Business | Analysis

Malabar Gold on expansion path

Malabar Gold aims to become one of the world's biggest jewellery chains

  • By Manoj Nair, Associate Editor
  • Published: 00:00 June 15, 2010
  • Gulf News

M.P. Ahmad, chairman of the Malabar Group of Companies
  • Image Credit: Megan Hirons Mahon/Gulf News
  • M.P. Ahmad, chairman of the Malabar Group of Companies, says gold price will touch $1,500 an ounce by the end of this year (from the present level of $1,200 plus).

Dubai: Dubai's retail trade in gold and precious jewellery may seem a closed shop for a rank newcomer. The sector has been dominated for years by the same players who have been around for years. And no way were they going to let a new entrant have the run of the shop.

Where buyers were concerned, they would much prefer to deal with a retailer whom they have known for some time. This makes it all the more difficult for a newcomer to break in.

That's been the conservative wisdom, at least until now. But none of this seems to have been passed on to Malabar Gold, which will this month complete two full years since it re-entered the retail space here.

During this phase, the Indian jeweller has had notable gains in working on its market share and has just opened its first outlet in Abu Dhabi. A further 11 outlets will open in the Gulf before the year is out.

Ahead of the opening in Abu Dhabi, M.P. Ahmad, chairman of the Malabar Group, talked to Gulf News on how the company got it right.

Gulf News: Looking back from this vantage point, do you believe Malabar Gold's entry into the local retail arena was easy?

M.P. Ahmad: Existing players are never too keen when it comes to accommodating newcomers. It's there to some extent in every industry, but we did cope a fair share of it when we launched retail operations in 2008.

There were some unhealthy practices such as undercutting on prices and in the terms that were being offered to the supplier and customer. It was, as I see it, done with an intention to make it even more difficult for a new entrant to make a mark. Would I say these tactics were unethical? I would.

All of it seemed strange because when it comes to acquiring the licence to launch operations, we had it so easy as Dubai has the most liberal regime for businesses.

But despite everything you did find your way around in the local marketplace.

Where existing players have an advantage is in the lower cost base they work on relative to the newcomer. They would have already made their investment in infrastructure, the network would be in place and they would have built up a clientele. And all of this at a relatively lower cost than the one incurred by a new entrant.

Yet, we could overcome all hurdles that got in our way. We could do so because we convinced the customer here that Malabar Gold did have the widest range of merchandise answering to a certain high quality at the lowest possible price point.

When did Malabar Gold actually decide to have a presence in the Gulf?

It was in 2000 that the group decided to expand its presence in this business. A network was steadily developed in the southern Indian state of Kerala where the group is headquartered. As early as 2002 we had an outlet in Dubai, in Qusais. It was a small operation, the location was not good, and we just did not have a profile. In 2003 we decided to make an exit.

Despite that, Dubai had been figuring in our plans for the last five years. Before we sought re-entry, the company had to integrate all the processes starting from a centralised procurement strategy to having a retail presence to sell the merchandise.

When we felt comfortable with the revised business model, that's when we decided to re-enter.

Did you get a new licence or renewed the old one?

We went in for a new one. There were local investors who wanted to tie up with us. At the same time, we had a stake and control over how the operations are managed. The inputs extend to all aspects.

But before re-launching the retail side of the business here, we had a full-scale wholesale operation running well. This meant sourcing fine-crafted jewellery from our centres in India and then distributing to retailers here. This way we got a good feel of the market before setting up shop on our own.

A network of outlets in key Gulf markets would obviously be the next step. Right?

That's the logical extension of our business, but our ambitions are not limited by geography. We want to be the Number One name in the global jewellery trade by 2015, a rank which is now held by Wal-mart with counters in 4,000 odd stores.

By 2015, we want to be the leader in terms of volume-wise, in terms of a retail presence and in marketshare.

Aren't you aiming too high?

I don't think so. While gold as an investment vehicle has been there since ever, we are seeing the likes of China promoting gold and jewellery sales in a big way. That's potentially a huge retail market just waiting to be mined.

Even in India, we could conceivably look at anywhere up to 1,300 stores. Currently, we have got Kerala covered and been extending to the other southern markets. But there is still the rest of the country.

There's the Far East and Europe. In these markets, we will of course customise our merchandise to suit customer preferences there. Diamond jewellery will be preferred as will be high-value gift items.

Interest in handcrafted Indian jewellery pieces has never been better. We will ride a long way on that.

Isn't there a niggling concern that gold is getting too pricey?

As a hard currency, gold is becoming the undisputed investment choice in these times of uncertainty. More so as paper currencies are now prone to wild swings.

Yes, the threat exists if gold prices shoot up irrationally. The industry needs to have plans in place if a reverse happens. We should be prepared.

But that's for the industry to do, retail consumers needn't bother about it. For them, gold will always be a stronger investment than paper currencies.

What of gold prices in the short- to medium timeframe?

There's more room to grow, to $2,000 (Dh7,356) an ounce some time next year. As we see it, the metal should touch $1,500 by the end of this year (from the present level of $1,200 plus).

On the retail side, what sort of volumes are you handling in the local market?

Our strategy is to have minimum margins and the maximum volumes. This way we can compete strongly in the marketplace. The highest priority is to curb costs, while the net profit margin is between 2 per cent to 2.5 per cent and 3 per cent at a stretch.

Presently, we attain something like seven or eight turnarounds a year at our outlets here against the 12 we do in India. Our goal in the mid-term is to attain similar turnarounds here.

With the retail side growing, will you continue to have as much emphasis on wholesale?

Wholesale makes up more than 30 per cent of our volumes here and we have every intention to develop this on a parallel track.

Manufacturing: Hub planned in dubai

The manufacturing side of Malabar Gold's business operations in the Gulf will kick into full gear with the launch of facilities in Dubai and Saudi Arabia.

The one in Dubai Multi Commodities Centre should be commissioned in September or October, while for its presence in Saudi Arabia, the company has signed up with Sagia (Saudi Arabian General Investment Authority), which is the agency tapping foreign investments into the kingdom. The Saudi facility is meant exclusively to feed retail demand for its jewellery in the domestic market.

"Both facilities will be used for jewellery that have sizable retail volumes," said M.P. Ahmad, chairman of Malabar Group. "The intricate handcrafted jewellery will continue to made in India.

"Having the manufacturing operations here will help immensely in getting the fastest moving items into the outlets in the shortest time. There are also benefits to be had on our cost side."

Growth: Abu dhabi outlet

Malabar Gold opened its 38th showroom and first in Abu Dhabi at on Saturday. The showroom was inaugurated by Abu Dhabi Chamber of Commerce Director Yousuf Ali M.A. The showroom is located at the UAE Exchange Building on Hamdan Street. This will be one of Malabar Gold's biggest showrooms in the Middle East.

Malabar Gold is respected internationally as the ‘perfect jeweller' where the perfect design, perfect service and perfect price go hand in hand. Its 37 world-class showrooms spread across India and the Middle East, 3,000 professionally trained management staff and millions of satisfied customers make Malabar Gold a cut above the rest. Malabar Gold showcases an alluring array of 22k gold ornaments, IGI certified diamonds, PGI certified platinum jewelry and precious stone jewellery.

This latest addition of Malabar Gold to its chain of showrooms has the exclusive diamond boutique — "mine".

Malabar gold has also plans to launch, a new collection of IGI certified VVS-EF diamond pendant sets at very competitive prices in a new campaign titled ‘Quality now fits in your budget'. This collection will be available at all Malabar Gold showrooms in the Middle East.

Gulf News
Retail Gold Rate
Business Editor's choice