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India the slow-moving giant

February 2018


India the slow-moving giant

One of the fastest growing economies with a large, young population and a sizeable middle class, the south Asian power has not held all its promises for the global watch industry.

W

hile India’s potential still makes it an attractive destination, many hurdles remain for the subcontinent to become a boon for international watch-makers, as it still lags behind a number of smaller emerging countries… At least for the time being.

Take a short walk around any big Indian city and one thing is obvious: watches have become a common fashion accessory for everyone. From working-class neighbourhoods to posh clubs, restaurants and corporate offices, almost every Indian flashes a timepiece on his or her wrist. Long gone are the days when Hindustan Machine Tools, better known as HMT, was the sole player on the Indian market. Now a struggling relic of Indian post-independence socialist times, the public company started under the country’s first Prime Minister Jawaharlal Nehru finally shut its doors for good a year ago, leaving its vintage mechanical and automatic models to nostalgic collectors. The first challenger to break the monopoly was the Indian private group Titan, which came along in the late 1980s and soon began digging HMT’s grave. Titan, a subsidiary of the Tata conglomerate, has thrived ever since and today commands over 50% of the Indian market, estimated at over 500 million dollars.

It is in the last 15 years, however, that the watch market has witnessed formidable change. Sunil Karer, editor of Watch Market Review, the first Indian horology magazine, founded by his father in 1953, remembers when India started to abandon its strict protectionist policies. “Until the year 2000, watches were not allowed to be imported into India. I organised an exhibition for Swiss watches in India for eight years. We invited the industry ministers and explained to them that they shouldn’t ban them because they were not competing with HMT at all. Then they allowed watches over 1000 dollars to be imported… slowly (with a heavy duty of 90 or 100%), we got watches off the restricted list”. India has since opened its doors wide to Swiss, Japanese and American watch companies who, along with Titan and its various brands, have flooded the market.

India the slow-moving giant
• Total Indian population: 1.34 billion (50% less than 25 years old)
• Indian watch market estimated at 1 billion dollars
• Luxury watch market estimated at 500 million dollars and growing at 20-25% annually in India
• Over 50 million watches sold every year in India (= average price 20 dollars)
• The Indian watch market has grown at a rate of over 9% for the past 10 years
• Market share by brand: Titan (50% in value), Timex (20%), Swatch Group (14%), Casio (7%), Citizen (5%), LVMH (1.8%), Rolex (0.5%), others (1.7%)
• India is only ranked 26th in terms of exports for Swiss watch brands

A young population hungry for watches

India’s economic boom of the last decade has been reflected in the watch industry, which can be divided into three broad sectors: the mass-price market, the mid-price market, and the premium price segment. While the mass-price segment (watches under 1000 rupees) is the biggest in terms of volume, it represents about 37% of the total market in terms of value. The mid-price segment represents approximately an equal share while the premium segment takes about a quarter of the pie. The rise of disposable income in India has boosted the premium market in particular, especially in the “affordable premium” bracket, which takes into account watches from 10,000 to 100,000 rupees. Online sales of watches are also growing at a tremendous rate, keeping pace with rapid internet penetration in India. It is growing at an annual rate (CAGR) of 50%, mainly in the retailing of watches under 50 000 rupees. Five major e-commerce websites – Amazon India, Flipkart, Jabong, Myntra and Snapdeal – have taken over the market these last few years, together sharing over 90% of the total online market.

A young population and rising disposable income are key factors in the growth of the wristwatch market, especially in the mid-price and affordable premium market. “People who earn 50,000 rupees a month will be willing to spend up to 10,000 on a watch on average,” says Vinay Kumar, a salesman at Helios in New Delhi, a multi-brand chain of stores owned by Titan. Although the Indian giant does well, in particular in the more affordable watches (under 5000 rupees), most young Indians who can afford it prefer to go for international brands, which have become a status symbol, as in many other emerging countries. In that bracket, two American players have fared well in India: Timex, the American giant, which has captured a 20% market share, and to a lesser extent Fossil, which counts many brands under its umbrella in addition to its own and has made a successful foray in what the company likes to call the “bridge to luxury” segment.

“In the fashion segment, Guess, Armani, Diesel and Tommy Hilfiger are doing well, and in the technology market, Fossil is doing well and Seiko and Casio are doing very well.”

In the busy commercial neighbourhood of Lajpat Nagar in New Delhi, Dinesh Kumar has been running his store for over 50 years. He started out selling HMT watches but now offers many international brands, mostly in the 10,000 to 15,000-rupee bracket. “For about the last 15 years, young people have been treating watches as a fashion statement. They buy watches as gifts, for their girlfriends. 60% of my customers are after the brand and the remaining 40% are after the technology,” says Kumar. “In the fashion segment, Guess, Armani, Diesel and Tommy Hilfiger are doing well, and in the technology market, Fossil is doing well and Seiko and Casio are doing very well,” he adds.

Casio and Seiko, full speed ahead

Seiko, which entered the market in 2007 and boasts an annual growth rate of 25%, has so far made a successful entry into India. Its watches are sold in 385 multi-brand outlets and it has opened six exclusive boutiques in several big metros around the country. Unsurprisingly, the Japanese brand is targeting the 25-to-40 age group in India, according to Seiko’s country president Niladri Mazumber, who hopes to double the number of exclusive boutiques in thecountry in the next year. The group, which aims to compete with Swatch Group brands Rado, Tissot and Omega, has also entered the online market aggressively, opening a “mini-site” on Amazon. According to Dinesh Kumar, it is already offering stiff competition to the Swiss brands: “A Rado automatic starts at 1.5 lakhs. If you purchase a Seiko Astron you will get a lot more features like a GPS, or solar for that price”. Casio, is slowly but surely becoming a serious player in the game in India. The Japanese electronic giant has captured 5 to 7% of the watch market, depending on different estimates. The brand enjoys good visibility, from malls to airports to local wristwatch stores in Indian cities, and its reasonably priced sporty G-Shock and Edifice model are highly appreciated by a younger demographic. “They are my best selling watches, with Titan in the lower price range,” says Gaurav Kumar, who runs a small watch store in south Delhi. This statement, echoed by Dinesh Kumar of Mahindra Watch Company and many other retailers in the Indian capital, explains why the company has surpassed – in terms of market share – Citizen, another well-established Japanese brand.

A difficult time for luxury brands

The Swiss watchmakers, traditionally associated with the highest quality and luxury time-pieces have on the other hand found it difficult to truly conquer the Indian market. After a steady rise since 2005 (excluding a dip after the 2008 economic crash), sales have dropped since 2013. The Swatch group still controls a sizeable portion of the market (around 15%) with brands like Swatch, Omega, Rado and Tissot, which have built a reputation since entering the Indian market in 1998 and are still selling relatively well. The higher-end brands, like those of the LVMH group, are struggling a bit more. Anil Madan, who owns six watch stores in Connaught Place, New Delhi’s traditional commercial district in the centre of the capital, maintains that some of its brands, in particular TAG Heuer and Hublot, remain popular among his customers. Nonetheless, despite an aggressive marketing strategy – Bollywood superstar Shah Rukh Khan, one of India’s most famous actors, has been the brand ambassador of TAG Heuer for many years – LVMH shut down its Indian operations last year and now relies on a local partner for distribution in the country.

“The luxury market has definitely slowed down in the past few years,” explains Sunil Karer. “Because of all the duty structures, premium watches are facing some problems.” High taxation, which complicates business for many Indian retailers, remains a huge impediment. Since December 2015, the Indian government has made it compulsory for buyers to give their Permanent Account Number, or PAN, for any purchases above 200,000 rupees. A PAN number is the code that links every Indian national to the Income Tax Department, and hence exposes the purchase to taxation. This has pushed many potential Indian buyers to go abroad for their watches, particularly Dubai and Hong Kong, two destinations Indians can fly to in a few hours, which were already popular among luxury watch aficionados in the country. “Most Indians nowadays are travelling a lot to Dubai and Hong Kong. Dubai is a very strong base for watches and it’s close to India. In Hong Kong there are Indians who give you any brand you want at a very competitive price,” confirms Sunil Karer.

Demonetisation: adding fuel to the fire

The brands that are faring the best, like Seiko for example, are those that have priced their watches under the dreaded 200,000 rupees limit. But late last year, the Indian luxury market was dealt another sudden and unexpected blow: on November 9th Prime Minister Narendra Modi’s government announced the overnight demonetisation of 500 and 1000 rupee bills, a draconian economic measure aimed at curbing “black money” in India, where cash transactions are the norm and tax evasion rampant. As Indians were queuing up for hours at a time in front of banks, the rich also refrained from spending. “It has had an immediate impact on sales,” admits Anil Madan. This setback is likely to have only a short-term impact but has further dampened an already fragile market.

Yashovardhan Saboo is the founder and CEO of Ethos, India’s biggest luxury watch chain, which retails brands such as Rolex, TAG Heuer, Breguet, Jaeger-LeCoultre and, more recently, more niche horologists like Corum and Favre-Leuba. When asked about the state of the Indian market and its challenges, he gets mildly irritated at having to state what has now become the obvious for industry insiders. “I’ve said it before… the market is not developed, duties are not ok, taxes are high. There is nothing new about it.” He admits that this has caused a lot of caution on the part of Indian buyers, but maintains that if the Indian market is still finding its feet, the brands that do persevere will eventually find a huge payoff.

The Chinese mirage

There is another reason why this payoff has so far not been the one expected by global watch companies who have invested heavily in India. After the explosion of the Chinese luxury market, it was easy to imagine a similar scenario in India. The country, like its Chinese neighbour, is also an Asian giant with a high growth rate, a very large population and, above all, a booming middle class, which has seen massive income growth in the last decade. These striking similarities are however deceiving and hide many important differences between the two countries. First of all, the categorisation of what constitutes “the middle class” is not the same in both countries. Any Indian earning above 13,700 dollars a year is counted in the middle class, while the threshold is 28,000 dollars for China, according to Credit Suisse.

Furthermore, despite its population of over 1.2 billion people, only 3.2% of Indian citizens qualify as middle class. In comparison, the Chinese middle class will be represented by 76% of the population by 2022, according to a 2013 McKinsey report. The growth for luxury consumption, which many international watch brands fall under, will therefore remain limited. This helps in explaining why India is ranked only 26th worldwide in terms of exports for Swiss watches, behind even Thailand, and with a sales volume more than ten times smaller than that of China, despite growing at a faster pace than its Asian rival in the last few years. While India’s evergrowing number of millionaires and billionaires will always sustain a sizeable upper market, it is the evolution of its middle class and its disposable income which will truly define the future of the Indian watch market and that of its major players.

India the slow-moving giant

TITAN, KEEPING THE MARKET LOCAL

India the slow-moving giant

The Indian flagship brand has held and even strengthened its strong grip on the local wristwatch market since its inception in the mid-eighties. Despite retaining more than a 50% share, the group is not resting on its laurels and continues to innovate, and even successfully expand into other markets like jewellery and eyewear. Appealing to a large segment of the Indian population, the group has so far managed to stay the course, despite growing international competition.

Titan’s rise has been steady since the 1984 joint venture between the Tata conglomerate and the Tamil Nadu Industrial Development Corporation (TIDCO), which gave it birth. Titan Watches Ltd, soon changed to Titan Industries Ltd, launched its first line of wristwatches three years later, becoming the dominant player in a closed market in just a few years. “When we started in 87 we had one market, one watch brand and came out with well designed quartz watches. From 87 to the early 90s we rapidly became very popular around India, and started putting up our own showrooms. After that, we expanded to jewellery and the watch business expanded to Middle East, parts of Europe and south east Asia,” says Suparna Mitra, head of marketing at Titan.

The entry of foreign brands into the market has forced the group to diversify its products, something it has been able to do well. Its Fastrack line, chunky sporty watches in the 1000 to 3000-rupee range, has been extremely popular with young people since its launch in 2004. Other models, like the Raga line exclusively for women, which came on the market a few years later, or the Octane chronograph line for men revealed last June have also been a success. To keep up with trends in the market, the group has recently launched its line of smartwatches, the Juxt and Juxt Pro models, soon to be followed by the Gesture, in a few months from now. Only time will tell if they will be able to compete with big players like Samsung or Apple. Over the years, Titan has however developed a wide array of models to maintain its share of an increasingly competitive market. “Titan has done what Swatch Group has done. It starts at less than 1000 rupees and goes up to premium brands. A Titan Nebula will start from a Lakh (100,000 rupees). They also brought over Favre-Leuba and they are now retailing and distributing Mont-Blanc,” says Sunil Karer of Watch Market Review In addition to these luxury brands, the Indian group also has a retailing license for several international mid-market fashion brands like Tommy Hilfiger, Kenneth Cole and Police. It uses its chain of multi brand retail stores, Helios, to sell these brands. Titan has two main advantages: a reputation of reliability and “bang for your buck”, and a large distribution network, both of which come with three decades of operating in India. “Our brand name is associated with trust and quality and our after-sales network is big. We also have more than 700 brick-and-mortar stores across the country,” explains Suparna Mitra. The Indian giant has done particularly well in penetrating semi-urban and rural areas, where disposable income is lower. “Our Sonata Modern, which caters to the 500 to 2000 rupee bracket, is doing great in those areas,” says Mitra.

An overwhelming proportion of Titan’s market share is indeed in the lower-price segment. Its luxury watches, like the Nebula, struggle to compete with established Swiss brands. “Beyond 10,000 rupees, Titan are losing the market,” asserts Dinesh Kumar, who claims average sales of 500 to 600 Titan watches per month at his store. This focus and reliance on the lower-end segment has so far paid off in India, as wristwatch sales are still growing at a healthy 9% annually. As competition intensifies, Titan is at risk of losing its dominance over the market. Its international operations may give a glimpse of this scenario. While the Indian group is present in 32 countries, mainly in the Middle East, South and South-East Asia, its penetration in those countries remains shallow. “International business is a smaller part of the watch division. Also, unlike India, most markets abroad are highly cluttered with cut-throat competition. The number of active brands is significantly more. And so most brands enjoy only single digit market share. This is true for Titan as well in our key markets,” says Vijesh Rajan, head of international operations for Titan. The Indian giant has not yet, for now, made a mark outside its own borders.