Accessing the ASEAN Consumer Market: Watches and Clocks (Distribution Channels 2) | HKTDC

10 Dec 2018 Accessing the ASEAN Consumer Market: Watches and Clocks (Distribution Channels 2) The watches and clocks markets in key ASEAN cities consist of various distribution channels, including watch specialist retailers, department stores, travel retailer/duty-free operators and private sales. Aside from brick-and- mortar retailers, e-commerce channels, including brands’ own websites, third- party marketplaces and social media, have quickly become a new force in the watch industry. For details of other distribution channels, please refer to “Accessing the ASEAN Consumer Market: Watches and Clocks (Distribution Channels 1)”. Travel Retailers/Duty Free Operators The travel retail or duty-free (DF) channel offers a unique retail environment in several ways: 1) Travellers at airports are captive audience; 2) Travellers regard shopping to pamper themselves on holiday; 3) Last chance for travellers to shop for gifts, and 4) Shoppers’ satisfaction from purchasing duty-free. Essentially, travel retail has often considered to be less affected by the macroeconomic situation and market competition in the downtown areas. According to Dufry, the leading duty-free operator, global travel retailing is expected to grow to about US$67 billion by 2020, from an estimated US$45.7 billion in 2016. In the ASEAN region, the growth is expected to be more robust with the advent of increasing inbound and outbound tourists in major ASEAN airports. DF shops can be found in airports, downtown as well as onboard airliners and ferries. Airports shops contribute most to the DF market. For many travellers, shopping for duty- free products, from perfume and whisky to designer bags and watches, is a part of their trips overseas. As travel retailing has grown in ASEAN, international watch brands have invested heavily to gain a foothold in the region's airports. One of the challenges facing travel retailers is how to increase sales generated from passengers in the time before they embark on flights. Globally, the average time spent at an airport has been steadily reduced over the past years, according to Nigel Dolby, a commercial consultant to the airport industry. Because airport departure procedures, such as security An airport shop specialises in watches and and check-in, have become quicker, the time sunglasses. available to shop has remained at roughly 30 minutes. That may be sufficient for planned purchases but not enough to maximise the potential for impulse shopping, the biggest growth opportunity for travel retailing. In addition, today’s travellers are savvier and price-sensitive. As airport passengers can easily compare the airport retail offers before 1 Accessing the ASEAN Consumer Market: Watches and Clocks (Distribution Channels 2) they buy, DF operators have to engage tourists and business travellers through shops designs, customer service and shopping experience. Macro-economic conditions, such as exchange rate volatility also play an important role in airport sales, as DF shopping relies heavily on luxury goods spending. For instance, a rising Swiss franc against RMB will have negative impact on the watch sales generated from Chinese consumers. Recently, the price advantage of travel retailers has diminished due to the rise of e-commerce retailers, which offer cross-border fulfilment and increasing price A Swatch store at Suvarnabhumi International transparency. Airport. Major Travel Retailers/Duty-Free Operators in ASEAN LOTTE Duty Free – The South Korea’s Lotte Duty Free, has over a dozen domestic branches, and seven locations internationally including Indonesia and Vietnam.[1] It also operate downtown stores in Jakarta and Bangkok. Heinemann Asia Pacific – a subsidiary of Gebr.Heinemann established in 2010. Headquartered in Singapore, Heinemann Asia Pacific has retail and distribution operations in 10 Asian countries. Globally, Heinemann operates duty free shops, fashion label boutiques under licence and concept shops at airports, aboard cruise liners and ferries.[2] King Power – The Thai key duty-free retailer has branches at major international airports and city-centre locations throughout Thailand. The stores offer a diverse mix of products from over 1,500 international and local brands. Watch brands carried include luxury classics like Breitling, IWC, Piaget, Omega, and fashion brands like DKNY, Folli Follie, GUESS, Superdry, and many more. DFS Group – Established in Hong Kong in 1960, DFS Group is one of the world’s leading luxury travel retailers, offering products from over 700 brands through more than 400 boutiques.[3] Its merchandising focuses on beauty and fragrances, fashion and accessories, watches and jewellery, wine and tobacco, food and gifts. In 2017, nearly 160 million travellers visited DFS stores. DFS is headquartered in Hong Kong and operates over 10 DSF and T Galleria shops in Cambodia, Indonesia, Singapore and Vietnam. The Shilla Duty Free – One of the South Korean leading travel retailers, the company offers merchandise from over 500 international brands in fashion, jewellery, cosmetics and watches etc. It has opened the first overseas downtown duty-free store in Phuket, Thailand. As a joint venture with local Thai companies, the new store offers more than 400 brands spanning across cosmetics, fashion and accessories.[4] The company also operates two Maison de Chronus watch boutiques in Changi Airport. Maison de Chronus is a luxury and fashion watch boutique offering a wide range of brands ranging from the contemporary to the ultra-luxe. Opportunities Presented by Travel Retailers/Duty-Free Operators The continued rise in tourist arrivals and passenger spend at ASEAN airports makes 2 Accessing the ASEAN Consumer Market: Watches and Clocks (Distribution Channels 2) travel airport shops an ideal retail channel for luxury watch companies to achieve better sales and brand engagement. As such, many watch brands strive to include travel retailers as a key part of their distribution strategy in ASEAN. That said, travellers are becoming more discerning when shopping at airport stores. According to DFS Group, Chinese consumers' recognition of luxury brands is getting more mature and they are moving away from ostentatious displays of wealth. Consumption behaviour is changing from a "herding" effect to a pursuit of personal style. More and more Chinese high-income consumers are looking for less flashy and more understated goods as well as subdued statements of luxury. In response to these changes, travel retailers will focus on brand and assortment enrichment. They will complement point-of- sale strategies with high-impact marketing tactics, such as: Creating innovative product displays Developing "travel exclusive" offers to stimulate purchases based on scarcity Delivering great in-store experience – combining the store environment, merchandise mix and customer service These retailers have set a priority to seek exclusive products for their airport shops as a way of driving purchase and ensuring travellers feel like they are getting their hands on something that is not available outside of the airport environment. This drive for more exclusivity within the travel retail channel offers an exceptional opportunity for emerging watch brands with original design concepts. Hong Kong watch brands and traders can partner with DF operators to provide exclusive watch collection or limited editions to gain inroads into the travel retail market in ASEAN. Brand owners/suppliers and DF operators normally partner on profit sharing basis. If the product does not sell, the DF operator will ship it back to the brand owner/supplier. The share of the sales revenue is the key consideration of a DF operator. Generally, it is between 60% and 70%. In cities with higher operation costs like Singapore, DF operators’ share is close to 70%. However, this does not mean that the suppliers will keep the remaining receipt. First, they may need to pay for the agent who helped to connect with the DF operator. In addition, there could be the costs for sales, cashier and stock management personnel. Before the deal is signed, watchmakers and suppliers must get the price structure correct in order to run a profitable business. Online Platforms Despite experiencing rapid expansion over the past few years, business-to-consumer (B2C) e-commerce penetration is still less than 5% of total retail sales in ASEAN. For one thing, the region encompasses a broad range of ethnicities, languages, consumer preferences and regulations. Underdeveloped infrastructure and lack of familiarity with digital payment is another key constraint. Cash-on-delivery (COD) transaction, varies from country to country, but still accounts for 50-90% of e-commerce transactions in the region. E-commerce in ASEAN is Reaching an Inflection Point According to The Dieloitte Swiss Watch Industry Study 2017, the industry consensus two years ago was that monobrand stores would be the most important sales channel for the next five years. However, in 2017, for the first time, online authorised dealers are considered the most important channel for the next five years.[5] This is a huge shift in 3 Accessing the ASEAN Consumer Market: Watches and Clocks (Distribution Channels 2) thinking that will require the industry to adapt to a new way of doing business in a short time frame. In the ASEAN market, the recent entry of Chinese tech heavyweights, such as Alibaba, JD.com and Tencent may help the region reach its vast potential for e-commerce. The most notable examples are Alibaba’s investment in a controlling stake in Lazada and the joint venture between JD.com Inc. and top Thai retailer Central Group. These are expected to foster the development of digital payment and logistics for B2C e-commerce in ASEAN. Countries with relatively more developed telecommunication and logistics infrastructure, such as Malaysia and Thailand, are expected to experience faster growth in e-commerce over the coming years. In Thailand, the government is proactively pushing for e-payment adoption via the “Promptpay” scheme[6] and use of QR codes. On the other hand, Indonesia has a high long-term e- commerce potential given its large and rapidly growing middle class and young consumer market.

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