The fall and rise of fine jewellery startup BlueStone

Bengaluru: The dazzlingly bright fine jewellery store had all kinds of glitzy items on display, but there were only four customers checking them out when Mint visited it on a Wednesday evening earlier this month. The manager candidly told us that the store, located in a commercial area not far from IT hub Whitefield, never saw the kind of wedding jewellery-hunting crowds common at long-established names such as C. Krishniah Chetty, Bhima Jewellers, or GRT Jewellers. Most people who visit the store do so only after going through the company’s website, he added, to look at items they liked online. And wedding chokers or bijouterie weren’t the sort of things they looked for on Bluestone.com.

“They have a very good variety, and any piece of jewellery is highly customizable. I was looking for something casual that can be worn on an everyday basis and BlueStone has a wide assortment for just this,” said Payal Dutta, one of the customers at the store.

“They have very simple and attractive options for office going people like me. They also have a provision to get your jewellery serviced every two months, which helps to create great trust with the brand for first-time customers like me,” said another customer, who did not want to be named. “But they are slightly on the pricier end.”

Slightly pricier is a bit of an understatement—the average selling price of BlueStone’s fine jewellery is ₹40,000-60,000. It’s a chain that caters to the well-heeled, and that, perhaps, is one of the reasons it is not overrun by shoppers. Despite the high prices, however, the digital-first jewellery company’s stores do see a decent amount of footfalls, mostly chic or casual wear-clad youngsters.

“Consumers who frequent brands like BlueStone are often here to buy jewellery that isn’t meant to be kept in lockers. They want a completely different purchasing experience where they look to get everyday jewellery versus the heavy stuff that incumbents like Kalyan Jewellers and Malabar Gold sell,” said an industry expert. “The number of people who come into this fold on an everyday basis has become very large.”

In that aspect, BlueStone, which was founded by Gaurav Singh Kushwaha and Vidya Nataraj in 2011, is seeing a bit of a turnaround. The company, which had started out as an online-only seller, consciously made the decision to open stores across India to tap a market that is now pegged to be worth $80 billion. But the timing turned out to be poor because of the covid-19 pandemic, and for a while, it was on the brink. But things are now starting to look up thanks in large part to its omnichannel (across sales channels) strategy.

Getting physical

Over the last decade or so, as Flipkart and Amazon capitalized on the online boom, they sparked a shift in purchasing behaviour. Some consumers began to use online channels as a medium to browse before purchasing a product at a local store. This was especially so with big-ticket purchases, including jewellery, and led companies to set up offline touch points to instil confidence. BlueStone was one of them.

After surveying customers, the jewellery startup realized that it was sitting on a much bigger business. “Our data led us to believe that we were neither online nor offline. We had to go the omnichannel route,” Kushwaha told Mint. The company opened its first physical touchpoint in Delhi, in July 2018.

“When we opened the first 10 stores, we understood that the numbers would become evident only at scale,” he said. “But at the same time, it took a while to convince investors. This was not something we had done before.”

Over two years, it opened about 16 offline stores as part of this omnichannel strategy. But then the covid pandemic struck and it was forced to pull down the shutters. Even after the lockdown ended, people were reluctant to step in fearing for their safety. There were barely any footfalls and consequently hardly any offline sales. The company’s backers, meanwhile, were worried about their investments.

“That was one of the toughest phases for us. While a stable 2–3-year cohort of stores could have helped convince investors, it became that much more difficult due to the pandemic,” Kushwaha recounted. Investors were reluctant to infuse additional capital for store expansion owing to the lack of adequate data.

The setbacks took a heavy toll. In FY21, BlueStone reported a loss of ₹31.5 crore, which widened to ₹1,268.4 crore the following year. Revenue from operations dipped to ₹244.6 crore from ₹255 crore in FY20, according to data provided by startup intelligence tracker Tracxn. In FY22, expenses zoomed to ₹1,738 crore from ₹283.7 crore a year earlier. Things weren’t going in the direction they were supposed to.

“BlueStone’s cost structures were bizarre at that point. They delayed the transition to go offline (brick and mortar) and when they did, the timing was off and they ended up consuming more money to stay afloat,” an industry expert, who has closely monitored the business, told Mint on condition of anonymity.

But as consumers gradually returned to their normal shopping patterns, BlueStone began to see more footfalls. And as footfalls picked up, it added more stores. Currently, the startup has more than 200 of them across 80 cities, with a dominant presence in tier 2 and 3 cities, from where it gets the bulk of its demand.

While BlueStone continues to incur losses, it has significantly improved its revenues. In FY24, it reported an operating revenue of ₹1,265.80 crore, up from ₹770.7 crore a year earlier. Over the same period, losses have narrowed to ₹142.2 crore from ₹167.2 crore, the data from Tracxn showed.

Citing the much-improved performance, Kushwaha says the omnichannel approach was the right call and marked a ‘turnaround’ for the company, which is gearing up for a $250 million public offering in the first half of next year.

Sreedhar Prasad, a former partner with KPMG and a startup advisor, noted that this (omnichannel) turnaround was crucial for the company as a blend of online led offline sales is of paramount importance for new age players like BlueStone and CaratLane. “If a customer does not browse online before visiting their shops, they won’t have a great spread experience. This omnichannel concept is how these businesses have grown significantly,” he said.

Store managers Mint spoke to also alluded to this consumer behaviour, noting that most customers walk into their stores only after browsing the website. “We also send representatives so customers can try our products from the comfort of their homes, with the criteria that they shortlist at least five items. This is extremely popular,” the store manager cited earlier said, on condition of anonymity.

Ticking all the boxes

India’s retail jewellery market was worth about $80 billion in FY24, according to a report by Motilal Oswal, published in June. Of this, organized retail accounts for about 36-38%, comprising both pan-India and regional companies.

The report estimated that the overall jewellery market is expected to clock a compound annual growth rate of 15-16%, to touch $145 billion by FY28. Much of this growth will ride on rising disposable incomes and be driven by a better experience at organized retail outlets, enhanced product offerings and an improving mix for regular wear, it said.

BlueStone is aiming to tick all of those boxes. Over the years, it has expanded its product catalogue to about 8,000 items. The company sells diamonds, gold, platinum, gems and pearls across products such as earnings, chains, bracelets, watches and rings, within categories such as men’s, kids, and women’s jewellery.

The startup relies heavily on tech and data to drive its core operations. And unlike some of its peers, BlueStone does not outsource designs. From designing to manufacturing, it handles everything inhouse. The company’s jewellery is created by 30-40 designers across India. Those designs are then produced by its three manufacturing units in Surat, Jaipur and Mumbai, which cumulatively employ about 2,000-3,000 workers.

BlueStone has raised about $255 million since its inception, data from Tracxn showed. Valued at about $970 million, it is backed by prominent investors, including Peak XV Partners (formerly Sequoia India), Kalaari Capital, 360 One, IvyCap Ventures and Prosus.

A gem of an idea

The digital-first fine jewellery brand is the second startup Kushwaha has founded. The first was Bollywood news portal Chakpak.com, which he sold to ecommerce marketplace Flipkart. A few months after that sale, he began scouting for his next opportunity in the e-commerce space. The former Amazon employee evaluated several categories, including furniture and grocery, and eventually settled on jewellery, launching BlueStone.

The idea was to chase a market that had the capability to generate large outcomes with good margins. This became particularly important after some hard lessons in his previous startup, where monetization proved to be extremely difficult.

Kushwaha observed that jewellery was a category dominated by incumbents such as Malabar Gold and Kalyan Jewellers, which derive nearly 80% of their business from customers shopping for weddings. There weren’t too many other contenders. Startups Melorra and Giva, which Bluestone competes with across certain categories, came much later, in 2015 and 2019, respectively. CaratLane, however, had been around since 2008.

Typically, most jewellery businesses in India are run by second- or third-generation entrepreneurs. For Kushwaha, the challenges that came with starting a jewellery business were brand new. To begin with, he had to convince customers to buy jewellery online, an alien concept at the time. Navigating the logistics of sourcing, designing and shipments were other aspects he had to solve for.

Adding to his woes, cofounder Nataraj stepped down 5-6 months after BlueStone was founded. From setting up the product catalogue to figuring out the logistics of sourcing and designing, it was not an easy time.

Kushwaha was clear that he wanted to exclusively sell only ‘BlueStone’ products and did not want to function as a marketplace that aggregated other brands. At this point, the company was an online-only brand.

But with fewer contenders in the category at the time, talent was more abundant. Kushwaha began by recruiting known candidates and juniors from Indian Institute of Technology–Delhi, his alma mater. The team managed to put together about 200 product catalogues on BlueStone’s website around early 2012.

Accel, which had backed Flipkart and his earlier startup, was among the first investors to come on board. BlueStone bagged a $5.2 million cheque in a round led by the early-stage venture capital firm in January that year, data from Tracxn showed.

In the first couple of years, the startup struggled with the challenge of selling a high-value item like jewellery online. “There was a lot of work in making sure that the presentation is top notch, to build a long-term relationship with customers, and ensure the product is not returned,” Kushwaha said.

BlueStone was also saddled with excess inventory, which took up a lot of capital. To curtail this problem, it adopted an on-demand approach, where it fulfilled a customer’s request for a product only after an order was placed. This, however, came with the limitations of a longer delivery time. But as sales improved, the startup set up its first manufacturing unit in 2014, bringing down delivery timelines to 3-5 days from 4-5 weeks earlier.

Path to profitability

In recent times, many new-age jewellery startups have witnessed tremendous growth and attracted investor interest on the back of growing disposable incomes and a rise in the young middle-class population. For instance, CaratLane saw a 42% increase in revenue to ₹3,081 crore while Giva witnessed a 66% jump to ₹273.6 crore, on a smaller base, in FY24.

These startups cater to an affluent group of people who are willing to buy jewellery for purposes other than weddings, which has led to newer emerging categories, such as casual and children’s jewellery.

Some members of the old guard are now trying to enter new categories, either through acquisitions or by introducing their own product lines to appeal to a younger audience. For instance, CaratLane was bought by Titan last year while Melorra has received a bid to be acquired by Kolkata-based Senco Gold, Mint reported last month.

“Brands have a certain way of ageing and being relevant to a certain demographic. The younger generation and Gen-Zs are likely to navigate towards new-age brands, which is why the bigger companies are trying to acquire some of these players,” said Vijay Iyer, managing director of Merisis Advisors, a boutique investment bank.

However, the new-age jewellery category hasn’t seen much by way of profitable startups. CaratLane, the exception, posted a flat net profit of ₹79 crore In FY24. In comparison with BlueStone, it has an average selling price of ₹25,000-30,000.

Merisis’ Iyer explained that these startups will incur losses or struggle to improve profits if they continue to sell below their cost of customer acquisition. “The well-known companies have been running their business for a long time and have grown organically. These startups have used venture capital to short circuit the organic pace of growth, which is bound to make their costs higher.”

Many of the startups continue to think like e-commerce companies, which does not bode well in the long run, added Prasad. “They must consistently think like a digitally engaged, physically executed jewellery company. More money needs to go towards digital engagement than performance marketing to improve profitability metrics. At some point, this shift needs to happen for all jewellers,” he concluded.