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Redefining Luxury

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On a warm Tuesday afternoon, a gaggle of college girls — a couple of them in high heels — are walking briskly through the rangy atrium lobby of DLF Emporio, a mall full of luxury goods stores in Delhi. They stop for half-a-minute to gawk at shoes in the Salvatore Ferragamo store, then carry on running to the corridor connecting the Emporio to the neighbouring DLF Promenade mall, presumably to the multiplexes there.

About half the seats at the coffee shop in the lobby — which resembles that found in a palatial five-star hotel — are occupied; at one table, a group of mid-30s women in a parade of Louis Vuitton bags resting next to them are discussing the location of next week's kitty party, while at another, an animated sales pitch by two 25-year-olds to an executive in a conservative grey business suit is in progress.

Behind a curtained offshop — what may be the new Christian Louboutin showroom soon — a young girl looks up a Bottega Veneta clutch, and three women with Fendi shopping bags — friends out to check out some new arrivals — stroll around looking into the other stores.

Meet the new Indian luxury shopper, who lives not as you would expect mostly in metros like Mumbai, New Delhi and Banglaore, but in Ludhiana, Tirupur, Bhatinda, Bhopal and Indore. Being well travelled, today's customer knows several international brands, uses and owns a couple of them. She is well versed in global fashion trends, making her very discerning. Importantly, she is willing to pay the price, a key factor in luxury shopping.

A Rose Is Not Just A Rose
The new luxury shopper also comes with a set of changed expectations, about where she would like to her shopping and how she would like to do her shopping. For instance, luxury is about exclusivity; how are luxury retailers working to make the shopping experience exclusive?

That is a question that raises several others. For one, how well do salespeople know brands and trends? How well are they able to discern buyers' tastes and preferences? Do they have the ability to offer advice if and where needed? The answers to these are about an important facet of the luxury business: people.

"One thing we have been very finicky about is the quality of our manpower," says Ritesh Kumar, who brought Tom Ford — a men's accessories and clothing retailer — to India. "We have been to other stores as customers and have not been happy with the quality of sales-people." He sent his people off to Milan, Italy, for a week to understand the products and train on how customers ought to be treated in their stores.

Darshan Mehta, president and CEO of Reliance Brands, agrees. "I have seen people being intimidated by sales people from entering the store," he says. "Profiling is poor customer service; having a doorman who keeps you out can scare off customers, and hiding the price tag is foolish too. The conversion factor suffers."

The Right Address
Exclusivity also implies visible separation. Should luxury stores be located in malls, as many are now? Or would shoppers prefer a ‘high street' kind of ambience that looks and feels like the luxury shoppers' paradise?

ENCHANTING: The lobby of Taj Falaknuma Palace, Hyderabad (Courtesy: Taj Hotels & Resorts)

Dinaz Madhukar, vice-president at DLF Emporio, says: "Many high-end brands are waiting to enter India, but not being able to find the right space. With 93 per cent occupancy, brands such as Christian Louboutin, Bally and Armani Kids will open outlets by end 2011 at the mall." Madhukar is even toying with the idea of starting a private jet service specially for shoppers from Chandigarh, Ludhiana, and Lucknow who flock the mall over the weekend — purely to shop.

Many famous luxury brands such as Chanel and Mont Blanc have till now restricted themselves to five-star hotels. But that does not help in creating enough traffic through the stores. As Reliance Brand's Mehta points out, "Five-star hotel lobbies tend to be intimidating."
UB City (Bangalore), Emporio and Palladium (Mumbai) malls are coveted luxury destinations, but there have been other changes. Paris-based Hermes opened its first store outside the traditional 5-star hotel in Mumbai's Ballard Estate, in what could well be the first of many such stores.

Priya Sachdev, who launched, her Kitsch store in Ballard Estate this January, has already reached operational break-even. Later this year, Kitsch will open in Hyderabad and Pune.

The Time Is Right
While the gloom of an economic slowdown appears to envelop the broader economy, the luxury business is thriving. With 153,000 high net worth individuals (HNIs), India is now the 12th largest market globally for luxury products. Over the next couple of years, it is likely to emerge among the top 10 luxury markets.

The highest growth in the Indian luxury industry has been recorded in Delhi across all brands, closely followed by Mumbai. The south of the country — Bangalore, Hyderabad and Chennai — is in catch up mode. The prospects look good though.

According Crisil, by 2015 India will have 219,000 high net worth households, up from the current 62,000. It is this population with high disposable incomes that will drive the growth of luxury in coming years. Even by present statistics, demand exceeds supply.

A report by consulting firm AT Kearney and the Confederation of Indian Industry (CII) estimated the size of the luxury market at $1.5 billion in 2010. But based on India's GDP per capita and the number of HNIs, the size should have actually been twice that, around $3-3.5 billion. What explains the gap?

The Indian luxury products market is worth about $1.5 billion, according to AT Kearney

It's The Economics, Too
Two proximate causes suggest themselves. One problem area is the level of import duties. Why not pick up goods at Dubai and Singapore?

The second constraint to growth of luxury retail is the policy framework. Currently, it restricts foreign direct investment (FDI) in single brand retail to 51 per cent, and bars it completely in multi-brand retail. Global brands have to tie up with an Indian partner, when they would rather go it alone. Multiple fallouts with Indian partners have kept international brands alert.

Thankfully, there is optimism. "There has been a 30 per cent growth in same store sales over the last financial year," says Sanjay Kapoor of Genesis Luxury. This sentiment is echoed by Ashish Chordia, chairman of the Shreyans Group that retails Ferraris, and Maseratis. "At Porsche, we are looking at over 300 per cent growth this year, while in Ducati (bikes) we expect a 200 per cent growth over last year."

But India is still way behind China; Louis Vuitton has just five stores in India across Delhi (2), Mumbai (2) and Bangalore (1). In China it has 35. Similarly, Hugo Boss has just three outlets in India, and over 90 stores across 48 towns in China. Chanel has one store in India, and eight in China.

Has the Indian luxury brand arrived? Will the likes of Sabyasachi or a Rajesh Pratap Singh draw folk in search of luxury brands, or are they too cheap to be considered luxurious? While we celebrate the success of luxury in India, spare a thought for that.

(This story was published in Businessworld Issue Dated 26-09-2011)