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- 19 Oct 2009
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India: In Its Own Time and Its Own Way

As brands seize the opportunity to realign themselves with local partners and analysts pause to take stock of market development delays, the prospect of long-term fortunes keeps the luxury industry focused on India.


MUMBAI – Sixty years ago, after seeing a picture of Lord Mountbatten squatting on the ground at the funeral of Mahatma Gandhi, Churchill allegedly refused to shake hands with the last British Viceroy of India, saying he had “gone native”. Last month though, when Montblanc unveiled a limited edition pen named after Gandhi, going native was just the thing to do.

The German firm is the latest in a series of luxury brands tailoring their products to the whims of the Indian luxury consumer. Lladro’s porcelain figurines of Indian gods and goddesses are already selling out and Canali can’t produce enough Bundgala jackets. While Indians are indeed beginning to enjoy the good life and splash out accordingly, their need for such special treatment is but one of the many challenges brands face upon entering this finicky market. Among others, obstacles include exorbitant import duties, infrastructure problems and difficulties finding suitable partners — as recently highlighted by news that several international brands are scurrying to drop or swap their Indian partners.

One of the most telling signs that the early assessment of India now needs to be reconsidered is the case of the Murjani Group’s hasty withdrawal so soon after its initial aggressive push into the market. Amongst trumpet blasts and champagne dinners, the company launched Gucci, Jimmy Choo, Bottega Veneta and La Perla in 2007 but, a mere two years later, all four brands have found other homes and the company’s luxury division has lowered its shutters. The group’s chairman Mohan Murjani himself conceded that luxury brands had got their strategies wrong in India in a speech he gave at the International Herald Tribune’s Luxury Conference in Delhi earlier this year.

Murjani said that an “imbalance between franchisors and franchisees” was one of the biggest challenges for luxury brands in India. High rent, ill-timed investments and retail prices that average 20 to 25% higher than most other markets haven’t helped bring in the crowds either. What’s more, according to Nielsen’s associate director for consumer research, Vatsala Pant, most Indian luxury consumers still believe that brands do not offer a wide enough range in India and consequently “would much rather buy on trips abroad.”

But consumers, brands and local partners are not the only ones responsible for the arduous business environment. Despite some progress with dedicated luxury developments, there still aren’t many suitable retail spaces available to showcase luxury brands. The problem is acute for many luxury brands only now venturing out of five star lobbies. As late as last month, India had only three large format luxury malls spread over two cities that together offered just over 200,000-square-feet of retail space. To make matters worse, future developments meant to alleviate the problem are consistently plagued with delays. Mumbai’s Palladium Mall, for instance, which opened a couple of weeks ago was six months behind schedule, with only 20% of its 450,000-square-feet capacity completed.

Add to this the relatively small size of the Indian market and you would be forgiven for asking just why luxury brands are so keen. According to a 2008 Technopak study, India’s 1.6 million affluent households (defined by those with an annual income in excess of $100,000) spent $9,000 per year on luxury goods and services. Encouraging, perhaps, but it’s certainly nowhere near the levels needed for India to be a serious luxury contender. India occupied a mere 0.4% of the global luxury market last year, versus the 2.7% share allocated to China by Bain & Company.


DLF Emporio in New Delhi, India’s most luxurious shopping destination


The excitement over India is still largely based on forecasts and potential. Bain & Company pegged the Indian luxury market at $2 billion last year, a figure that was projected to increase to $5 billion by 2015. Forecasts vary according to analyst, but the growth rate is what keeps everyone salivating.

“The rate of growth of HNWIs in India is second only to China – so there’s clearly a market,” says Dipti Dadich, the project director for Luxurion World 2009, a luxury goods fair that kicks off in India later this year. No surprise, then, that despite the downturn and many observers’ healthy scepticism, the Indian market continues to lure in the luxury brands — DKNY launched earlier this year and, among many others, furniture brand Fornasetti is set to follow suit.

Rather than be dragged down by these relentless challenges, luxury brands seem to be relishing them. Brands are dropping local partners and re-launching directly in India with the maximum foreign direct investment allowed (currently 51%), following the leads of Dior, Armani, Chanel and Louis Vuitton. Such brands that entered the market with the parent company holding a majority stake have barely winced through the ups and downs of the Indian market. Gucci is said to be entering India via the same route and Burberry has reportedly been in talks with Genesis Colors along similar lines.

Incidentally, it is Genesis Colours that has gained much of what the Murjani Group lost and as a result now boasts a rather enviable portfolio. “This business, like any business, takes time to settle down and the local tastes and customs need to be taken into account. Also, some brands require larger investments than others,” says Genesis Colors managing director Sanjay Kapoor .

Strangely enough, in a business that prides itself on being inaccessible to much of the world, it is penny pinching or “cost consciousness” that appears to be one of the key differences between Kapoor’s and Murjani’s business models. While the Murjanis have been accused often enough of extravagance, Genesis Colors has always had key marketing functions like PR and advertising internalised, furthermore investing in real estate when the markets were low.

Meanwhile, a player like The Sachdev Group that holds the rights for brands like Stella McCartney, Moschino, Alberta Ferretti and Jean-Paul Gaultier, uses a multi-brand store business model, namely its boutique Kitsch.

While most analysts remain bullish about fashion and jewellery for the longer term, one sector that seems to have recently run into some rough weather is luxury hotels. Experts estimated that room tariffs had dropped between 20 to 30% following the Mumbai terror attacks last year. And there are other signs of insecurity. DLF, which holds a 50% stake in Amanresorts, the boutique resort hotel chain, is said to be already looking for a way out.


Aman New Delhi, Amanresorts’ newest city-based resort


Fine wines, despite the prohibitive 200% import duty, make for a rosier picture as the new Indian HNWI takes his love for the good life beyond fashion and hospitality. But then again, Indian luxury consumers are used to such hurdles. Even the shortage of marinas and absence of allied infrastructure have not deterred them from getting their hands on a yacht — even if it’s a mere 31-footer with a price-tag of $1.25 million for starts.

Another sector that is trying to brave infrastructure niggles is the private jet business. In 2007 and 2008, 75 private jets were delivered to Indian customers. According to Ernst & Young’s 2008 report on the Indian aviation sector, the demand for private/business jets in India was expected to grow at 50% year on year — until the market was rudely interrupted by the downturn. Many insiders however believe growth will resume very soon.

Besides the many indicators, projections and data out there for brands to assess, understanding particularities of the Indian consumer profile is also key to realising the market’s full potential. The Indian luxury punter may have moved into higher consumption gear, but he will always remain value conscious.

“He needs to have a feeling that his money has been well spent,” cautions Pant. Bringing prices on par with the rest of the world of course will help. But of greater importance still, as Indians become more sensitive to quality, heritage and brand value, luxury brands will also need to be increasingly accommodating.

As Dadich remarks, “Brands have to Indianise themselves both in terms of product and business strategies.”


Kabeer Sharma


Lladro’s spirit of India figurines

Murjani Group

DLF Emporio

Luxury World 2009

Genesis Colours

The Sachdev Group

Aman New Delhi