India: luxury groups make a play for nation’s rising wealth

One watchmaker is using the Cricket World Cup to reach consumers, while other brands expand in
the country’s main hubs

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Benjamin Parkin MAY 30 2019Print this page India has long been considered a compelling prospect
for Swiss watchmakers and luxury jewellers. Yet while it has seen mouth-watering economic growth
and a rising middle class, for many these have not expanded enough to overcome the country’s
painful import tariffs, red tape and price-sensitive consumers. Some watch and jewellery brands are
starting to place bets that India has reached a tipping point, however, and are positioning
themselves to grow in the country of 1.4bn people. For them, everything from the rise in whisky
imports to Indian tourists’ growing spending power are signals that wealthier Indians are ready to
splash out on fancy timepieces. Analysts also point to signs that the economy is finally recovering
from Prime Minister Narendra Modi’s controversial 2016 decision to ban the country’s high-value
banknotes, which choked the cash supply many used for expensive purchases. India’s luxury goods
market is worth about $10bn in annual revenue, according to Statista, a data provider, with watches
and jewellery accounting for just over half of the total. “In the past decade or so China has come
from nothing to become the major growth driver for luxury goods,” says Jon Cox, head of Swiss
equities at research company Kepler Cheuvreux. “I’m not saying this will happen with India, but
there is clearly similar potential. I think the luxury goods industry recognises that.” Mr Modi’s recent
victory in national elections boosted stocks, underpinning hopes for a business-friendly government
and strong consumer demand. One watchmaker, however, is pinning its hopes on cricket rather than
politics to stimulate consumer demand in the country. Hublot is a sponsor of the Cricket World Cup,
which England’s batsmen will open in a match against South Africa. But the Swiss brand will be
looking beyond the 25,000 spectators packed into The Oval in London as it eyes a new audience
4,000 miles away in India. There is similar potential [between China and India]. The industry
recognises that Jon Cox, head of Swiss equities at Kepler Cheuvreux “In India, cricket is the most
followed sport throughout all the population ages and categories,” says Ricardo Guadalupe, Hublot’s
chief executive. “We decided to get involved in a big way.” Of cricket’s 1bn fans worldwide, 90 per
cent hail from the Indian subcontinent, according to the ICC cricket body. The watchmaker hopes the
country’s burgeoning nouveau riche — with 343,000 US-dollar millionaires in 2018, according to
Credit Suisse — will add luxury timepieces, alongside cricket, to the list of things they value highly.
After more than a decade selling its watches through Indian retailers, Hublot is opening its first
boutique alongside the likes of Gucci and Burberry in Mumbai’s luxury Palladium Mall in August, and
plans to add two or three more in India in the coming years. It is not alone. Christoph Grainger-Herr,
chief executive of IWC Schaffhausen, says it will start selling watches this year at an outlet in
Hyderabad, its fourth in India. Similarly Chopard plans to open a boutique in Mumbai in “the near
future”, says Karl-Friedrich Scheufele, its co-president. Hublot hopes that by aligning its fortunes
with cricket, its appeal will accelerate among the sliver of India’s huge population capable of forking
out several thousand dollars on a watch. To mark the collaboration, the watch brand is launching 50
limited-edition timepieces made with gold, titanium and sapphires for the Indian market. Mr
Guadalupe recalls how the sight of Swiss watches and French luxury bags adorning wedding guests
on a recent trip to India cemented the idea that it was time to invest in the country. “The market for
luxury watches will really boom the day the upper middle class really starts to buy foreign luxury,”
he says. “It is slowly starting.” India accounted for less than 1 per cent of all Swiss watch exports in
2018 by value, less than Portugal and a tenth that of mainland China. But exports to the country
jumped 34 per cent from a year earlier, according to the Federation of the Swiss Watch Industry,
making it one of the fastest-growing markets. Foreign luxury brands have typically been reluctant to
do more than dip their toe into India, selling limited quantities through local retail partners, banking
that big spenders will visit their stores while on trips to Dubai or Singapore. One needs to
understand the Indian jewellery buyer’s psychology. They don’t care much about the brand Abhay
Gupta Until 1997, India enforced a decades-long ban on watch imports, designed to protect the
domestic watch industry. It has since maintained high tariffs and taxes that amount to as much as 30
per cent on imports. Industry participants had hoped that a trade deal between India and the
European Free Trade Association, which includes Switzerland, would help boost business. But the
sides have struggled to overcome differences on intellectual property and other points, despite
years of negotiations. Some brands are forging ahead regardless. Mr Scheufele says Chopard has
been subsidising the cost of its products to reduce the blow of high import tariffs for consumers. Its
jewellery watches have done particularly well, he adds. The company’s Mumbai plans follow a near
doubling of its Indian sales since 2014. While Chopard had been selling in India for about two
decades, its fortunes improved when it took direct control over local distribution. “The market is as
competitive as you can get,” he says. “In the long run, we believe that it is worth the investment.”
Some foreign jewellers have found India to be less promising, according to industry analysts. Unlike
watches, consumers see jewellery as a store of wealth and are unlikely to pay a premium for a brand
name, says Abhay Gupta, who advises luxury brands in India, making it tougher for the Cartiers and
Bulgaris of the world to crack the market. “One needs to understand the Indian jewellery buyer’s
psychology,” Mr Gupta says. “They don’t care much about the brand. One will look at the design and
ask the local jeweller to make it . . . Culturally, we look at the amount of gold or diamond used, and
the weight.” India is also reeling after celebrity jeweller Nirav Modi last year fled the country accused
of being at the centre of a $2bn bank fraud — allegations he denies. Recommended India Fugitive
Indian jeweller Nirav Modi arrested in London Incomers acknowledge the challenges. Sascha Moeri,
chief executive of Swiss watch brand Carl F Bucherer — which sells in India through local partners —
describes Indians as “demanding clients”. Indian customers’ likes and dislikes, he says, “spread like a
fire”. Fast-growing domestic luxury brands such as Zoya and Amrapali Jewels have had more luck.
The key for vendors, suggests Amrapali’s chief executive Tarang Arora, is to double as commodity
traders. “In India, you’re not just buying jewellery, you’re investing in a precious metal,” he notes.
Indians, he says, “are being continually taught by their parents that . . . you invest in a piece of land
and you invest in gold”. For foreign watchmakers, assimilating local culture has proved essential —
not least in the form of tie-ups with Indian celebrities. Chopard organises events with Bollywood
royalty such as actor Saif Ali Khan. For Hublot, linking the brand to India’s favourite sport and the
wildly popular Indian batsman Rohit Sharma has been a reliable crowd pleaser, Mr Guadalupe says.
“We had complete streets blocked by thousands of people in front of stores where we were having a
small event with Rohit,” he says. Such enthusiastic displays, he believes, “makes India very different
from all other markets”.
INDIA’S LUXURY WATCH MARKET, A
COMPLEX CASE
While 2017 was a year focused on absorbing the shock of
“demonetisation” in India – as the government suddenly
withdrew more than two-thirds of the country’s currency – and
many changes in tax law, this year seems particularly
promising for the import of middle-range Swiss watches. As
inter-state duties have been cut, the Swatch Group is
expanding its local reach. An analysis.

What is the current structure of the watch business in

India?
In India, multi-brand watch retail remains dominated by
“mom and pop” stores. However, regional chain stores
such as the Mumbai-based Just In Time, Hyderabad-
based Kamal Watch Company, and Zimson Watch
Company in Coimbatore, are gaining ground. At present
the country has the following nationwide chain stores:
Helios and Ethos, operated by Titan and KDDL
respectively, as well as Just Watches and Just In Vogue.
Independent stores are finding it tough competing with
organised chain stores, and the result has been
discounting. The profitability of organised chains with
higher overheads is thus coming under pressure, and
they are now entering into exclusive distribution
agreements with international brands.
Ethos, for instance, has exclusive tie-ups with brands
such
as Oris, Titoni, Carl F. Bucherer, Raymond Weil, Louis Er
ard, Edox, Cover and Claude Bernard. Helios watch
stores in turn have exclusive distribution deals with
brands including Movado, Coach, Luminox and Favre-
Leuba. These arrangements are mutually beneficial for
the brands and the chain stores; the brand gets a
nationwide presence, while the chain stores are able to
retain higher margins. The chain stores offer a buying
experience of international standards with quality service.
How did the Indian watch industry cope with the shock of
demonetisation?
On November 8 2016, with no advance warning, India’s
two highest-denomination banknotes, the 500-rupee and
1,000-rupee bills, were demonetised, rendering 86% of
the country’s currency invalid overnight. The government
claimed that the action would curtail the shadow
economy and crack down on the use of illicit and
counterfeit cash. Immediately after demonetisation, sales
of watches were adversely affected.
Demonetisation was followed by the implementation of
goods and services tax in June 2017. The tax rate of
28% resulted in imported watches becoming cheaper
than indigenous watches. It also involved a cumbersome
exercise of stock correction and compensating the
retailers for their losses on stocks that were more than
one year old. Subsequently, in November 2017, the tax
rate was brought down to 18%. Most brands reduced
their maximum selling price. This resulted in making
Swiss watches in the Indian market cheaper than in
neighbouring countries such as Sri Lanka, Nepal,
Bangladesh and the United Arab Emirates. At this point,
as Gaurav Bhatia of Art of Time store in Bandra says,
“We were pleasantly surprised to see tourists buying
high-end watches from us due to the attractive prices.”
On 1st February 2018, however, the government
increased the import duty on watches from 10% to 20%.
But Rajiv Popley of Popley La Classique store stresses
that doing business has become more simple; because
the “octroi duty” has been abolished, goods can now be
transferred from one Indian State to another effortlessly.
Moreover, the procedure of clearing goods through
customs is now easier, and all that the importer requires
is an invoice from the supplier.
The major beneficiaries of these rules are brands such
as Rado, Longines and Tissot. The mid-price segment
therefore seems poised to grow. With presence in small
towns such as Panipat and Agra, brands such
as Rado and Tissot are doing good business. The
success of Rado in particular is explained by its reach,
attractive pricing and the watch models that appeal to
Indian sensibilities.
Buying in India or abroad?
As the watch industry becomes more organised, Indian
consumers will prefer to buy watches in India. The
government’s digital drive coupled with a resolve to curb
black money will reduce the influx of watches from the
grey market. When buying a car, a consumer has to
furnish a lot of personal information. This is mandatory
for getting the vehicle registered in his name.
As things settle down, consumers will have no hesitation
in sharing their personal details while buying a watch
priced at USD 3,000 or more. Gaurav Bhatia of Art of
Time shares this optimism when he says, “we have
witnessed an increase in digital transactions after
demonetisation; we are confident that the luxury watch
market in India has a bright future.”
“Our second boutique in South Mumbai at Orbit Arya,
Napean Sea Road, will open within the next few months.
Along with Cartier timepieces, we will be exclusive
for IWC Schaffhausen in Mumbai as well. To add to our
brand portfolio, we will also house brands such
as Vacheron Constantin, Breitling, Omega, de Grisogono
and more,” adds Bhatia.
How do retailers and brands use marketing tools?
Proactive retailers such as Popley La Classique and Art
of Time are using innovative methods to promote the sale
of high-end watches. In November, the former organised
an Omega event at Arth, a swish new restaurant owned
by Gauri Khan. A carefully curated guest list of 100
premium customers was invited to take a look at 40
exclusive Omega timepieces. Rajiv Popley said, “We
need to reinvent the traditional form of retailing, and off-
store retailing is a way to pamper our customers by
offering them the best of products, hospitality and
ambience.”
Luxury watch brands have also discovered the star
power that Bollywood offers in India. They are using
Bollywood stars in different ways to their
advantage. IWC Schaffhausen co-created the Fashion
Icon of the Year Award 2017 in association with Vogue.
The award was bagged by fashion diva Sonam Kapoor,
whose aura has rubbed off on brand IWC.
TAG Heuer brand ambassador Ranbir Kapoor, a football
fanatic, techno-savvy watch enthusiast and Bollywood
celebrity, unveiled the new face of the well-appreciated
Connected Modular 45 smartwatch at the brand’s
exclusive boutique in Mumbai.
What can we expect this year?
In January 2018, India imported watches worth 12.5
million Swiss francs, as compared with 6.5 million CHF
imported in January 2017, registering growth of a
whopping 94.5%. Debraj Sengupta, Country Manager
Watches and CMO at Victorinox, comments, “January
2017 was an unusual month as the Indian market had not
recovered from the demonetisation shock. That is the
reason for the high growth rate this year. In January
2017, shipments had fallen by 20% over the same month
in 2016.” The recent easing of sourcing norms in India
will benefit the Swatch Group in particular; the Swiss
giant has already decided to open Swatch stores in the
country. However, given the complexity of the Indian
market, Popley feels that the real opportunity lies in
opening mono-brand boutiques for very high-end brands
such as Breguet.