Actually I find the strategy of expansion quite great.
One can expand in two ways –
- Go to 5-6 States together and try to gain market share.
- Be the market leader in one state and then go to next.
The 1st strategy is expensive. In jewellery business, trust is the biggest intangible. They would need to do a lot of work to generate India wide trust, while capital at hand allows for only 2-3 stores in each state to capitalize on that. You might feel that brand building and distribution presence won’t go hand in hand.
The 2nd strategy is what they are following. Tanishq has 60 stores in Maharashtra. PNG is clearly not a market leader in Maharashtra even. Consolidating and becoming market leader in one state brings operational efficiency. Less inventory movement expenses, your market know how is better. This is why, their return ratios are quite good.
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