How Velvetcase is Mining India’s Passion for Gold

This interview was published in Management Briefs, Case Spotlight section, ISBInsight, on December 24, 2018

http://isbinsight.isb.edu/how-velvetcase-is-mining-indias-passion-for-gold/

Velvetcase, a made-to-order jewellery company in Mumbai, is disrupting the manner in which India satisfies its voracious appetite for gold. ISBInsight talked to Dr Nupur Pavan Bang about the managerial takeaways and her experience in co-authoring the case with Professor Kurian Vikram.

ISBInsight: What was unique about VelvetCase, a made-to-order fine jewellery company, that got you interested in writing a case on them?

Dr Nupur Pavan Bang: Traditionally, people go to the jewellery store or the local jeweller with whom they are comfortable. They look at the pieces that are available in the store and buy the product. On the other hand, VelvetCase decided to make customised designs for people within their budget. They allowed customers to design the jewellery themselves.

Second, the value of the jewellery is so high, people would not traditionally buy jewellery online. But VelvetCase tried to change that mindset. Finally, in 2013, the Indian Government had raised the import duty on gold from 4% to 10% during the year. Gold prices were very high, contributing to India’s high current account deficit (CAD). VelvetCase promoter Mr. Kapil Hetamsaria had a good proposition where popularising low karat gold would help bring down the CAD to some extent while also catering to the Indian market’s love for jewellery.

VelvetCase, given that their offering was different from traditional jewellery stores, had their task cut out to change consumer mindset about purchasing low karat gold. Could you share some details about their business model?

In jewellery stores, the business model is generally “product forward,” enabling the customers to choose from the pieces already at the store. But in VelvetCase, it is a consumer backed business model. 

VelvetCase wanted customers to wear jewellery that will suit their personal style. VelvetCase also had the first mover advantage in the online jewellery website sector. In India, the closest competitor was Caratlane, a Tanishq partner. But the other online portals did not offer much customisation.

VelvetCase went a step further and had a team speak to the customer to understand the purpose of jewellery purchase. For example, a customer wanted to buy a solitaire but was sceptical about the resale value.

The VelvetCase team advised her to not make the purchase only for resale as a solitaire’s value is derived from wearing it for daily use and not for re-sale purposes. VelvetCase worked closely with the customer to understand the purchase objective.

Customers could not physically try on the inventory in an online store. Therefore, VelvetCase first built mechanisms to evoke strong trust from the customers, such as 100% certified products from internationally reputed third-party labs and a 30-day return policy. Due to this, they not only increased their customer base but also had a 40% return customer base.

They created an augmented reality feature so that buyers could try on high value products. For example, to buy a ring, you could take a picture of your hand and upload it on the online platform, the ring would then come up on the finger with the help of augmented reality.
The use of cutting-edge technology and high imaging made this possible. A product video on the website demonstrated how a customised completed design would look on the customer. And there was great breath of product design, with over 200 designers working with VelvetCase.

A final factor was VelvetCase’s global reach, with English and Hindi interaction options and prices listed in Indian rupee and US dollars. To date, they offer services in US, UK, Singapore and India.

What are the unique features of the demand for gold in India that make it the largest consumer of gold in the world?

In India, gold as an asset class ranks much lower in the reasons why people buy gold. One main reason why people buy gold is for weddings or for religious purposes. Gold is considered an auspicious metal and a symbol of religious purity. In Hindu tradition, it is recommended to wear gold on certain occasions such as Dhanteras. Even if the price of gold goes up, people do not compromise on buying gold jewellery on these festivals.

Second, Indian marriages are great demand drivers for gold jewellery. From as early as the birth of a child, parents start collecting jewellery for the eventual marriage of the child. If it’s a boy, then it will be for the would-be daughter-in-law. Parents hold jewellery as a form of economic security they are giving to the child. It is considered as a last resort in terms of personal financial crisis. Also, it reflects economic status.

What inferences arose from the case with regards to gold as an asset?

Gold is an asset class because it is a global currency. You can buy and sell gold in any part of the world without losing its value. Historically, gold has given good returns to the investors. It is also seen as a good hedge against inflation.

In India, almost 70% of the gold demand is in the rural markets. In these markets, it is very important to have an asset that can be easily sold or mortgaged to take care of urgent needs such as healthcare or buying irrigation equipment. 

In such cases, gold acts as an easily convertible asset into cash. You can find a pawnbroker in any corner of the country, even the remotest of regions. This option gives people an ability to finance their needs in an emergency.

However, VelvetCase is still struggling with the rural market. There are a few challenges here. One, availability of technology: almost everyone in India has a mobile phone, but they may not have access to a smart phone or high-speed Internet which will help them to use the features like augmented reality. Second, the mindset: it is easier to convince an urban buyer to go online and buy jewellery of high-value.

But it is very difficult to convince a rural buyer, who may not even shop on Amazon or Flipkart, to buy a piece of jewellery online. The touch and feel mindset may still exist. Third, the supply chain: while the delivery logistics might be well-developed in the urban areas and Tier 2 or Tier 3 cities, they may not be well developed in remote places. Given that these are very high value transactions, the products cannot be sent by any courier.

One conclusion arising from class discussions was that VelvetCase should tap into the rural market in the future to increase their revenues, as they want to reach their target of USD 100 million (approximately INR 7 billion) in the next couple of years.

Could you discuss this case’s relevance for business practitioners, whether from an online retail, investment or consumer psychology perspective?

There is a huge consumer mindset change already being witnessed. Previously, people would not even buy vegetables without feeling them. Today, they are willing to buy vegetables online apart from books, clothes and electronics. It is just a matter of time before more people start to believe in buying jewellery online too.

VelvetCase offers a reasonable price comparison to brick-and-mortar stores as they do not carry any inventory. They customise jewellery based on orders and import gold, gems and other jewellery components accordingly. They do not have the expenses of a brick-and-mortar store. Hence, they can sell jewellery at a more reasonable price.

Plus, they take care of the trust factor through certification, a lifelong exchange policy and 30-day return policy with no questions asked. With these features, it is just a matter of time before people start exploring and buying higher priced jewellery more frequently on the online marketplace. So, this is a trend worth noting. 

Especially if you look at the segment of working women between the age group of 23-45, they may not have time to go to different stores and try out pieces. They might prefer going online to a portal like a VelvetCase where the piece comes home, and they can return it if they don’t like it.

What were the unexpected takeaways in classroom discussions of this case study?

One common question was about funding. Kapil Hetamsaria is an entrepreneur and the idea that he had in 2012 was very new. The students wanted to know how he funded the startup. Initially Kapil Hetamsaria and Runit Shah, the co-founders, started with their own savings. They were able to get some funding subsequently. They raised about USD 1.1 million (approximately INR 70 million) in November 2014 and later in the second round of funding they got USD 1.5 million (approximately INR 105 million).

Students were also interested to know about high-ticket jewellery sales. It is one thing to buy jewellery worth INR 10,000 or INR 8,000 online. However, it is unheard of that customers would shop for their entire wedding jewellery online. VelvetCase actually made a record of sorts when they received and delivered a single order of ₹1.42 billion. The students found that quite unbelievable.

With innovation and persistence comes recognition. Due to the innovative business model and a laser focused approach towards customer satisfaction, VelvetCase is building a profitable, scalable and capital efficient business for the long term.

The company has been awarded as the “best ecommerce company in jewellery” three years in a row by India’s largest trade body – the Gems & Jewellery Export Promotion Council, Government of India (GJEPC). The large, fragmented jewellery industry is ripe for change with entrepreneurs like Kapil Hetamsaria leading the charge driven by technology.

About the Writer: 

Nikhila Chigurupati is a Content Associate at the Centre for Learning and Management Practice at ISB.

About the Case:  

Bang, N.P., Singh, P., Kuriyan, V, 2014. India’s Passion for Gold: VelvetCase. Indian School of Business case. Harvard Business Publishing. Available at: https://www.isb.edu/research/cases/indias-passion-gold-velvetcase

Standalone Family Firms Lead on Gender Parity

This article was first published by ISBInsight on December 14, 2018; Co-authors: Nupur Pavan Bang, Kavil Ramachandran, Anierudh Vishwanathan and Raveendra Chittoor

http://isbinsight.isb.edu/standalone-family-firms-lead-the-path-to-gender-parity/

Canadian Prime Minister Justin Trudeau declared at the 2018 World Economic Forum at Davos, that “time’s up” for gender inequality¹. His remark has bearings for the global community. 

At 130 out of 160 countries, India has one of the worst Gender Inequality Index ranks for a large emerging economy, according to the United Nations Development Programme report². It needs to take gender very seriously to realise the full potential of the country.

Now Indian women are making their mark in business (Kiran Mazumdar Shaw, Nisaba Godrej), politics (Nirmala Sitharaman, Sushma Swaraj), sports (P V Sindhu, Dipika Pallikal), as well as in science (Tessy Thomas, Priyamvada Natarajan) like never before. Yet, gender inequality is the hard fact with women faring poorly in all walks of life, from healthcare to education to economic participation.

Apart from changing mindsets to welcome the involvement of women in businesses, the enforcement of the Companies Act (2013) has ensured greater gender diversity in the boards of listed firms in India.
 As the immediate impact of this regulation, requiring every listed company to appoint at least one woman director to their board, the percentage of women directors on National Stock Exchange (NSE)- listed firms went up from 5.5% in 2014 to 12.6% in 2015 and 14.3% in 2017 (Table 1).

Table 1: Percentage of Female Directors – All firms

	2013	2014	2015	2016	2017
% Women directors	4.9%	5.5%	12.6%	13.7%	14.3%

Source: Authors’ calculations based on data from Prime Database

Diversity is often seen as a way to infuse novelty into the strategic decisions taken by the board. Research has found that gender diverse firms are more sensitive to their stock performance, thereby resulting in better shareholder value. They have more intense discussions and better monitoring and oversight³.

Women Directors in India

Governance in family firms is considered to be a black box by many analysts and investors. The independent directors’ role is thought to be more ceremonial in nature. Yet, the quality of the Board of Directors is an important characteristic of a well-governed firm.

Given this perception, we analysed 1,284 NSE listed firms for the three-year period, 2013 to 2017 to find out the specifics of women directors being appointed by family firms. We found that contrary to the general belief, the family firms were quick to meet the requirements of the Act (Table 2).

Heterogeneity within family firms was captured through the analysis of Standalone Family Firms (SFFs) separately from that of the Family Business Group affiliated Firms (FBGFs). FBGFs are firms that are parts of a group of firms owned and controlled by a family⁴.

For example, Reliance Industries Ltd. and Network 18 are both part of the Mukesh Ambani-led Reliance group. On the other hand, SFFs are typically smaller firms, focused on one industry and the only listed company owned and controlled by the family.

Table 2: Percentage of Women Directors in Family and Non-Family Firms

Ownership	2013	2014	2015	2016	2017
Non-Family	5.0%	5.8%	10.4%	12.3%	13.9%
Family	4.9%	5.4%	13.0%	14.0%	14.4%

Source: Authors’ calculations based on data from Prime Database

The study revealed that on an average (Table 2), family firms had a higher percentage of women directors on their boards. Further, we found that the SFFs had a higher percentage of women directors when compared to the FBGFs (Table 3).

Table 3:  Percentage of Female Directors in Family Firms

Ownership	2013	2014	2015	2016	2017
FBGF	4.6%	5.2%	12.3%	13.3%	13.7%
SFF	5.4%	5.7%	14.0%	14.9%	15.2%

Source: Authors’ calculations based on data from Prime Database

The absence of a clause detailing minimum educational qualifications and professional experience makes it easy for the promoters of smaller firms (that are typically SFFs), to comply with the Act by appointing their own female family members as directors without foregoing their administrative power⁵. FBGFs may not be able to appoint their own family members very easily as many of them have well established independent boards.

As can be seen from Table 4, non-family women directors are almost always more educated than the family women directors. In general, FBGFs have better-qualified women directors than SFFs, including better-qualified family women directors. There is clearly a need to specify the minimum level of qualification in the Act.

Table 4: Women Directors with Postgraduate Education in Family Firms

	SFF		FBGF
	Non-Family Women Directors	Family Women Directors	Non-Family Women Directors	Family Women Directors
2013	55%	42%	76%	58%
2014	59%	42%	80%	62%
2015	69%	43%	85%	56%
2016	77%	40%	84%	52%
2017	76%	42%	86%	49%

Source: Authors’ calculations based on data from Prime Database

Executive directors:

While the proportion of executive directors, both male and female, in family firms was lower than in non-family firms, the former had a higher proportion of women executive directors. 

Among family firms, SFFs had higher proportions of executive directors and higher proportions of women executive directors than the FBGFs. Women executives from the family again accounted for much of this difference.

SFFs have higher numbers of women executives from the family as the firms are smaller and have fewer employees and professionals.

These women’s proximity to company operations gives them more chance to observe and influence the process of strategy implementation. When the opportunity arises, they are, thus, more likely to be in substantial roles such as the executive director.

Independent directors:

To promote a meaningful debate, bring in diversity in views and ensure value creation for all stakeholders, family business researchers have argued that it is important to have truly independent directors on corporate boards⁶.

Family firms had significantly higher proportions of independent directors than non-family firms but they had a lower proportion of independent women directors as the proportion of directors from the family is higher.

Concluding Thoughts

Increasing gender diversity will require sincere commitment and cautious implementation plans from companies. SFFs are already doing well in terms of the proportion of women directors and women executive directors. We would argue that SFFs can now lead in actually empowering these women directors by providing them with the tools to perform to their potential through training, exposure and clear and challenging roles. 

Not least, they need to put in place appropriate gender agnostic performance management systems. While interventions at various levels to promote gender parity provide an impetus, their implementation in spirit is in the hands of the firms and individuals.

Know More

¹ See Justin Trudeau’s remarks at the 2018 World Economic Forum, accessed 17 October 2018: https://www.weforum.org/press/2018/01/justin-trudeau-delivers-full-throated-feminist-address-announces-new-tpp-deal/

² Accessed 17 October 2018: http://hdr.undp.org/en/composite/GII

³ For more on this literature, see among others Adams and Ferreira (2009); Terjesen, Sealy and Singh(2009); Srinidhi, Gul and Tsui (2011).  Adams, R.B. and Ferreira, D., 2009. Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), pp.291-309.

Srinidhi, B., Gul, F. A. and Tsui, J., 2011. Female directors and earnings quality. Contemporary Accounting Research, 28(5),pp. 1610-1644

Terjesen, S., Sealy, R. and Singh, V., 2009. Women directors on corporate boards: A review and research agenda. Corporate Governance: An International Review, 17(3), pp. 320–337

⁴ For more, see Bang, Ray and Ramachandran (2017): Bang, N.P., Ray, S. and Ramachandran, K., 2017. Family business – The emerging landscape: 1990-2015. Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business: Hyderabad, India

⁵ Faccio, Lang and Young (2001) also describe this effect: Faccio, M., Lang, L.H and Young, L., 2001. Debt and corporate governance. In Meetings of Association of Financial Economics, New Orleans

⁶ For example, see studies by Fama (1980), Fama and Jensen (1983); Miller and Le Breton-Miller (2006).

Fama, E.F., 1980. Agency problems and theory of the Firm. Journal of Political Economy, 88(2), pp. 288-307

Fama, E.F. and Jensen, M.C., 1983. Separation of ownership and control. The Journal of Law and Economics, 26(2), pp. 301-325

Miller, D. and Le Breton-Miller, I., 2006. Family governance and firm performance: Agency, stewardship and capabilities. Family Business Review, 19, pp. 73-87

Fix it before it breaks

This article was first published in Business Standard on December 20, 2018. Co-author: S Subramanian; 

https://www.business-standard.com/article/opinion/fix-it-before-it-breaks-118121901091_1.html

Where Murugappa and GMR score over Fortis and Raymond

Looks like promoters of few family businesses refuse to learn from the past or fail to put mechanisms in place to prevent a recurrence of feuds in the family. Until the early 1990s, feuds in family businesses could not destruct the family wealth entirely as the businesses had the coveted licences in a controlled economy and the cover of limited competition. In a liberalised economy, feuds between the promoter family members not only spoil the reputation of the family and the company, but also destroy shareholder value.

Look no further than two recent cases for proof.

On September 4, 2018, Shivinder Singh, co-founder of Fortis Healthcare, filed a case against his elder brother Malvinder Singh in the National Company Law Tribunal for oppression and mismanagement at group companies RHC Holding, Religare and Fortis Healthcare. Though Shivinder later withdrew his petition, his move confirmed all was not well between the two brothers.

Malvinder and Shivinder inherited Ranbaxy Labs from their father Parvinder. Parvinder was the eldest son of Bhai Mohan Singh, founder of Ranbaxy. Bhai Mohan Singh split his business empire among his sons Parvinder, Manjit and Analjit in the late 1980s. The split was considered in favour of elder son Parvinder who got the crown jewel, Ranbaxy Labs. 

In the early 1990s, Bhai Mohan Singh and Parvinder got into a battle for the control of Ranbaxy, as an outcome of which Bhai Mohan Singh was ousted from the board. Again, in late 1990s and early 2000s, after the death of Parvinder, Bhai Mohan Singh and Manjit fought with Parvinder’s sons Malvinder and Shivinder regarding the shareholding of Ranbaxy. Governance issues came to the fore each time.

Now consider the Raymond Group. In August 2017, group founder and patriarch Vijaypat Singhania had an ugly legal fight with his son and managing director of group flagship Raymond Ltd., Gautam Hari Singhania. In the late 1990s, Vijaypat’s elder son, Madhupati, spilt from the family business after a bitter feud with his father. In a family settlement, Madhupati relinquished his rights, as well as those of his children, to the family businesses. After his exit, Gautam, the younger son, got control of Raymond. 

In 2013-14, Vijaypat’s brother Ajaypat’s children were controversially removed from the list of promoters. In 2015, when Vijaypat transferred his shareholding in Raymond to Gautam, the children of Madhupati filed a case against their grandfather for depriving them of their share in the ancestral wealth. Various cases amongst different factions of the Singhania family are ongoing and unresolved even today.

Invariably, these groups have serious governance issues. Recently, Malvinder and Shivinder were forced to give up control of Fortis. The sale of Ranbaxy Laboratories to Japanese pharma major Daiichi Sankyo had ethical issues as the buyer alleged that the Singh brothers hid irregularities probed by the US FDA while selling the company.

Similarly, corporate governance issues in Raymond were highlighted when a minority shareholder alleged in March 2017 that the promoters of Raymond Group have been using company cash for personal benefits. In its AGM in June 2017, a resolution to sell its premium real estate at throwaway prices to promoters of Raymond and their extended family was presented to the board. It was defeated by shareholders.

Regulators and external stakeholders keep a check on corporate governance. But an equally significant aspect is family governance. Family governance needs to be put in place by the family alone, voluntarily, and needs to be followed in spirit as there is no law that dictates that it needs to be put in place or that it needs to be followed.

To ensure that relations don’t sour start the governance process early on. It is easier to get the buy in from family members when the going is good. While damage control is often done when an issue gets out of hand, the softer issues of family governance are not taken up on a priority basis when more pressing business matters keep the family patriarch busy.

Conglomerates like the Murugappa Group and the GMR Group have put in place detailed family constitutions to guide members in times of doubt, conflicts and crisis. While the Murugappa Group is in its fifth generation, the GMR Group is controlled and managed by the first and the second generation family members. 

On a philosophical note, nothing in this world is permanent. So also in business. And more so in family businesses where family issues often influence business decisions. In such an environment, clarity and explicit guidance will go a long way in building lasting institutions and family legacies.