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Branded watch industry: Well timed!

Nov 30, 2006

At a time when the broad contours of the Indian economy are emanating positive vibes, more than 50% of the population is in the working age group and personal disposable income levels are at an all-time high, the inflection point of the consumer durable industry is certainly well timed. As per the CMIE, the per capita private consumption expenditure per annum in India has grown to Rs 18,733 in FY06 from Rs 12,650 in FY00 (CAGR of 8%). Of this, sectors like the branded watch industry that have catered to the premium segment of the population so far, are yet to cater to a much broader customer profile.With penetration levels of 37%, the Indian watch industry has a lot more to offer. Besides low penetration, there also exists huge scope for upgrading - given that only 4.5 m (13%) watches out of the 35 m sold annually are priced at over Rs 1,000. These two indicators evidently signal the magnitude of untapped market and the scope for established players.

The value proposition...
The mix of the branded watch segment in the adjoining chart clearly shows that the 'value proposition still remains the key USP in this sector. Despite competition from the unorganised market and Chinese products, the mass segment (lowest in the value chain) comprises a sizeable 11% of the total industry. However, the lower end segment (43% of the total share), which is largely catered to by the domestic players is the most addressable market, having witnessed a CAGR of 11% over the last 5 years.

The volume game...
The mass segment that is valued at Rs 3 bn has witnessed a sizeable growth in the past decade despite stiff competition from unorganized players. The lower end valued at Rs 12 bn in FY06 has enjoyed the largest market share even since the government owned HMT forayed into the branded watch market. At the same time, the mid upper segment (valued at Rs 9.4 bn) has been swarmed by varied products like Titan (regular wear), Swatch (sports wear) and Espirit. The premium segment (valued at Rs 3.7 bn), nevertheless, continue to find takers in a very niche segment and faces competition from Swiss brands like Tissot, Omega and Rolex and fashion brands Fossil and Calvin Klein.

Structural factors impacting the industry

  • Lower end of the value chain driving volumes: Products seeking to target higher volumes need to necessarily offer the value proposition. This is because the historical analysis of the performance of the branded watch players in the country (like HMT and Titan) shows that it the lower end of the value chain that drives volumes. Also, to capitalize on the vast potential offered by the economy segment, Titan is launching watches priced below Rs 200 and penetrating rural markets through alternate distribution channels. However, so as to retain margins, it will be necessary for players like Titan to continue innovating the top end of the value chain.

  • Multi-channel retailing: Titan has pioneered the concept of specialty retailing in the watches business. The company reaches out to its target customers through multiple chains like own stores (World of Titan, Time Zone and Sonata Stores) as also multi branded outlets and a national chain of stores. Titan has 174 World of Titan outlets, of which only 7 are owned while the remaining are under the franchise arrangement. Besides stocking the entire range of Titan, these outlets sell select models of Sonata (lower end) and Tommy Hilfiger (licensed brand) watches. Titan also manages 142 Time Zones, which are multi branded outlets operating in the watches business. Further, Titan has recently started using ITC's e-Choupal channel to penetrate the rural markets.

Scope ahead...
The sale of watches per 1,000 people per annum in India is as low as 40 as against 120 globally. 37% of the population owns watches (Source: IRS data 2005), while just 3.5% of the population owns multiple watches. While the penetration level of 71% in A and B grade cities is healthy, the level is as low as 19% in the rural areas. This data goes beyond doubt to prove the scalability of the Indian branded watch market. However what players need to keep in mind is that they are catering to discerning customers and well-defined customer segments with awareness of designs and brands. Also, presence of foreign players is set to intensify the competition. Thus, the ability to innovate customer centric product offerings and market them through multiple channels will enable players to retain market share and enhance margins.

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