As stock valuations go down, many people switch to buying luxury goods such as an iconic watch whose value can only go up over time, says Jean-Christophe Babin, president and chief executive officer of luxury sports watch and chronograph maker TAG Heuer SA, part of Paris-based LVMH Moet Hennessy-Louis Vuitton SA, or LVMH, the maker of Dior watches and Krug champagne.
Going places: Jean-Christophe Babin, president and chief executive officer of luxury sports watch maker TAG Heuer. Ramesh Pathania / Mint
It is this belief that makes the company aggressively pursue customers in emerging economies and elsewhere, undeterred by the global slowdown, says the 46-year-old Frenchman who was hired by LVMH from German household products maker Henkel AG and Co. KGaA in 2000.
Babin, who was in India in December to launch New Delhi’s first TAG concept boutique at luxury mall DLF Emporio, which will stock all TAG products and accessories, is looking at expanding the company’s market share in India. “There are so many opportunities in terms of product-line entry and growth here that I see no reason why we may see a decline in luxury goods consumption,” he says. In India, TAG Heuer has 10 stand-alone boutiques and 70 retail points across 24 cities, and the company plans to add two more concept boutiques; one each in Chennai and Mumbai.
In an interview, Babin talks about the company’s India plans and growth prospects for the luxury goods market. Edited excerpts:
A recent study by Bain and Co. predicted that sales of luxury goods could drop by as much as 3-7% in 2009 if current trends continue. Is it a good strategy to expand when even upscale consumers globally may find themselves strapped for disposable cash?
There are markets that are clearly slowing down but the impact of the slowdown is not the same everywhere. For instance, the luxury market in the US and Spain is witnessing a negative growth because overuse of credit coupled with the real estate slump has left consumers strapped for disposable cash. Out of the 120 countries that we operate in, only five markets are showing signs of easing off. Other markets, including (those in) Europe, Latin America and Asia Pacific, are all growing.
We feel this is the time to expand in India and other growing markets including Indonesia, which is our fastest growing market for watches in the Asia-Pacific region, and Vietnam. If you stick to your investment and growth plans when others are scaling back in a downturn, you end up gaining a lead over competitors when the negative business cycle is over.
We stuck to the same strategy in 2001-02 and continued with our investments in marketing and advertising, strengthening brand image and distribution network. And it paid off. Since 2003, we have registered double-digit growth and have gained significant market share. We are the fourth largest luxury watch brand in the world (the top three are Rolex, Omega and Cartier).
What are your long-term plans for India?
Our plan for 2009 will be similar to (that of) 2008. We will continue to bring in new models from our innovative series of Monaco, Carrera, Formula One and Aquaracer. In January, we have launched the Grand Carrera, the premium collection inspired by motor racing. We will be working towards making the TAG brand more attractive to the consumers with new advertising campaigns. We will continue to work towards improving our distribution system and looking for new upscale locations for our new stores.
We are doing well here. Our (growth in) revenues is higher than the 30% year-on-year growth of the luxury watch market in India. We occupy the No. 3 position here (after Omega and Rado) and I feel we can significantly increase our market share. There are so many opportunities in terms of product-line entry and growth here that I see no reason why we may see a decline in luxury goods consumption.
Firms across sectors are not very optimistic about the short-term prospects for emerging markets. Is it the same for luxury marketers?
The prospects for emerging economies are good because the rate of savings is high in these countries. Therefore, people have more ready cash to indulge in luxury. We are already seeing a strong growth in Bric (Brazil, Russia, India and China) countries, Indonesia and Vietnam owing to the growing upper middle class.
Today for any luxury company, there is more concern about the US market than anywhere else. The debt issue needs to be fixed first before one can see any improvement and no one really knows how long it will take to recover from the financial mess.
In general, you may see some slowdown owing to stock market declines. But most of our customers are salaried people and not the ones who heavily invest in stocks. Also, because people are now extremely cautious about buying stocks, they might buy an iconic watch or some such luxury product whose value won’t decline and only increase over time.
Are you worried about a potential loss of aspiring middle-class consumers? If yes, how are you planning to deal with this?
Though there are going to be fewer job additions this year unlike in the last couple of years, still there will be more people joining the workforce and adding to the aspiring middle class.
Our starting price is Rs36,000, and within luxury, we are best positioned to cater to this aspirational consumer group. In fact, we have been very strict about our pricing policy and even in good times, we have not increased our prices irrationally.
The starting prices offered by our competitors here range between Rs80,000 and Rs90,000 and I think no other luxury brand can offer the kind of value we provide.
I am confident that we will continue to attract more luxury consumers in India and in the rest of the world.
What strategy are you adopting to boost profits in these tough times? Are you looking at selling some high-end products at a slightly lower cost?
Our obsession is not about the bottom line but about improving our overall market position. We will continue to make investments in our brand to remain competitive. We are roping in a big name from Hollywood for our campaigns next year. We will make the announcement soon. In tough markets, we will probably have more incentives for our retail and sales partners and will intensify our activities revolving around the point of sales. Our prices are already very competitive and thus we are not looking at any price cuts.