Acknowledgment

A Report on

LUXURY WATCHESAcknowledgment

We acknowledge with heartfelt gratitude, the invaluable guidance and assistance offered by our faculty Prof. Swapna Pradhan, under whose aegis mentoring we have achieved the completion of this project. She has been assisting us, comprehend the various gamut of factors that mould an industry, thus enabling us draw up a comprehensive analysis of the same.

We would like to thank Mr. Naushad (Manager) of Time watch makers, which is a forty year old multibrand retail store. His inputs have aided the insight of the premium watch market and is retailing, thus presenting a correct picture of the current scenario.

We got the help of Mr.Neeraj Nagpal, importer of watch brands like Tissot, Swatch,Citizen,etc, Director, Dsigner Watches, India, for the information regarding import requirements.Lastly, we would also acknowledge the valuable time Mr. Ajit Khare,Titan Franchiser, Ghatkopar, gave us to understand the market analysis and factors that influence the sector.

RETAILING:

Retailing is defined as all activities involved in selling goods or services directly to final

consumers for their personal, non-business use via shops, market, door to door selling, mail

order or over the internet where the buyer intend to consume the product through personal,

family or household dues.

UNORGANISIED RETAILING:

Unorganized retailing is lacking of technical and accounting standardization. Supply chain and sourcing also done locally to meet local needs.ORGANISED RETAILING:

Any retail outlet chain which is professionally managed has accounting transparency and organized supply chain management with centralized quality control and sourcing, can be termed as organized retailing.

INDIA RETAIL REPORT 2007Luxury Watches:

A luxury watch may be defined as a timepiece which not only has the functionality of time-wear but is bought mainly for its brand value, precision, the legacy of the brand etc. The luxury watches have gold, platinum or diamond encrusted dials to be flaunted which adds value to it in terms of looks and price.THE SIZE OF THE SECTOR:Timewear is the smallest of all retail sectors, contributing just 3% to organized retail market. The timewear retail market is estimated to be around Rs.3,950 crore and has recorded a year on year growth of 10.2% during the last years. The organized market is of Rs 1800 crore. As regards to the premium watch segment, the estimated market is around 500 crore and it is growing at 22%, year on year.Retail SegmentINDIAN RETAIL MARKET 2006

Indian Retail Value

( Rs Crore)Organized Retail

( Rs Crore)% Organized

in 2006

Clothing & Accessories1135002140018.90%

Jewellery6020016802.80%

Watches3950180045.60%

Footwear13750520037.80%

Health & Beauty380040010.60%

Pharmaceuticals4220011002.60%

Consumer Electronics48100500010.40%

Mobilephone, Accessories & services2165017408.00%

Furnishings Furniture4065037009.10%

Food & Grocery74390058000.80%

Catering5700039406.90%

Books,Music,Gifts13300168012.60%

Entertainment3800015604.10%

TOTAL1200000550004.60%

In terms of the total luxury market in India , which is $450, the luxury watch sector comprises of about 8% in terms of revenue generated.STRUCTURE OF THE SECTOR-ORGANISED/UNORGANISED:

It all began in 1996. It was in this year that the Indian government, according to an agreement entered with the World Trade Organization (WTO) lifted the ban on import of finished watches. It is now possible to import watches above US $ 1000 CIF in the country. Watches below US $1000 were still banned. The limit of US $1000 was known as QR (Quantitative Restriction). Later in 1999, the QR was also lifted and the import of watches was allowed irrespective of the value limit. Post 1999, the watch market has witnessed the launch of many premium brands like Rado, Omega, Longines, Tissot, Cartier, Piaget, Rolex, Baume & Mercier, etc.

Popular brands like Rolex, Omega, Rado, etc have always been available in the grey market in limited quantities and only in metros like Mumbai or New Delhi. However, after the liberalization of watch imports these brands have been available throughout India at authorized retail outlets.The main feature of this market is the genuineness of the products. The service offered by the watch makers and the pride it comes with association of the brand.

Thus, this sector is mostly organized sector with the vendors directly importing the watches from the watch makers. With respect to the Indian players, mainly Titan, it is done through franchising. The other mode of sale is illegal, which is through smuggling. But as it is illegal, the trade cant be accounted for.

THE NUMBER OF PLAYERS AND THE SIZE OF THE PLAYERS:

Most of the players in this sector are foreign, mainly swiss players. The only Indian player in this premium watches sector is Titan. There are players like Breguet, Cartier, Jaeger-LeCoultre, Maurice, Lacroix, Corum, Carl F. Bucherer, Omega,Baume & Mercier, Tag Heuer, Montblanc, Raymond, Weil Gen Eve, Longines, Rado, Fredrique, Constant, P Balmain, Tissot, Gucci, Edox, Movado,Dior, Rolex.

Following is the compiled report of the performance of some top brands and also projections for the future in India.BrandRetail PresenceRetail OutletsRetail Sales ( INR Crore)

05-0606-07Projection

for 2010 05-0606-07Projection

for 2010 05-0606-07Projection

for 2010

Titan108125165183223331263350780

Rado57NA512NANANANA

Omega37NA510NANANANA

Longines2022NA7580NANANANA

Movado1218NA50100NANANANA

TOP PLAYERS IN THIS SECTOR

INDIAN PLAYERS:TITAN: Titan industries another Tata Group company, is Indias largest watch and jewellery manufacturer and retailer. The company was launched in 1984 as a joint venture between Tata Group and Tamilnadu Industrial Corporation (TIDCO). Titan watches are sold through over 10,000 World of Titans showrooms in more than 2,300 cities in over 30 countries primarily in the Middle East and the Asia Pacific.

Titan has entered the fashion sector through a tie-up with Tommy Hilfiger watches in India. It launched its first Swiss-made watch brand, XYLYS, in 2006.

60 present of domestic organized watch market is dominated by Titan alone. The company has 223 exclusive World of Titan Showrooms in 125 cities with 1,66,000 sq.ft. retail space. in India . By 2010 the company wants to be present in165 cities with 331 outlets and 3,47,000 sq.ft. retail space.

In terms of retail sales Titan has a turnover of Rs. 263 crore in 2005-06, Rs. 350 crore in 2006-07 and has a target of Rs. 780 crore by 2010.

FOREIGN BRANDS

International brands in the super premium, luxury and prestige segments are officially represented in India either through subsidiary, distributor or authorised retailers. By conservative estimates the market size of these segments is estimated at Rs 500 crore. The Swiss watch industry is together shy of sharing numbers. However, globally the following brands appear among the top five:

1. Rolex 2. Omega 3. Cartier 4. Tag Heuer & 5. Rado

Rolex has occupied the top slot for several years. The ranking of the remaining four varies from year to year. In this fragmented market Rolex occupies top of the mind recall in India and is the most aspired for brand. However, unlike LVMH and Swatch group Rolex has not subsidized its watches in India.

ROLEX:

Rolex a name that has become a social phenomenon; originally a trade mark, it is now a status symbol of the 20th century. As the name of a man's watch, it is synonimous with the modern world-sports, wealth, refinement and a dynamic lifestyle. Three elements are the key to the Rolex success:"precision", "practicality", and "reliability".

Ever since its creation, Rolex has consistently focused on establishing the renown of the Rolex brand worldwide, ensuring that the Oyster is far more than a passing trend.

To safeguard its reputation for quality and reliability, Rolex has created a global network of specialists who alone are qualified to guarantee Rolex owners worldwide of the authenticity of their watch and the dependability of the features which ensure its longevity.

OMEGA:

Founded in 1848 by Louis Brandt in the Swiss town of La Chaux-de-Fonds, Omega is synonymous with extreme accuracy, exquisite designed watches, and is considered to be one of the most popular Swiss watch brands. The Greek symbol for perfection, the Omega logo, and all that it stands for, has been driving the company since its founding days. Omega is renowned for its accuracy and for the quality of its movements and has earned numerous awards for this attribute. It is also known for its ability to function under challenging conditions and is automatically associated with historical happenings like landing on the moon, and a long association with the Olympic games.

The brands Indian retail presence involves 10 exclusive stores across 5 cities.

It introduced worlds first industrially made wrist watch.

CARTIER :

Founded in 1847 by Louis-Franois Cartier, the House of Cartier was originally a jewelry boutique.For over 150 years Cartier has enjoyed a reputation for selling the finest quality jewelry & accessories and catering to the pleasure of royalty and movies stars. As the concept of Luxury has evolved, so too has Cartier, from a maker of priceless objects to a creator of luxuries resonant with such serene sensuality and sophistication that they are timeless works of art.It is sold in India through Ethos stores.

TAG HEUER:Founded by when Edouard Heuer, TAG Heuer has a long standing association with timing high-level sports events such as the formula One Grand Prix races, a field where reliability and precision are at a premium. Whether it is technical innovation, precision, or endurance, TAG Heuer sets for itself, incredibly high standards in every aspect of watch-making. Providing sports timing instruments and watches nonpareil since 1860, TAG Heuer is, undoubtedly, the world leader in the sphere of sports watches.

RADO:

Rado, part of the elite SMH group, now known as the Swatch Group and the biggest watch conglomerate in the world, was founded in 1917 in Switzerland. Innovative, modern, stylish, Rado is known for its beautiful timepieces made from highly scratch- resistant materials such as hard metal, high-tech ceramics, sapphire crystal, high-tech lanthanum and high-tech diamonds. Designed to last a lifetime, Rado combines the best of modern design and timeless beauty.

Rado started in 1962 with worlds first scratch-proof watch. Rado has international network of more than 250 official service centres and 8,000 points of sale, in India it plans to have 15 outlets by mid 2007 and also presence in 145 retail outlets.

SWATCH GROUP: The Swatch Group has six brands in India namely, Rado, Omega, Longines, Tissot, Briguet and Swatch.

LONGINES:

Longines established in 1832 is the oldest registered trademark in the world and has played a pioneering role in numerous technological breakthroughs, while being an example in elegance, around the world. All Longines watch lines offer a unique combination of precision and elegance, elegance which is, as stated in the companys advertising campaign, "an attitude". Longines made history in the world of sports by introducing in 1912.It has since been appointed official timekeeper for many international sports events, including many winter and summer Olympic Games. Longines has also been associated with the history of aviation and navigation.

Longines was launched in India in 1999. It had 65 point of sales across 20 towns in the year 2004-05. With addition of about 10 outlets in2005-06 and plans to add more 15 so there will be total 80 outlets across the country.

MOVADO:

New-York Stock exchange listed Movado group Inc. design, manufactures and distributed a range of luxury watches.It currently retails from 50 outlets in India.

FOSSIL:

US based Fossil and Banglore based Rajesh Exports formed a 50:50 joint venture. The luxury merchandise would be retailed through Oyzterbay stores. Fossil includes brands like Fossil, Relic, DKNY, Diesel etc. CRITICAL SUCCESS FACTORS1.) Brand Name: The most important factor in the luxury watches is the brand name. The brand like Rolex is known for its legacy, its class, and its flawless craftsmanship. It has a different aura around its name. These brands have been created because of their origin, the tradition they carry, their association with events, for example Rado for its association with Wimbledon and Omega with the Olympic Games.

2.) Premium price: The price associated with these timepieces is the premium. They are priced at a premium for their brand value they carry, the uniqueness of the design and the precision of the functionality. The retailer cant sell the watch at a price under the quoted price. 3.) Design: The design has to be unique. It should give the feel of exclusiveness to the buyer. The buyer wouldnt like to see the same model on the wrists of too many people. The buyer would not pay if he sees the same design of the watch in other cheaper brand. 4.) Choice of the retailer: The retail store where these premium watches are displayed ought to be fitting to the standards. The retail store cant be beside a kirana store. The ambience, the environment around the store is very important. METHOD OF RETAILINGAs far as the Indian manufacturer, that is Titan is considered, it is done through franchised outlets. International brands in the super premium, luxury and prestige segments are officially represented in India either through subsidiary, distributor or authorized retailers. These retailers import the watches either individually, or through an appointed authorized distributor.

Watches in India are retailed through the following formats:

1. Branded chain outlets

2. Multibrand outlets

3. Department stores

4. Exclusive brand shops

STATE OF TECHNOLOGY:

Most of the retailers use the traditional form of retailing. This involves displaying the products in the shelves

Ethos is a retailer of top brands. It has a website on which a prospective buyer can surf the timepieces available at the particular outlet of Ethos. He can choose the brand, the price-range suitable to him and he will be displayed images and the details of the watch he desires. If he likes, then he can just go down to the store and ask for the model number, he desires. This saves his time as well is very convenient on the part of the customer. The website also provides the information as regards the service of the watches.

LEVEL OF INTEGRATION FORWARDS AND BACKWARD IN THE SECTOR:

The level of integration is different in different cases. Tatas which own the Titan, have full forward integration. As they started with manufacturing and now are getting into retailing through their franchised out stores.Similarly, the foreign brands also have forward integration. They have the dealers authorized, and do not allow anybody to sell their brand. They have very strict quality guidelines for maintaining their brand value. They are very choosy when it comes to selecting their authorized retailers, also the location of the shop, the ambience, etc.

LEGAL REQUIREMENTS FOR THIS SECTOR:

There are no special licenses required to open and sell a store of premium watches. The brands themselves are very selective when it comes to giving their dealership.

The only legal document required specially is the authorized dealership license. The dealer who imports individually needs to have import permission.

Legal Documents required for Import are:

Airport Transfer

Railway bill

Invoices

Other licenses required are:

Shop and establishment licenses issued by BMC

Licenses for Neon signs

Licenses for show windows

Licenses for illuminated sky sign board

Licenses for music paid in store known as public performance licenses Phonographic performance Ltd licenses Licenses for sales tax

Licenses for VAT

Licenses for contract labors.

Licenses from fire dept

Licenses from BEST

TAXATION FOR THE SECTOR:The taxes on the sector are as follows:Sales tax 12.5%

Excise duty- 16%

Duty for Imports

Custom duty- 10%

CVD-16%

EDU - 2%

Cess on CVD - 2%

Cess on Customs - 2%

Cess for higher education - 1%

Additional duty - 4%

The effective customs duty comes down to 35%

The above includes the implications of the budget 07.

IMPLICATIONS OF THE BUDGET 2007Import duty:

The import duty after the budget has gone down by 5% effectively.CST :

The CST rate has been reduced from 4 per cent to 3 per cent in the latest budget, and this will help to reduce the cost of transferring goods across states for consumer industries and the retail sector

FDI regulations for retail:Indian regulations do not allow for foreign-owned and controlled retail chains. Currently, foreign retailers operating department stores or multiple brands can only operate in India through a local franchise partner or a subsidy.

The government needs to ease restrictions and draw a roadmap for opening the sector to FDI. It has already stated its intention to permit foreign investment in "single-brand" retail up to 51 per cent in a few segments like electronics, sports goods, building equipment, stationery and furniture.

Real estate regulations:For construction-development projects, a minimum built-up area of 50,000 square meters is mandated. Escalating real estate costs further hinder the feasibility of organized retail.

The finance minister has instituted a service tax levy of 12.24 per cent on all commercial renting of immovable property in Budget 2007. This does not work out well for the retail sector, where real estate availability was already a major hindrance.

Industry status for the organized retail sector:The retail sector has not been granted industry status as yet. The advantages of granting industry status to the retail sector would be greater focus on retail development, fiscal incentives for the retail industry, availability of organized financing, and single-window clearance for retail-related issues. This issue has not been addressed in the 2007 budget.

MAJOR PROBLEMS AFFLICTING THE INDUSTREY:The backbone of the premium watch industry is the genuineness of the products. With the opening up of watch imports, the menace of fake watches in India has increased. Another problem faced by brands is look-alikes.

Fakes as fakes: These are available at a fraction of the price that one would pay for an original. For example, genuine Rado Oval Diastar watches are available at Rs 24,000. The fakes on the other hand are available at Rs 3,000. The buyer of the fake watch knows that he is buying a fake product.

Fakes as originals: The quality of fakes in the market has improved considerably. Most of these fakes are made in China or Korea. It is very difficult for a lay consumer to make out the difference between a fake and genuine watch. These products are available at 20 per cent discount and are passed off as originals. The consumer is cheated as he feels he is getting a discount on the genuine product. It is, therefore, advisable to buy Swiss watches only from authorized dealers.Popularity of watches is directly proportional to the percentage of fakes in the market. Rolex is one example. Imitation is the best form of flattery. However, the brands can do without such flattery as it affects their credibility, reputation and revenue. Sometimes second hand watches are reconditioned and sold in the market. In such cases also the customer is taken for a ride.

Look-alikes: Product and design patents are not prevalent in the watch industry. Hence the fast moving designs and styles are copied by lesser known brands. HMT copied Rado Diastar Oval designs in the Indian market. Guess has introduced watches that look like Audemars Piguet's Royal Oak. While a Royal Oak costs a couple of lakhs, Guess watches are available at Rs 10,000.

Replicas:These watches are available on the internet. For example, on www.baazee.com, one can get Rolex and other Swiss watches. It is declared that the watches are replicas and there is no attempt to cheat watch collectors. It's the faux crowd that loves to flaunt such watches and it is the eye of a connoisseur that can differentiate the replica from an original.

Smuggling:

The high import duties put by the government on the imported watches, encourages the smugglers to indulge in watches segment. Smuggling is a big menace in this industry, as people tend to buy the products as they get it for a good deal.

PORTERS FIVE FORCES MODELThe Porter 5 forces model is developed by Michael Porter in 1979. It contains 5 forces that determine the attractiveness of a market. For forces as bargaining power of customers, the bargaining power of suppliers, the threat of new entrants, and the threat of substitute products influence the fifth and most important force as the level of competition in an industry.

Threat of New Entrants:

The threat of new entrants is very low as the products in this category especially the Swiss watches are known for their legacy carried over centuries.These brands have their own aura created through their perfection in design and service.

Threat of Substitute products:

The threat of substitute, as far as the functionality is concern mobile phones have eroded this aspect of premium watches. These watches are more of a status symbol. I this regard the Fakes as Originals are a threat. Also in India we have a threat of look-alikes as the law enforcement for design patents are not stringent.

Bargaining Power of Customers:

Bargaining power of customers is very low, because these premium watches are bought for their brand name and not really as a commodity. They are meant to be expensive. With more and more players entering India, what the customers will get is the large range to choose from and not any cost advantage.

Bargaining Power of Suppliers:

In the premium watch segment, they are sold at exclusive outlets through franchisees or the companies are directly contacted for the supply. There is no role of a supplier in this segment.

Competitive Rivalry within an Industry:

Competitive Rivalry is very high. Here price is not a factor at all. Value of the bran you choose is the sole factor determining the choice of the customer. To enhance their brand value the Brands like Tag Heuer associate themselves with the icons like Shahrukh Khan. Also they associate themselves with big events like Wimbledon to enhance their brand value.

HighMediumLow

Threat of New Entrants(

Threat of Substitute products:(

Bargaining Power of Customers:(

Bargaining Power of Suppliers:(

Competitive Rivalry within an Industry: (

SWOT ANALYSISSWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses,Opportunities, and Threats involved in the industry.

SWOT analysis help us to identify the key internal and external factors that are important to achieving the success, Strength and weaknesses are internal factors. Opportunities and Threats are external factors.

STRENGTHS:Strong GDP growth: The strong GDP growth in India, which looks even more spectacular in PPP terms. This will set free an unprecedented increase in the demand of products, especially 'lifestyle' items like luxury watches.WEAKNESS:

The market is still very limited. The luxury watches are bought by only very rich people and who have a penchant for luxury products.

The high import duty by the government on the premium products hikes the price of products, dampening the sale and also encourages smuggling.

Non-availability of all the varieties and the range available in the International market. India is still considered a small market when it comes to luxury and high end products. Hence, a limited range is on offer to the Indians as compared to their counterparts in the other parts of the world.

OPPORTUNITIES:

The sustained GDP growth through years is opportunity. As mention in the strength it helps to increase the disposable income of the customers.Young Country by 2020: The average age of Indian by 2020 will be 31 yrs. At this young age there is huge fashion consciousness. Also the disposable income and readiness spend on premium products

Westernization of Indian culture. Inclination of the young population towards luxury products. THREATS :

As far as functionality is considered, the functions like world time, chronograph and high accuracy of the Swiss watches are eroded by the mobile phones.

Also, the fakes which are available rampantly in the market are a major threat to the segment.STATUS OF THE SECTOR IN INDIA VIS A VIS

THE INTERNATIONAL MARKETS:

India is still a very tiny market for the premium watch market. Out of 700 million adults in India, 190 million own only one watch. Going by the numbers, it is Rs.500 crore.

But in the International market, this is not the case. Chinese consumers now buy more than $6 billion worth of luxury items a year, making them the third largest segment in the world after their counterparts in the United States and Japan.

IMPACT OF ENVIRONMENTAL & POLITICAL SCENARIOIn 1996, the Indian government, according to an agreement entered with the World Trade Organization (WTO) lifted the ban on import of finished watches.

The increases in the purchasing power, westernization of culture are the environmental factors which are working in favor of this sector. The reduction of the import duty will have a huge impact on this sector. If the dip in the import duty is significantly large, it will discourage smuggling and give a push to the sales in a big way. IMPACT OF THIS SECTOR ON BPO

This being a luxury market sector, which is a niche market, the effect on other industries is not significant.

As the import duty in India is high as compared to other markets, it will not have any effect on tourism.

As far as the BPO industry is concerned, the sector is likely to have little impact.

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