Mumbai: The Sahara group, which has interests in finance, entertainment, real estate and media, plans to enter the gold retail business. The conglomerate, which recently launched a chain of retail stores, plans to export, import and deal in “gold, silver, bullion, jewellery ornaments and precious and semi-precious metals and stones” through Sahara Q Gold Mart Ltd.
This company will also act as an investment and portfolio management firm and deal in “debenture stock, bonds, gold bonds, units”, said the memorandum of association of the firm, filed with the Registrar of Companies (RoC) in January. Registered in Maharashtra, it has an authorized capital of Rs 5 crore.
Mint has reviewed a copy of the filings of the Sahara group with RoC.
The group also plans to expand its retail business into direct selling through multi-level marketing.
Abhijit Sarkar, head (corporate communications) at Sahara India Pariwar, declined to comment for this story. In an email response, he said: “As you are aware, we are perusing a defamation case for unfair, inaccurate and defamatory publication by you in the past and as such we do not have trust and confidence in your reportings. In the circumstances, we do not feel it proper to entertain your queries and advise you to refrain from making any unfair reporting against us, failing which please note that we reserve our right to take appropriate legal action if any inaccurate or defamatory publications are made against us.”
Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s dispute with the Securities and Exchange Board of India. Mint is contesting the case.
The conglomerate is also fighting a case in the Supreme Court against India’s capital market regulator challenging its ban on raising public money through optionally fully convertible debentures for alleged violation of norms.
Sahara group is launching its retail gold business at a time when the government has moved a proposal to increase the basic customs duty on standard gold bars, gold coins of purity exceeding 99.5% and platinum in the Union budget.
The duty on gold ore, concentrate and ore bars for refining has also being enhanced. India’s gold market is estimated to be worth $58 billion (Rs 2.9 trillion).
“Gold retail is a capital-intensive business and requires on average Rs 50-60 crore of capital investment for one store to stock 100-150kg of gold. Moreover, to be successful, retailers also have to win the trust of their customers and be equipped with skill sets to do gold retailing,” said Mehul Choksi, chairman and managing director of Gitanjali Group, which owns brands such as Nakshatra and Asmi.
Earlier this month, Sahara launched its retail business under the brand name Sahara Q Shop in Rajasthan and is expected to start outlets in 17 other states, including Bihar, Uttar Pradesh and Jharkhand by the end of this year.
Sahara’s retail venture—a mix of direct selling and bricks and mortar retail—will sell groceries, including Sahara’s own range of packaged goods such as shampoos, detergents and soaps, according to the Sahara Q Shop ‘Plan-H’ document reviewed by Mint.
Direct selling refers to channels that don’t involve a fixed retail outlet, but take place instead at home or the workplace. Direct sellers engage buyers through explanations and demonstrations of the products that generally take place at residences or offices.
“Credibility is certainly key” in consumer-facing businesses such as retail, said Anand Halve, co-founder of Chlorophyll Brand and Communications Consultancy Pvt. Ltd. “It is also about transparency.”
Name recognition may work in Sahara’s favour in its home state, he said.
“My view is that the group probably has some cachet in Uttar Pradesh, where it seems to be able to collect deposits,” Halve said. “So it may be able to pull off a customer-facing business there. In the rest of the country, I am not so sure.”
Under the proposed Sahara Q Shop direct selling plan, the company will recruit customers who have to pay Rs 12,250 in advance to purchase merchandise from the retail venture. The advance payment will be locked in with the company for five years and every month 3.5% of the amount spent by a customer will be adjusted against this. At the end of the fifth year, the company will refund the unadjusted money, if any, without interest.
Another option is that these customers can opt to become Sahara sales associates and promote the Q Shop Plan-H. For every new customer or sale made by existing customers, they earn a “special promotional incentive of Rs 800”.
“There are no limits to the number of esteemed customers you can introduce to us and make your gains potentially unlimited. For example, by introducing 16 customers, you earn back your money paid as advance of Rs 12,250,” the document said.
The direct selling industry will be a Rs 7,120 crore market by 2012-13, according to a May 2011 Indian Council for Research on International Economic Relations (Icrier) report.
The number of direct sellers tripled from 1 million in 2001-02 to 3 million in 2009-10, according to Icrier. However, the number of genuine direct selling companies in India is just 30 (excluding insurance companies), Icrier said in a report that asserts the need for a policy framework to safeguard the sector from fly-by-night operators.
“Credibility, business plan, products and word of mouth are a huge necessity for being successful in this business,” said an Amway India spokesperson.
Amway India has been in the direct selling business in the country since 1998 and had revenue of Rs 2,130 crore for the year ended December.
While the direct selling industry is not regulated in India, reputed firms are registered with the Indian Direct Selling Association (IDSA), an autonomous, self-regulatory body.
“The Sahara group has not approached us to register their direct selling business,” said Chavi Hemanth, secretary general of IDSA, which has 18 members in India. The association follows stringent registration process. Members need to have a returns policy for customers and a sound business plan.
Speak Asia, a multi-level marketing firm, came under the scanner of investigative agencies last year over allegations of non-payment to investors. Speak Asia, which conducts online surveys on a variety of products and services, has around 2 million Indian panellists, or members, who pay money to join the firm’s network and earn reward points for referring its offerings to friends and peers.
Sahara group’s Hindi-language newspaper competes in some markets with Hindustan, published by Hindustan Media Ventures Ltd, a unit of HT Media Ltd, which publishes Mint.