Middle East watch sales surge

Slumping sales, plummeting profits, massive cutbacks. For the last two years, the news from the global luxury goods industry has ranged from terrible to awful. The global economy continues to falter and, as a result, the business of luxury has been pushed to the brink.

The world's leading luxury watch brands - including the likes of Rolex, Cartier and Omega - have been hammered along with the rest of the top end of the market. The United States accounts for over 15 percent of global luxury watch sales, and has been hit hard since the dotcom bubble burst three years ago and the US economy began its slide into recession. Europe, which is the largest market for luxury watches and accounts for nearly a third of global sales, has been in a terrible slump since 2001. The picture is even worse in Japan, which has been struggling with deflation and recession for an entire decade.

These are undeniably hard times for the industry, but the global luxury watch market remains valued at over $3 billion. Even today, with most markets plummeting, the industry continues to invest a fortune in advertising and sales. Nowhere is that more evident than in the Gulf, where the world's leading luxury watch manufacturers are spending heavily to set up new, ultra-luxurious boutiques, improve the efficiency of after-sales services and blanket the region with wall-to-wall advertising.

At first glance, this push is surprising.With continuing political instability and the post-war chaos in Iraq, most businesses are increasingly wary of the Middle East and have scaled back plans for the area. But for the watch industry, the region has never looked more promising.
Luxury watch brands (whose timepieces retail in excess of $2,000) now generate nearly a tenth of their sales in the Middle East.

This means that, on a per capita basis, the Middle East accounts for nearly as many watches as some of the world's largest markets, such as Japan. Moreover, this market appears to be growing steadily. The UAE and Saudi Arabia now consistently rank among the top 15 importers of Swiss watches. Last year, Dubai alone imported roughly 700,000 premium watches - nearly one watch per inhabitant. Watch imports from Switzerland increased 15 percent, while those from Asia increased 26 percent.

Keen to exploit this exceptional market, the world's biggest luxury watch brands have been assembling forces. Though the world of luxury watches is cluttered with over 25 brands, the main battle is among three established players. First is Rolex, which is by far the single largest luxury watch brand in the world - and in the region.

Trying to displace Rolex from its comfortable perch are two of the world's biggest watchmakers. In order to achieve its target, Swatch, which last year sold over 4 billion Swiss francs ($2.9 billion) worth of watches, recently set up a plush office in Dubai's Emirates Towers to serve as its Middle East headquarters. In the same building, 10 floors below Swatch, is the office of Swiss archrival the Richemont Group.

Along with a string of smaller, independent brands is the French luxury goods giant LVMH, which has moved in a major way into the industry in recent years, acquiring a range of independent operating in Europe and the United States.
Local hero. While the world leaders are fighting for market share in the Middle East, the region moves to its own beat - a few brands, like Philippe Charriol, are top players in the Arab world, yet virtually unknown elsewhere.

Then there is Roberge, a hit brand in the Gulf that was launched by Saudi distributor and jewelerymaker Mouawad more than three decades ago.
Some of the European heavyweights made great strides in the region, then suddenly dropped out of sight. This was the case with Mauboussin, which established strong sales with the sultans of Oman and Brunei.

The watchmaker generated solid regional numbers - with just those two clients. Mauboussin, to its detriment, focused on the easy money and did not seize the opportunity to build up a sales and distribution network in either country. When the brand fell out of royal favor, Mauboussin had nowhere to turn. Two clients - no matter how wealthy - do not constitute a market.

That's a lesson that the rest of the industry has clearly learned: nearly all the biggest brands have been overhauling their regional distribution networks. For instance, Cartier has recently gone on a spending spree, along with its local distributors, setting up super-luxurious retail outlets in Dubai and other important locations in the region. The other major players have also been beefing up their look in order to attract customers.

Improving the look and feel of the regional boutiques is crucial: compared with European or American shops, Gulf outlets appear decidedly out of fashion. Most regional buyers of luxury watches are members of the jetset who tend to do their shopping while on vacation. Overseas, they feel, the choice is wider and the showrooms more appealing.

Improving their presence in the region, then, will help boost sales and bring a sense of uniformity to their brand image.
'One of the reasons why we decided to move directly into the Middle East was to convey the right message and right image of Cartier to our customers,'' says Patrick Normand, managing director of Cartier Middle East. 'We did this to understand our customers better, but also to project what we are doing worldwide.'

In focus. To project the right image, watch companies have also begun advertising in the regional media in a significantly more important way. 'We are trying to focus our advertising in select media in order to maximize the reach of our message.

We want our models and brands to be constantly close to our customers: both physically, through suitable outlets, and through images they see on television or in the print media,'' says Benoit de Clerck, Middle East managing director at Richemont Haute Horlogerie, which includes seven leading brands in the Richemont Group, including Piaget, Vacheron Constantin, A. Lange & Söhne, IWC, Jaeger-LeCoultre, Officine Panerai, and Baume & Mercier.

'Given the fact that each brand has its own DNA,' he says, 'we focus advertising based on this principle. Our customer target differs from one brand to another; therefore our advertising focus is implemented accordingly.''

The watch companies and their distributors tend to plough back between 10-20 percent of their total sales in the region into advertising and marketing promotions. According to one distributor, the advertising spend does not decrease even when sales are low in a particular period. 'We try to increase or at least maintain our ad spend so that we are continuously visible and remain in the mind of our clients,'' says a leading Saudi Arabian dealer of luxury goods.

For the moment, the players are focusing their advertising and marketing activities in the two largest markets - Saudi Arabia and the United Arab Emirates - which between them account for almost 75 percent of the regional luxury watch market. In both countries, Rolex is far ahead of its nearest rivals. 'It is the most popular brand and extremely well established.

Perhaps due to their focused advertising, which is tailor-made for the local market, brand awareness is extremely high,'' says the Saudi distributor. 'Rolex takes about 16 percent of the Saudi market. However, it has lately been losing market share. This is perhaps due to the entry of some new brands.'

Another brand that is extremely popular is Chopard, which has a large and loyal following, especially among the women of the royal families in the region. After these two brands come some of the other very big names, such as Omega and Cartier. 'The Cartier range is extremely large compared to our competition,' says Normand, who points out that the company has been present in the Gulf since the 19th century, when it turned to the region to source its pearls.

'Our customers know who they are and what they want. They buy a Cartier because they know what it stands for and it goes with their personality.'
The entry of Swatch will definitely alter the equation and heat up the competition. Rather than a battle between individual brands, the future holds in store a battle between two giants: Richemont and Swatch.

Although Swatch is bigger, its entry into the region has been slower, thus handing Richemont the crucial first-mover advantage. For the moment, Richemont also has the upper hand because of its extremely attractive boutiques and solid distribution network.

Thanks to this network, and by virtue of its long presence in the region, Richemont has been able to strengthen its marketing as well. The company has had the edge in developing focused regional advertising that allows it to target its clientele in a far more effective manner than most of its competitors. 'Besides setting up boutiques, Swatch will need to set up the same kind of relationship with their distributors and other regional partners that Richemont has,'' says a leading distributor in the region.

'Swatch will also need to focus a lot more on how they communicate with their customers. They're going to have to invest heavily in playing catch up with Richemont.''

Competition apart, one of the major problems that all watchmakers face in the region is recycling. Many people who receive luxury watches as gifts - from big companies or perhaps members of regional royal families - turn around and sell them back to the retailers, who see an opportunity to make a quick and easy profit.

The trouble is that these secondhand watches are then put up for sale next to new products. Since the gift watches are themselves nearly new, it is impossible for the customer to figure out if he is buying a secondhand watch or not. And if you're paying $10,000 for a Rolex or Patek Philippe, you would not be happy to find out that it was the same one your friend was wearing last week.

'We are absolutely against such a practice, which is generally followed by unauthorized watch sellers. In fact, we refuse to buy back watches from individuals or companies. We get deliveries only from the watchmakers, so you can be totally sure that the watch you are buying from us is brand new and totally authentic,'' says Abdul Wahed Ahmed Al Suwaidi, of Siddiqi & Sons, a leading distributor of luxury watches in the UAE.

Some distributors now inscribe the name of the buyer on the timepiece to prevent it from returning to the market as a new watch.
Imitation may be the sincerest form of flattery, but it is another problem facing watchmakers. Fake Rolex, Omega and Patek watches, produced in China and other Asian countries, are widely available for less than $30.

But the watch companies say that their main worry about fakes is not so much the monetary losses but the damage done to the brand image. 'We don't risk losing any customers to imitations. Nobody who really wants to buy a genuine Chopard will even think of buying a fake one,'' says Abdul Wahed Ahmed Al Suwaidi.'But he might be irritated by finding that his driver is also sporting the same watch, even if it's a fake.'

The market leader, Rolex, has a similar position. 'We have customers who firmly believe in the reputation of the Swiss watch industry and who will not be taken in by a cheap imitation,' says Ahmed Rasoul Khouri, the agent for Rolex in Abu Dhabi. 'We are not very concerned, but fake watches should not be in the market because that is a violation of trademark and intellectual property laws.'

Real or fake, secondhand or truly new, the regional luxury watch market is clearly here to stay - and grow. When Breguet and Patek Philippe launched the world's first wristwatches, in the 19th century, only the kings and queens of Europe could afford to buy one.

Over the years, production increased and the number of players multiplied, but luxury watches have maintained their status as symbols of success. For the world's top brands, new markets have appeared and old ones faded. But not much else has changed. For this $3 billion industry, the most basic fact still holds true: time is money.