Rising Above the Challenges

One of the technologically advanced companies that has successfully managed to emerge as a winner in the prevailing economic turmoil is Shrenuj & Company. Kunjal Karaniya speaks to Vishal Doshi, Group Executive Director and traces their journey, strategies and future endeavors.

History of embracing change
With over 108 years history in the diamond business, the experience and expertise Shrenuj has accumulated over generations is at the heart of the business’s success. However, Shrenuj is also one of the most technologically advanced companies in the diamond industry. It has been a pioneer in driving innovation and adopting new technology for several decades. As an Indian company, this was a particularly unusual focus for Shrenuj. India became a diamond polishing centre back in the 1800s, and by 1940s was the world’s leading producer of polished diamonds as low labour costs meant that polishing in the historic centres of Belgium and Israel was no longer viable for all but a small proportion of diamonds. Investing in expensive new machinery from England, Germany or Israel, seemed contrary to the competitive economic advantage of an Indian diamantaire. However, Shrenuj held a firm conviction in the potential efficiency and quality benefits that could be gained over time from leveraging the most sophisticated technology. It was a long-term strategy, being both capital intense and requiring significant worker training, but it has paid off. Shrenuj now enjoys the rewards of scalable, technology-driven capacity whilst other companies are struggling to manage rising labour costs.

Shrenuj is very much an Indian company, operating in the heart of Mumbai’s diamond community. However, its Indian heritage has not always been an advantage. Although India is the world’s primary polishing centre, it is also synonymous with large volume, mass-market products, and Indian diamond cutters are traditionally not known for their quality of cut as compared to their competitors in Israel or Belgium. The large number of Indian manufacturers is also typically informally operated and managed factories, working off low overheads, with a transient, day-worker workforce. Shrenuj needed to break the mould and change the industry’s perceptions of an Indian diamantaire in order to succeed and gain recognition as a leading producer for better-make diamonds, which are essentially of ‘non-Indian’ quality. Today, Shrenuj stands as an example of new breed of Indian diamond company, which combines the best of a global corporate management style, deep industry experience, cutting-edge technology, and the cost benefits of operating in India. Based on its competitive advantages in manufacturing, Shrenuj extended manufacturing operations into Africa, by establishing diamond polishing facilities in Botswana and South Africa.

Shrenuj has a dominant position in India and is the market leader in solitaire jewellery, with three distinct consumer brands, Arisia, Bhavya and Sveni, all targeted at discrete market segments to capture maximum market share. However, its domestic success is supported by a globally balanced business, with a strong position in major overseas markets. In the U.S. it is focused on the bridal jewellery sector, which has proven most resilient to the economic downturn. In Europe, it has a number of fashion-focused brands that target the mid-higher end consumer. In the Middle East it markets branded locally-styled jewellery.

When it comes to consumer branding, Shrenuj takes a market specific approach. This might seem contrary to leveraging efficiencies of global scale but the principle behind their strategy is explained by Vishal Doshi, group executive director and a third generation diamantaire. “Diamond jewellery is an emotionally and culturally motivated purchase. In order to capture the hearts and minds of consumers, we need to have a deep understanding of the distinct needs of each regional market and create a focused product and branding proposition aligned with these. However, once a brand has become established and generated regional success and recognition, there are often opportunities to extend its reach into other geographies where there are comparable market characteristics. For example: we are currently looking to introduce at least one of our brands that have achieved success overseas to India in the coming months.”

Despite Shrenuj’s dominant market position in India, and numerous consumer brands, its advertising does not seem as widely prominent as other Indian jewellery companies. Why is this? Vishal explains, “We support all of our brands with full marketing programmes, both in India and overseas. Advertising is just one component of this, and is usually supported by other marketing media such as PR. However, wide-scale marketing is expensive and we need to be disciplined to ensure we are effective and focused. It doesn’t make sense to undertake a national advertising for a brand that is targeted at a specific focused demographic and distributed only through selected cities. Therefore, we only undertake such advertising where we have critical mass. A good example is our Indian retail chain Diti. We launched this in 2007, and to date have undertaken locally focused advertising in just the regions where we have outlets. However, the chain is rapidly expanding. Therefore it will soon make sense for us to launch a national advertising campaign.”

Growth throughout market adversity
Shreyas’s optimism about the long-term future of the industry, and Shrenuj’s own prospects, is demonstrated by the significant expansion plans they have embarked upon. Shrenuj has initiated a number of ambitious new projects in the last year, including commissioning of a diamond-polishing unit in Patna, and has also taken advantage of unique opportunities presented by the downturns. The last year has seen many companies in the diamond sector make heavy cutbacks and scale back manufacturing capacity, usually out of necessity rather than choice. Shrenuj, like most companies, has been prudent in making significant cost cutbacks in the past year, but its overall financial stability enables it to maintain its growth strategy throughout this period of difficulty.

The company’s future strategy focuses on further developing downstream integration. This involves expanding jewellery, and ultimately retailing, activities so as to provide downstream channels for an even greater proportion of its polished diamond production. One major step the company took towards achieving this vision is to dramatically increase its own jewellery manufacturing capacity. It operates a 35,000 sq. ft jewellery factory in SEEPZ, Mumbai. The state of the art factory is segmented into three distinct production units, each focused on the unique needs of its major export markets: Europe, U.S. and Middle East. The factory employs around 30 creative jewellery designers, who work in small teams to continuously generate new and exciting product collections to meet the ever-changing desires of its target consumer markets. Shrenuj has the capacity to produce over 1 million units of jewellery per year.

One of the dominant impacts of the economic downturn on businesses in the diamond industry has been lack of liquidity. This has forced businesses, including several of the industry’s largest and most established names, to sell off major assets. For those few companies, such as Shrenuj, who were in a financially strong position and with funds available for strategic acquisitions, these troubled times also offered exciting potential. Shrenuj’s expansion into Botswana is a great example of leveraging a one-time opportunity presented by the crisis of 2009. As part of the Group’s global manufacturing strategy, it had long been looking to establish operations in Botswana. Not only would this create increased polished diamond production capacity, but also offer the potential to secure a direct supply of locally mined rough diamonds. In an industry where obtaining a reliable, consistent rough diamond supply is a major competitive advantage, this meant that setting up a manufacturing facility in Botswana was of primary strategic performance. Shrenuj had been waiting for the right opportunity for the last couple of years. Earlier in 2009, a company who had established large-scale manufacturing operations in Botswana came into financial difficulty. Consequently it was forced to put factory up for sale. For Shrenuj this was a perfect strategic opportunity, but it was also unusual in being in a position to act on such an opportunity during the peak of the crisis. Shrenuj acquired the state-of-the-art factory in July 2009. It made some adaptations to integrate it with its global manufacturing standards and processes, but the entire facility was re-comissioned within a month and is now fully operational and replicating the exacting quality standards Shrenuj achieves in its Indian facilities.

This was not the first time Shrenuj has reaped the benefits of being a strong, stable business whilst others struggle in times of difficulty. Its acquisition of a leading U.S. polished distribution business, Simon Golub & Sons in 2007 was a similar story. This business now provides Shrenuj with one of the strongest distribution platforms into the U.S. and a great foundation on which to expand its own jewellery brands for the U.S. market.

As well as building production and wholesale distribution capacity to support its downstream strategy, Shrenuj has been aggressively developing its own retail operations over the last few years. How has the crisis tempered its plans? “Our retailing operations are focused on India and China, as we believe these offer the greatest untapped potential and opportunity to build nationally recognized retail brands in markets which are still in early stages of development. This market focus has also proved advantageous, as the global economy has slipped into decline in the last year. Firstly, both India and China have continued to show positive growth, albeit at a lower rate, whilst mature markets such as the U.S. and Europe have suffered greater impact on consumer sales. And secondly, the level of investment required to set up retail activities in India and China is comparably less than those more mature, saturated markets. We have an ambitious vision for our retailing operations, but our implementation plan focuses on minimizing risks, and expanding in a steady and scale-able way. In fact, again I believe we stand to benefit from the conditions of the last year, as it has enabled us secure better positioning and negotiate more favorable terms on rental lease contracts.”

Shrenuj’s retail brand in India, Diti, offers the growing population of modern urban career women fashionable ‘everyday’ diamond jewellery styles at attainable price points. Its business model focuses on shop-in-shops located in luxury lifestyle stores, allowing Shrenuj to achieve rapid expansion and maximum target market reach with low-level investment. Shrenuj also plans to extend its retailing interests in India into a new, higher-end market. This seems a natural progression given the success of its top-end flagship brand of solitaire jewellery ‘Arisia’, which is distributed through 50 of the leading jewellery retailers in India’s 10 most affluent cities. Additionally, Shrenuj has for many years offered a private jewellery service to high-profile wealthy individuals, including international royalty, business tycoons and celebrities. This new development enables Shrenuj to harness this strength and experience and offer it to a wider audience.

Shrenuj also has plans to build upon the global diversity of its operations and markets, by expanding further into the Middle East. It currently has an office in Dubai that acts as a distribution and service hub for retailers in the region, and several established and successful consumer-facing jewellery brands developed especially to suit local tastes. Its next goal is to develop a large-scale integrated polished diamond and jewellery-manufacturing base, followed by a regional retail chain. “We are very excited about developing operations in the Middle East. We have been active in the region for a number of years and understand consumer market trends and preferences, and have also witnessed is potential as an ideal base for manufacturing operations. We have proven that we can successfully replicate our world-class manufacturing model outside India, and now have the confidence to pursue expansion opportunities in other strategic centres.”

A view of the bigger picture
So, if the retail indications of the last year are anything to go by, and consumers will continue to buy diamonds even when finances are tight and the future uncertain, then we have good reason to believe the long-term outlook for the industry is good. It has undoubtedly faced a difficult period of turmoil which has shaken things up. There have been lots of losers, but also some winners. Some of the major companies who grew rapidly over the last few years with slightly maverick strategies and speculative approach to financial planning have been scaled back dramatically. Meanwhile Shrenuj is amongst few that have seen their positions boosted thanks to a more strategic, long-term approach and detailed planning and management, which have made this, somewhat ironically, a period of exciting growth and expansion opportunities.

What does he see as the greatest challenges to success? “We face plenty of operational and financial challenges on an ongoing basis, but I never let myself lose sight of the biggest challenge underpinning our entire business, or in fact our entire industry. We mustn’t forget diamond jewellery is a completely discretionary purchase, and consumers could simply decide to stop purchasing it tomorrow. A diamond jewellery purchase, for many, is a very occasional event, maybe only once or twice in a lifetime. And the cost usually represents a significant portion of the consumers’ income. So whilst diamonds may be our daily business, we need to remember that for the consumers who buy them, they are anything but. This means we need to continuously create exquisite products that excite and inspire consumers by nurturing the best design talent in the business. We need to maximise the intrinsic value of our product, by ensuring they are of the highest attainable quality. And, perhaps most importantly, it needs to move consumers by appealing to an emotional need. This is the driving objective behind our branding activities.” It seems Shrenuj will be sparkling brighter than most as the economic cloud lifts.