Show-off time

Written by Alokananda Chakraborty | Updated: May 5 2008, 03:34am hrs
The Indian consumer is changing. And this new Indian consumer, with rising disposable income and a deep-rooted entrepreneurial culture, is driving the luxury goods sector. That includes luxury watches, a segment that has seen some frenetic activity over the last couple of years.

Heres why luxury watch-marketers seem upbeat about India.

* Research from the McKinsey Global Institute shows that within a generation, India will become a nation of upwardly mobile middle-class households, consuming a range of goods from high-end cars to designer accessories. In two decades the country will overtake Germany as the worlds fifth largest consumer market.

* The same research says that the middle class in India, numbering 50 million people currently, will have expanded to 583 million people by 2025. These people will see their incomes zoom to Rs 51.5 trillion 11 times the level that it is at today and 58% of the total Indian income.

* A major spending force in Indias new consumer market will be the global Indian, who earns more than Rs 1 million. Today there are just 1.2 million global Indian households accounting for some Rs 2 trillion in spending power. By 2025, there will be 9.5 million Indians in this class and their spending power will hit Rs 14.1 trillion.

The numbers are mind-boggling, but the message is clear. For one, more and more luxury watch-makers are finding Indian shores lucrative enough to drop anchor. The domestic market for watches wearing price tags of Rs 10,000-plus, is estimated at Rs 600 crore at present, but is growing at 25% per year. The likes of Omega, Cartier, Tag Heuer are the lead players in the market, who account for one third of the total luxury watch sales.

For the record, the total watch market in India is estimated at Rs 2,746 crore in 2007, and expected to touch Rs 4,750 crores by 2009-10, according to analysts. India is among the top three strategic markets, says Frederic Dumonal, international communication manager, Favre-Leuba. It has a rich tradition of gifting, adds Patrick Normand, managing director, Cartier, and this segment comprises a large part of our volumes.

The prestige watch-makers are simultaneously trying to climb the value chain and positioning their brands as collectors items. As Laure Le Roch, spokesperson for Montres Jaquet Droz puts it, We are in the business of selling art, selling a piece of history. Take German luxury watch brand A Lange & Shne, which along with competitors such as Baume & Mercier, Vacheron Constantin, IWC, Audemars Piguet, Jaeger-leCoultre which showcased their brands at the recently concluded Salon International de la Haute Horlogerie (SIHH) at Geneva, Switzerland, recently are looking only at the upper echelons of the society, with prices ranging between Rs 7 lakh and Rs 3 crore. The target: customers with an annual income of Rs 1 crore and above. Fabian Krone, CEO, A Lange & Shne, told FE in an earlier interview, Being exclusive is becoming a trend; so exclusive are these timepieces, that only 5,000 units are made every year. When a person acquires a Lange, he inherits its state-of-the-art tradition and class.

For the Indian watch aficionado, the price tag doesnt seem to be much of a bother. Dealers, retailers and publishing honchos gather at the BaselWorld and SIHH in Switzerland every year, where the biggest names in jewelry, watches, rings and wedding rings showcase their wares.

The success of the SIHH and WPHH in recent years has generated many smaller shows and exhibitions by independent watch-makers, to capitalise on media and buyer turnout in Geneva. Take the Franck Muller Group, a mini-conglomerate of luxury brands, which holds it own seven-day fair (April 6-13), the World Presentation of Haute Horlogerie, at its Watchland estate near Geneva.

Most report healthy attendance and business. Indeed, the SIHH 2008 (April7-12) was rated highly satisfactory by all 16 exhibiting brands, with results exceeding those of 2007 and their objectives for 2008. Brands welcomed close to 14,000 guests from around the world (8% more than in 2007), including a huge contingent from India. Celebrities were not in short supply. Ex-actress and wife of industrialist Anil Ambani, Tina Ambani, was spotted at the event this year, probably looking for her next accessory.

Back in India, however, not everything is rosy. India is still 10-14 years behind China in this industry, says an industry analyst. The reason is not difficult to guess. Earlier this year the All India Federation of Horological Industries (AIFHI) urged the Government to reduce the import duty on luxury watches from 40 to 20%, to give the market for luxury watches in the country a leg up.

Brand heads of most companies from affordable luxury brand Balmain to premium luxury brand Piaget emphasise that the existing system of indirect taxation has proved to be a burden on the industry. China and India are the new El Dorado for us, but various factors in India have not allowed the demand for premium and luxury watches to grow to an expected level, says Michele Orfeo, head of marketing, Balmain. An executive from Hermes, for which India is the theme of 2008, adds, If the government cuts the import duty on watches, the volume of luxury and premium watches will double, if not more, which will also result in more revenue to the Government in the shape of taxes!

While none of the brands want to go on record on this, heres the problem. The countrys high import tax adds 45-55% to the price of foreign apparel and watches. Brands say they are absorbing some of those costs, but what is important to note is that the higher prices mean many affluent Indians, who travel abroad regularly, are buying such goods out of the country.

Analysts point out that because of the low volumes in premium and luxury watches, international watch manufacturing companies do not find it practical to set up manufacturing or assembly units in the country. Countries like Dubai either have zero or very low import duty, resulting in massive growth for the domestic watch industry.

All this hasnt deterred these players from wooing the consumer with gusto. Take the Swatch Group, which is banking heavily on celebrity endorsements. Abhishek Bachchan and Sonali Bendre Behl, for example, vouch for its brand Omega, while Lisa Ray is always seen sporting a Rado. Longines has signed up Aishwarya Rai Bachchan, while Tissot has thrown its weight for the understated charm of Deepika Padukone.

For its part, Swiss watch-maker TAG Heuer is banking on cricket and Bollywood. Shah Rukh Khan and Priyanka Chopra are on the roster of Tag Heuer. It has also won the sponsorship rights to being the official time-keeper of the Kolkata team during the IPL tournament. Tag Heuer has also successfully linked itself with polo. The brand is currently the official time-keeper for the Indian Polo Association too. Part of French luxury products group LVMH, TAG Heuer entered India in 2002. LVMH today regards India as one of the most promising markets globally.

Clearly, for luxury watch makers eyeing India the party has just begun.

Global timing

The 4th edition of the World Watch Report 2008 confirms strong consumer interest in luxury watch products. It says the interest in counterfeit products has fallen 27%, and that the internet plays a key role in luxury watch pre-purchasing activities. This annual market study, prepared by IC-Agency, focuses on the five top luxury watch export markets.

It deciphers queries entered into search engines from millions of prospects for 12 luxury watch brands (Breitling, Bulgari, Cartier, Chopard, Ebel, Girard-Perregaux, Jaeger-LeCoultre, Longines, Omega, Patek Philippe, Rolex, and Tag Heuer).

The following are the main trends highlighted in the 2008 report:

* The European market (France, Germany, Italy, United Kingdom) is maturing, as France and Germany catch up with the United Kingdom. For Omega, its share of searches coming from the United Kingdom fell sharply (-20%), due in part to Italys strong growth (+15%).

* Most searched model: For the first time, Omegas Seamaster surpasses Rolexs Daytona and Datejust. Rolex however has eight models in the top 20, while Omega has only three.

* Ebel soared in Germany (+17%): For this Movado group brand, over three in five searches come from this country.

* Longines compensated its decrease in Italy (-14%) by increases in France (+8%) and Germany (+6%).

* In the United States, Omega gained a 5% share, while Rolex and Tag Heuer shed 4% and 3%, respectively. Rolex remains the uncontested leader in the Mens/Sport category.

* Search volume for counterfeits has gone down, most strikingly in the US, which registered a decrease of 52%. In Europe, only Italy registered an increase of 20%.