BackJean-Christophe Babin | It is very difficult to break even in India
Babin talks about TAG Heuer’s performance in India and the brand’s transformation under his leadership
Premium(Pradeep Gaur/Mint)
Three days after Jean-Christophe Babin was in India for the launch of TAG Heuer’s women’s watches, group parent LVMH announced that he was being moved to head Bulgari, the Italian jewellery and watch brand acquired by the company in 2011. He spoke in an interview about the transformation of the brand under his leadership in the past 13 years, while scrupulously avoiding any mention of an imminent job change. Edited excerpts:
You’ve spent 13 years at TAG Heuer. What has it been like?
It is a company where time is flying (smiles). It is as though it was my first day yesterday. What has been accomplished by the team in 13 years is quite amazing. Thirteen years ago, we were a quartz-only brand, today we are mechanical. We were buying mechanical movements from Swatch group. Now we are manufacturing most of our mechanical movements internally. The company has grown from 300 people to 2,200 people. So we have multiplied seven times. It is great to have created so many jobs. We had two boutiques, now we have 160 boutiques. It has been, so far, a very exciting adventure.
Globally, you are a sporty brand. In India, the TAG Heuer brand positioning was changed to accommodate lifestyle.
How many watches do you own and do you match your suit to the watch you wear?
I never really counted, but I probably have 25 watches. In my job, I tend to wear the latest (in fashion)...regardless of my personal taste because I am meeting a lot of people. I travel a lot. My role is to promote the latest news on the brand. So in the morning I don’t pick my preferred TAG Heuer, I pick up the priority TAG Heuer.
Do Indian men have poor taste and do they prefer loud designs?
India probably is a country where men in particular are pretty informal in the way they dress. That does not mean you are not stylish as you can be stylish and informal. But yes, in business life you find a lot of Indian men without a tie. But that is okay. It is pretty much the stated positioning which is casual, contemporary luxury. So the brand is fitting very well with this informal attitude of Indian men.
Do you need to appeal to exaggerated design sensibilities for the Indian men’s market?
I would say, except for a few models, we are quite understated. We never went with big pieces which were trendy five years ago. We use gold in a subtle way so we are not flashy. We believe very much in timelessness. And we believe very much in understated luxury which we believe is refined and timeless. For sure, TAG Heuer is not a show-off brand.
Do women in India buy TAG Heuer watches for themselves or are they bought as gifts for them?
In the major cities, a lot of ladies are working and making decent salaries. You see more and more ladies buying for themselves. And most of the stores are concentrated in Mumbai, Delhi, Bangalore, Chennai and Kolkata. Putting all those cities together, we have an important share of women who can afford to buy for themselves. So I would say 50% are bought as gifts for them and 50% are what they buy themselves. We already have two ladies’ collections. The Lady Link is the third dimension—it’s more sophisticated elegance. Women’s watches contribute to about one-third of our total sales (in India).
Even after 12 years of its entry the company is not making money in India.
It is very difficult to break even in India for the industry—not just for TAG Heuer. As long as you want to price your timepieces in India at same level as they are priced out of India, you cannot make money.
But are they priced at the same level?
Yes. They are priced exactly at the same level. We started in India in 2002 with several premises. One, we wanted to import only officially, which we did. Second, to always bring to India the newest products, and, third, to apply in India the same retail price as we apply in other major markets. Obviously, this means huge financial sacrifice because we have to pay for the luxury tax. We have to absorb it into our accounts.
But you wouldn’t be selling at a loss.
Well, these taxes—in fact a combination of customs duty and luxury tax—are squeezing our margins. Besides, there is a huge potential in India so we are over-investing in marketing and retailing activities. If you accept less gross margin because of absorbing taxes combined with more marketing and retailing activities than in many other countries, then at the end of the day you end up with a loss.
Does expensive retail space add to your operational loss?
Compared with many other places in Asia, real estate here is quite reasonable. That is, if you compare it with Hong Kong or Singapore.
The operational costs in India are significant because as the market is smaller you don’t sell as many timepieces per month in a boutique as you would in Singapore. But we are a global company, so different markets play different roles. Some markets are more mature and are used more to generate cash. Others like India are under development and consume cash which is logical. At the end of the day, the company keeps growing in sales, profit and cash flow. But the growth is different in different markets as some countries generate a lot of profit to finance countries which one day will generate profits. So there are investment countries and cash countries.
Is there a trick to turn the market around?
Well, on taxes and duties we cannot do much although the Swiss government together with the Swiss watch-making federation are working with the ministry of commerce and the ministry of finance to try and find a way. In China, the taxes were decreased on the ground that the government would be able to collect more tax by allowing more Swiss watches into the country. More Swiss watches in India will not impact the local watch industry as it caters to a very different target group with prices that are very different from those of the luxury watches. Even if Swiss watches in India grow 10-fold, they will not prevent giant companies like Titan from growing.
Is it true that India is a bigger market than China for TAG Heuer? Omega does better than TAG Heuer in that market.
Omega is the market leader in China, which is quite unusual as very often it is Rolex. But Rolex is catching up quickly in China. In India, our business is smaller in value than in China but our market position is better. Our reputation in India is better than in China probably because we have invested more here. In India, we benefited from our partnership with Shah Rukh Khan which is a big booster for the brand. Besides, we understood the Indian market probably quicker than we understood China.
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