June 8, 2013 1:29 am

India: Leading brands prepare to play long game on subcontinent

Shah Rukh Khan©AFP

Star quality: Shah Rukh Khan, the face of TAG Heuer in India

As China’s luxury watch consumption slows, now superseded by Germany as the third-largest market for Swiss watches, India has quietly been churning its gears as watch brands subtly eye a market with a population of 1.2bn.

According to Wealth-X, a global provider of intelligence on the super rich, there are 7,730 individuals in India with a total net worth of $925bn, a number expected to double to 17,000 in the next decade.

Seen as roughly 10 years behind China, the Indian luxury market, is expected to grow faster, and eventually match that of China’s, according to Jay Jhaveri, head of business development in Asia at Wealth-X.

The country represents just 1 per cent of total Swiss watch sales, surprisingly low, given the size of India’s population, favourable demographics and a growing economy driven by domestic consumption, says Thomas Chauvet, head of Citi’s European luxury goods equity research team.

All of which makes India ripe for development as far as luxury watches are concerned.

But whereas initial reluctance to enter China directly was due to the perception (at the time) of intellectual property concerns, in India, duties and tariffs can raise the price of a watch by 50 per cent, affecting margins and making it extremely difficult for luxury brands to run businesses profitably.

That is where marketing comes into play. Longines has long used the Indian actress Aishwarya Rai Bachchan in its campaigns while TAG Heuer, Hublot and Audemars Piguet all have dedicated brand ambassadors in the form of the Bollywood actor, Shah Rukh Khan, and the cricket stars Harbhajan Singh and Sachin Tendulkar, respectively.

“Watch brands are opening in India, but they are largely marketing tools,” says Jon Cox, head of Swiss research at Kepler Capital Markets.

“Being a favourite among celebrities was key to the rapid success of the brand in India,” says Jonathan Stalder, director of Hublot India, which has a flagship store in development and is one of the very few brands more successful in India than in China, having opted to enter the former first in 2006.

“We want to establish our awareness,” affirms Franck Dardenne, country manager for LVMH Watch and Jewellery India. “Even if nobody knows when the bomb of wealth will explode in India, we want to, and will be, ready for this moment.”

LVMH Group brand, TAG Heuer, available via eight monobrand boutiques and 85 multibrand outlets in 28 cities, made the bold move of offering its full range of watches to Indian customers as early as 2002.

By doing that, it was able to capture a leadership position. The brand plans to open in multiple “tier two” cities where it expects to wait two years before achieving strong turnover.

With high-end watches, where substitute products are more difficult to find, there are interesting longer term opportunities. Richemont, LVMH and Swatch Group have an established watch presence in India to benefit from this strategic market once it opens up more favourably from current “marginal” standings, paralleling a similar phenomenon in China 15 years ago.

For the time being, however, the approach has been to limit invested capital and risks.

Michele Sofisti, chief executive of Sowind Group, which includes Girard-Perregaux and Jean­Richard, believes in maintaining a balanced global distribution of investment, sales and post-sales service. “India remains a market of potential interest, but not yet real in spite of their economy,” he says.

Additional obstacles include such as the absence of a large middle class and organised distribution, difficulties developing retail without an Indian partner, few luxury malls and plain old bureaucracy.

“There are no tangible reasons to be bullish on the Indian luxury watch market for the next decade,” says Mr Chauvet. Despite that forecast, Wealth-X estimates wealthy Indians will spend $800m this year on luxury goods in India alone. But India boasts the largest number of privately owned planes in Asia. The natural conclusion? Indians are buying watches abroad.

Just a decade ago, when travel abroad and the internet were not as common as they are now, brands were simply adding import taxes to the prices, notes Mr Stadler. Today, with instant comparison shopping, that would be impossible.

Unlike with jewellery, the vast majority of which is entrusted to family jewellers, brand names are very important to the Indian consumer when choosing a luxury watch.

Artisanal brands such as Vacheron Constantin, with its Emporio Mall boutique in New Delhi, have progressed steadily in the past decade, says managing director Yassin Tag, “benefiting from an increase in watchmaking awareness, as well as a love for craftsmanship and precious materials”.

In the case of TAG Heuer, a quarter of its market is composed of steel and gold watches. “Our Formula 1 steel and ceramic watch met with tremendous success after it was adapted to be gold-plated and ceramic,” says Mr Dardenne. “Its shiny aspect made it extremely suitable with saris.”

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