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By Jiang Jingjing (China Daily)
Updated: 2008-06-23 15:02

Ask any middle-class Chinese what would be his or her first luxury purchase and the answer will most likely be a Swiss watch.

And, in line with the growing demand for high-end timepieces, international fashion brands are falling over one another to make their presence felt in China, with a new boutique popping up almost every month.

IWC CEO Georges Kern came down to China last year in person to finalize the deal over two locations for the company's first shops in Beijing. As a latecomer to the market, the brand can't afford to make any mistakes here, Kern says.

Baume & Mercier, which maintains a local dealership strategy across the world, has decided to invest in its own boutique in Beijing. Its CEO Michel Nieto believes a store will enhance brand awareness in this extremely promising market.

While newcomers are trying their best to keep up with the trend, early birds aren't wasting any time either, building on their first-mover advantage. Omega, which has been present in China for more than two decades, launched three new boutiques in Beijing in one day last August, kicking off its Olympics campaign a full year in advance. The Swiss firm now has over 180 points of sale across the country.

Not just Swiss brands, even Japanese timepiece players have been digging in. Citizen has recently brought its hi-tech Eco-Drive Radio-Controlled Watch to go one up on competitors.

The rapid growth of China's high-end watch market is best reflected in Xinyu Hengdeli Holdings Ltd's rapid rise over the years. Launched in 1997, the Hong Kong distributor has grown its network from 20 stores in Beijing to 166 last year and covered all first- and second-tier cities across China, with over 4,000 people on its payroll.

Xinyu Hengdeli, China's largest luxury watch distributor with a market share of 35 percent, has seen its revenue grow by an average of 40 percent. Its turnover last year stood at 4.5 billion yuan, up 90 percent year-on-year. It is the sole distributor of 19 international brands including Baume & Mercier, Jaeger LeCoultre, Tag Heuer and Zenith.

Xinyu Hengdeli will open another 300 outlets on the mainland in the next three years, says Chief Operating Officer Kenneth Huang. The firm is also seeking expansion in Hong Kong, Taiwan and Singapore, he tells China Business Weekly. "Since acquiring Thong Sia Watch Co Ltd in Hong Kong in 2006, we have been improving the network in Hong Kong. We recently opened three flagship stores in Hong Kong within a week."

He says the company recently carried out a diversification strategy to extend its business from solely distributing watches to other products, such as leather goods, glasses and jewelries. In line with this new strategy, the firm acquired a 90 percent stake in Italian writing instrument brand Omas from luxury group LVMH last year. The brand, founded in 1925, made its debut in China in May.

Huang says Xinyu Hengdeli eyes China's cream and aims to provide a complete selection of luxury goods to this target group. Although the market has been growing at a trot of 20 to 25 percent each year, Huang says the market is still not mature enough. "Customers have limited knowledge of brands and products. The market definitely needs guidance, and we are conducting awareness campaigns."

Over 90 percent of Xinyu Hengdeli's outlets are multi-brand stores and less than 10 percent are single-brand boutiques. While many luxury brands choose to open their own boutiques, Huang says distributors have an advantage in retail and wholesale compared with brand owners. "We know the market preference, the local business environment and have wide contacts. This is something new brands crave."

Local brands

The Chinese watch industry, with centuries of expertise, began to move early to preempt foreign rivals from grabbing their market share. Miao Hongbo, general manager of Beijing Watch Factory Co Ltd, was one of the pioneers.

In 2006, Miao and his staff surprised BaselWorld, the world's leading watch and jewelry show, with its "Oriental Tourbillion Playing Dragon and Phoenix Platinum and Diamond Watch", for the first time presenting Chinese miniature engraving technology to the world. The product was sold for 1 million yuan.

Following Miao's ambition to bring the "Beijing" brand to the world, the company developed "Enamel Movement" series, with a retail price of 1.2 million yuan.

Because of the country's long brand history and rich culture, Swiss watches have been dominating the luxury segment. But no place other than Beijing showcases Chinese culture better and Beijing Watch Factory has the biggest advantage in this respect, Miao says.

At this year's BaselWorld, Tianjin-based Sea-gull displayed its own patented dual tourbillion movement, competing head-to-head with international rivals. Founded in 1955, the Sea-gull brand was the first to originate from China. To build a world-class timepiece brand, Sea-gull has been developing top-grade watches in recent years and its research team has won 56 patents.

While welcoming the competition from Chinese players, Swiss high-end watch icon Patek Philippe points out that maintaining a consistently high quality is the key to sustainable growth. Vice-President Thierry Stern says Patek Philippe produces 40,000 movements a year, and guarantees every single one reaches the highest of quality standards. "It's easy to produce one masterpiece, but it requires skill and solid management to produce 1,000 or 10,000 such pieces."