Vaibhav Global Ltd Management Discussions

Source: https://www.imarcgroup.com/e-commerce-market

B. Teleshopping

The global teleshopping market, valued at USD 45.05 billion in 2023, is projected to reach USD 50.29 billion by 2030. The growth is primarily driven by increasing number of television sets and the rising adoption of smart TVs. Consumers are increasingly attracted to the convenience and accessibility offered by teleshopping. It provides a seamless shopping experience from the comfort of their homes. Technological advancements have further propelled the growth prospects. High- definition broadcasting, interactive TV features and convenient shopping solutions have significantly improved customer engagement and satisfaction. In addition, VGL Group is leveraging data analytics and customer insights to tailor the product offerings and marketing strategies, and aligning with the evolving preferences and needs of customers.

Growth Drivers

Favourable Demographics: Teleshopping is particularly well-suited for Baby Boomers and Gen-X shoppers, who are often empty nesters. Publicly available data indicates that Baby Boomers in the US control over 70% of disposable income. Additionally, the trend of cord-cutting has had minimal impact on this strata of population, ensuring their continued engagement with traditional television-based shopping channels.

Wealth distribution in the United States from 1990 to the fourth quarter of 2023, by generation

In the context of understanding consumer behaviour and market dynamics, the data highlights the significant role of Baby Boomers in shaping the retail landscape and economic trends. Baby Boomers, with their substantial disposable income and spending habits across various categories, represent a formidable economic force that retailers cannot overlook. Further, the research shows that Baby Boomers are also catching up with the latest technologies, and today 23% of Baby Boomers in US prefer digital wallets over traditional methods of transferring money.

Technological Advancements: High-definition and ultra- high-definition broadcasts have improved the viewing experience, making teleshopping more attractive to consumers. Additionally, increased adoption of smart TVs with built-in internet connectivity allows for interactive shopping experiences directly from the television.

Convenience: Convenience is becoming increasingly

important in the realm of shopping, driven by rising disposable incomes and the ever-expanding reach of digital means of commerce. This trend is expected to further drive growth in TV shopping in the foreseeable future.

Diverse payment methods: A variety of payment methods, with advanced security measures have induced consumers to switch to digital retail. The availability of multiple payment options, from online banking to EMI options, wallets, and both debit and credit cards, are also driving the expansion of teleshopping industry.

Over-The-Air (OTA) Teleshopping option: Television-based shopping is witnessing gradual shift in the United States, with Over-The-Air (OTA) TV networks becoming more popular compared to Pay TV services. This shift is driven

by technological advancements that make it easier for consumers to access free, high-quality TV content through digital antennas. This option appeals to cost-conscious viewers seeking alternatives to subscription-based services. As a result, OTA TV networks are experiencing significant growth in viewership and market penetration.

In the US, the proportion of Baby Boomers (aged 65 and above) who watch traditional TV has decreased to 81%, down from 86% in 2015. This decline is being offset by the adoption of OTA services, which currently reach approximately 23 million households. Projections indicate that the number of OTA households could grow to 50 million by 2025.

In response to this shift, we have expanded our reach into OTA households while continuing to serve our loyal Pay- TV customers. Over the past decade, our presence in OTA households in the US has grown significantly, from 1 million in 2013 to 18 million in 2024. As the trend towards OTA TV continues, the potential for full-power OTAs

remains substantial. Currently, Shop LC (US) is accessible to approximately 5 million full-power OTA households out of a total of ~23 million households in the US. This presents significant growth opportunities, as full-power OTAs offer extensive customer visibility and higher customer lifetime value.

Over-The-Top (OTT) platforms: The shift from traditional TV to online content is fuelling the growth of OTT platforms. Streaming services have transformed home entertainment by providing easy access to a wide range of content. The US robust infrastructure supports high demand for OTT solutions. Internet-connected video devices in the US are expected to surpass traditional media streaming devices soon, presenting a growth opportunity for the digital retail industry, including us.

At VGL, we are strategically investing in OTT platforms. This investment has yielded positive results, with continuous growth in both revenue and customer acquisition.

C. Social Commerce

The global social commerce market, valued at USD 995.1 billion in 2023, is projected to grow at a CAGR of 24% between 2024 and 2032, reaching USD 6,824.3 billion by 2032. This growth is driven by increasing consumer engagement on social media, the widespread availability of high-speed internet, the impact of social media influencers, seamless access to social networking sites, a growing preference for online shopping, and heightened impulse purchasing, especially among Gen Z and Millennials. With approximately 5.04 billion social media users globally in 2023, the social commerce market is expanding faster than other mediums.

US Social Commerce Market Insights

In the US, the social commerce market reached a valuation of USD 68.92 billion. With about 107.6 million

social commerce buyers, around 50% of Gen Z and Millennials make purchases through social media platforms. On an average, an American spends USD 641 annually via social commerce channels, with projections indicating this figure will rise to USD 938 by 2025.

Strategic Approach to Social Commerce

Were embracing a holistic approach that spans both digital and social commerce marketing, utilising various platforms such as Facebook, Instagram, Pinterest, among others. Employing tools like influencer-based marketing, performance marketing, targeted campaigns, etc. are part of our multi-faceted approach wherein digital cum social commerce marketing are leveraged comprehensively.

D. Proprietary Web Platforms

VGL Group is extensively enhancing its digital platforms. One strategy involves using proprietary web platforms for customer acquisition and retention. We regularly update our websites with the latest features to provide a superior shopping experience. We expect these investments to create growth synergies and complement our proprietary TV channels and other digital platforms.

E. Marketplaces

As part of its omni-channel strategy, VGL is strategically investing in marketplaces. We engage with customers on major platforms such as Amazon, Walmart, and eBay. The company has implemented a comprehensive e-commerce marketing framework focussed on customer acquisition. Key initiatives include targeted advertising campaigns, viral gamification campaigns, and high- quality backlink campaigns. Central to our strategy is optimisation, where we continuously refine product listings, pricing, and keyword targeting to enhance discoverability and competitiveness. Using data-driven insights, we aim to maintain effective placement and capitalise on consumer search behaviour.

BUSINESS OVERVIEW

Established in 1980, Vaibhav Global Limited (VGL) has grown into a successful, vertically integrated electronic retailer of fashion jewellery and lifestyle products in the US, UK, and Germany. The company is known for offering unique customer value through quality products marketed via 24/7 proprietary teleshopping channels and various digital platforms, including websites, mobile applications, marketplaces, and OTT platforms.

Key Strengths Omni-Channel Presence

Our omni-channel strategy enhances customer engagement and provides significant growth opportunities with overlapping sales potential. Our retail platforms give us direct access to approximately 130 million households, effectively served through our proprietary TV channels, Over-The-Air (OTA) TV networks, and digital platforms. Omni-channel presence provides customers with a unique shopping experience, while enabling us to fetch significantly higher spending per customer and customer lifetime value.

Shop LC (US): Shop TJC (UK):

~61 million ~27 million

households households

Shop LC (Germany):

~42 million

households

An Assortment of Two Product Pools

Our B2C revenue primarily accrues from fashion jewellery and gemstones, which account for about 70% of our sales. The remaining revenue accrues from lifestyle products like home decor, beauty care, hair care, apparels and accessories. We continuously enhance our product portfolio by introducing approximately 14,000-15,000 new jewellery designs each year. The share of lifestyle products in our revenue is also steadily increasing to boost customer engagement. Currently, we offer around 5,000 unique SKUs in the lifestyle category. Our USP is built on delivering superior customer value through cost-effective manufacturing and good quality products.

Vertically Integrated Supply Chain

VGL has developed a strong supply chain over the years. We are unique in our peer group for having our own manufacturing setup along with an in-house globally spread sourcing base. As a vertically integrated retailer, we have in-house manufacturing for fashion jewellery, and we collaborate with third parties for lifestyle products. This model provides agility, scalability, and flexibility. We source products from over 30 countries, including India, China, the Asia-Pacific region, Africa, Europe, and Latin America. This vertically integrated supply chain has enabled us to capture larger profit pool (60%+ gross margins) that translates into strong operating margin and healthier return ratios.

In-House Brands and Innovation

We are committed to enhancing our brand portfolio through our manufacturing capabilities and digital expertise. We have 30 in-house brands, and our strategic focus is on improving their performance metrics. Currently, branded merchandise contributes about 28% of our total B2C revenue. Our goal is to increase this to 50% by FY28. This growth will be driven by careful brand selection and a comprehensive brand matrix. We also aim to boost customer repeat rates and retention by using brand archetypes to connect with customers and build lasting loyalty. We are excited about pursuing inorganic growth opportunities, including initiatives like Rachel Galley and Mindful Souls.

FY24 IN BRIEF

In the US, retail sales are gradually recovering, driven by favourable consumer sentiment. In the UK, while inflationary pressures have eased and mortgage rates have stabilised, consumers remain cautious, resulting in only a marginal recovery in overall demand. We are refining our offerings to better align with consumer demands. In Germany, our growth trajectory persisted in FY24, achieving monthly revenues of €1.8 million, reflecting a 48% year-over-year growth. We anticipate reaching break-even levels at the operating level by the second half of FY25.

Unique customer base

0.6 million

New registrations and acquisitions

0.3 million

New customer acquired digitally

65%

Retail Operations

a. United States

airtime strategies to align with changing consumer behaviours, optimising broadcasting schedules to capitalise on peak demand periods. These strategic initiatives have significantly contributed to our improved financial performance.

b. United Kingdom

I n the UK, although inflation has eased from historically high levels and consumer confidence has seen a slight uptick, consumer caution persists due to the ongoing cost of living crisis. Our strategic acquisition of Ideal World at an attractive valuation has fortified our market share, opened new growth avenues, and enhanced our competitive edge in the UK market. Within six months of acquisition, Ideal World has achieved profitability on a direct cost basis. We project it will achieve full- cost allocation profitability within the next two to three quarters.

c. Germany

Supply Chain

VGL has established a robust and dynamic supply chain system, distinguishing itself within the industry. Unlike our competitors, we have both in-house manufacturing facilities and a global sourcing network. As a vertically integrated retailer, we manufacture fashion jewellery and gemstones internally while partnering with external suppliers for lifestyle products. This strategic approach ensures agility, scalability, and adaptability to market demands. This vertical integration not only enables us to achieve higher gross profit margins exceeding 60% but also provides flexibility and resilience against supply chain constraints.

Enhancing Customer Trust

Our commitment to understanding and meeting evolving customer needs is reflected in our continuous interaction and feedback mechanisms. We employ a 4R strategy focussed on expanding Reach, Registrations & Acquisitions, Retention, and Repeat Purchases. Additionally, we manage call centres for Shop LC (US), Shop TJC (UK), and Shop LC (Germany) from India, achieving excellent Customer Satisfaction (CSAT) scores of 96% across all locations. Our Budget Pay services, launched in FY16, facilitate a seamless shopping experience through EMI options and a hassle-free return policy. This service now accounts for approximately 39% of our retail sales.

OPERATIONAL & FINANCIAL OVERVIEW

Key Highlights

Live 24/7 TV Shopping Network

At the end of FY24, our TV networks reached approximately

130 million TV homes through cable, satellite, telco networks,

and over-the-air antenna platforms. TV sales contributed

approximately 61% of total retail sales, with an annual sales volume of 5.5 million pieces and an average selling price of USD 39.1.

Digital Sales

Digital sales, encompassing mobile platforms, live TV streaming on proprietary digital platforms, third-party marketplaces, and social media platforms, accounted for 39% of total retail sales. Revenue from digital sales increased by 17% year-over-year (YoY). We aim to achieve a 50% sales mix for digital platforms by FY27. Sales volume was 4.6 million pieces in FY24, compared to 4.4 million pieces in FY23, with an average selling price per piece of USD 30.1, up from USD 27.4 the previous year.

B2B Sales

B2B revenue was 127 crore in FY24, compared to 81 crore in FY23, recording a growth of 57%. However, B2B remains a non-core and opportunistic category for us.

Financial Performance Total Revenue

EBITDA

EBITDA margin in FY24 was 9.7% of revenue, amounting to 295 crore, a 30% YoY growth. Improved gross margins and operational leverage contributed to the expansion of EBITDA margins. Our sustained efforts in maintaining gross margins above 60% and operational efficiencies have led to a notable improvement in EBITDA margins. We anticipate further improvement in EBITDA margins from FY25 onwards due to focussed approach on better realisation and operating leverage.

Profit Before Tax

Profit before tax for the year was 190 crore (6.2% of revenue) as against 141 crore (5.3% of revenue) in FY23. A strong growth of 35% in profit before taxes suggests the impact of operating leverage and cost rebase initiatives undertaken during the year. Adjusted for losses in Germany, PBT in FY24 was 261 crore against 193 crore in FY23, implying a growth of 35% YoY.

Operating Cash Flows, Free Cash Flows and Dividends

An asset-light business with a strong cash flow generation is what defines our unique business model. In FY24, we generated free cash flows of 230 crore and operating cash flows of 270 crore. The company maintains a positive net cash position of 167 crore as of 31 March 2024, underscoring the robustness of its unique business model.

SWOT ANALYSIS Strengths

Omni-Channel Presence: We

have established a comprehensive omni-channel presence across the retail markets of the US,

UK, and Germany, including proprietary TV home shopping channels, proprietary websites, social media platforms, and third- party marketplaces.

Vertically Integrated Supply Chain:

Our vertically integrated supply chain offers multiple sourcing options, ensuring flexibility and efficiency.

Customer Value Proposition:

We provide extensive value to customers by offering the lowest average selling price (ASP) in the market.

In-House Manufacturing: Our

in-house manufacturing provide the necessary flexibility to respond quickly to market demands.

^Sustainability Focus: We maintain a strong focus on sustainability, aligning with consumer expectations and emerging industry standards.

+ Budget Pay: Our Budget Pay service accounts for 39% of our global B2C revenue, offering customers convenient payment options.

+ Robust IT Infrastructure: We have a robust IT infrastructure that integrates AI, IoT, and automation to enhance operational efficiency.

-^-Strong Management and

Governance: Our operations are led by a professional management team, an independent Board, and reputable statutory and internal auditors, ensuring strong corporate governance.

^-Scalability and Expansion: Our

business model allows for seamless scalability and expansion into new geographies.

+ Strategic Product Mix: Our

product mix includes curated collections (e.g., Sukriti, Bali Legacy, Bali Goddess, and Milaan), homegrown brands (e.g., Iliana, Rhapsody, J Francis, Karis, Elanza, Strada, Genoa, and Eon 1962), and exclusive designer brands (e.g., Giuseppe Perez, Rachel Galley, Lucy Q).

+ Effective HR Management: We

focus on effective human resource management and learning and development initiatives, resulting in strong retention rates and the acquisition of top talent.

+ Customer-Centric Approach:

Our business is customer-centric, offering a diverse product range, a strong value proposition, and engaging content.

Weakness

Dependency on Technology: The reliance on technology and digital infrastructure means that any technical glitches, cyber-attacks, or system downtimes can significantly disrupt operations and affect customer satisfaction.

High Return Rates: Teleshopping and digital shopping often experience higher return rates compared to traditional retail. This can lead to increased logistics and restocking costs.

+ Regulatory Challenges: Operating across multiple regions involves navigating various regulatory environments, which can be complex and costly. Changes in regulations related to e-commerce, consumer protection, and data privacy can impact business operations and require significant adjustments.

Opportunities

Increasing customer LTV: We are present on multiple platforms. LTV goes up exponentially when we convert single channel customer to multi channel. Increasing personalized communication to accelerate the same.

Advanced Technologies: Using technologies like AI, machine learning, and augmented reality can improve the shopping experience with personalised recommendations and virtual try-ons, enhancing customer satisfaction.

+ Mobile Commerce: Increasing mobile device usage offers a chance to boost sales through mobile-friendly websites and apps, as well as mobile payment options.

+ Product Diversification: Expanding the range of products offered, including exclusive and high-margin items.

Threats

Cybersecurity Risks: Increasing cyber-attacks and data breaches pose significant threats. Ensuring robust cybersecurity measures is essential to protect sensitive information and maintain customer trust.

Regulatory Changes: Changes in digital commerce regulations, data privacy laws, and consumer protection policies can impose additional compliance costs and operational challenges. Keeping up with and adapting to these regulations is critical.

+ Intense Competition: The digital shopping market is highly competitive, with many players offering similar products and services. This can lead to price wars, reduced profit margins, and increased customer acquisition costs.

+ Supply Chain Disruptions: Global supply chain

issues, such as those caused by geopolitical tensions, natural disasters, or pandemics, can lead to inventory shortages and delays.

MANAGEMENT OUTLOOK

We continue to invest in Over-The-Air (OTA) and digital ecosystems, including Over-The-Top (OTT) platforms, to expand our reach and enhance customer experience. Shop LC (US), Shop TJC (UK), and Shop LC (Germany) are actively utilising digital marketing campaigns and have been receiving positive customer responses. Our goal is to increase the contribution of digital revenue to 50% by FY27. Additionally, we plan to expand our lifestyle product offerings and increase their contribution to the revenue mix to 50% in the medium term.

One of our key long-term strategic objectives is to expand and strengthen our in-house brand portfolio, which offers higher margins compared to third-party brands. We aim to increase the revenue share from branded products from 28% to 50% by FY28. This will be achieved through the introduction of new brands, implementation of a brand matrix (like price laddering) and enhancing repeat purchases and retention through brand archetypes. Furthermore, recognising the growing importance of ESG, we have integrated ESG principles into our operations and strategies. We are

progressing towards our goal of becoming a net carbon zero entity by FY31 in terms of Scope 1 and 2 greenhouse gas (GHG) emissions.

Looking ahead, we will continue to invest in technology and enhance our digital platforms and marketing strategies. We are well-positioned to capture future growth, improve margins, and maintain operating leverage. Our commitment to balancing growth, investment, and quarterly dividends aims to create sustainable value for our stakeholders.

Way Forward

^ Expand Lifestyle Category

Current Revenue Mix of Lifestyle 30%

Medium Term Target 50%

^2$) Focus on Own-Brands

Current Revenue Mix of Own-Brands 28%

FY28 Target 50%

Accelerating Digital

Current Revenue Mix of Digital 39%

FY27 Target 50%

Carbon Neutral by 2031

(Scope 1 & 2 of GHG emissions)

HUMAN RESOURCE MANAGEMENT

Our employees are critical to us and play a key role in achieving sustainable growth. We focus on nurturing their growth and welfare through various initiatives and continuous investment in their professional development. Our comprehensive HR policy promotes equality and inclusivity, fostering a safe, transparent, and supportive work environment. We prioritise employee well-being and actively respond to their feedback.

For more details on Human Resources, please refer to our ESG report for FY24 and Human Capital section in the Integrated Annual Report

RISK MANAGEMENT

Aligned with the standards issued by the Committee of Sponsoring Organizations (COSO), our risk management framework is designed to manage, rather than eliminate,

the risk of failure to achieve business objectives, providing reasonable assurance against material misstatements or losses. Our Enterprise Risk Management (ERM) process enhances risk mitigation strategies while efficiently capitalising on opportunities.

INTERNAL CONTROLS

Our organisational framework, with distinct authority levels and internal protocols, upholds rigorous corporate governance standards. We have a robust internal control framework appropriate for the size and complexity of our operations. This system ensures the timely preparation of financial reports, maintains the accuracy and reliability of accounting records, detects and prevents fraud, and complies with regulatory requirements.

Regular internal audits and management reviews are conducted to ensure the effectiveness of our internal controls. We maintain a comprehensive set of documented policies, guidelines, and procedures, supported by technologically advanced platforms to strengthen our Internal Financial

Control (IFC) framework. We have also introduced an application-based compliance management system to monitor compliance, aligning with our zero-tolerance policy and enhancing reporting efficiency.

Our internal audit system spans across functions and locations. Identified issues are promptly addressed by process owners based on guidance from the internal control function. The Audit Committee is regularly briefed on significant audit observations and corrective actions. PricewaterhouseCoopers Services LLP (PwC) has been appointed as our internal auditor, which reports its findings to the Audit Committee. The Internal Audit function closely monitors the effectiveness of the internal control system, ensuring its continued competence and resilience. The Audit Committee reviews the risk-based internal audit plan implemented by the Internal Audit function.

CAUTIONARY STATEMENT