Carat Lane, CaratLane, e-tail, India, Mithu Sacheti, online retail, Ronen Shnidman
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