By  on March 27, 2009

NEW DELHI — Doing business in India for fashion and luxury companies will take money — and time.

“Breaking into this market requires heavy investment and much patience,” said John Hooks, deputy managing director of Giorgio Armani SpA, speaking at the International Herald Tribune’s luxury conference, which ended here Thursday. “Since we are a luxury fashion group, we prefer freestanding spaces for the Giorgio Armani and Emporio Armani brands. These spaces are difficult to find here. In addition, foreign companies cannot own more than 51 percent of the company stake, so we need local partnership. That is why we opened our first boutique at the luxury New Delhi mall, Emporio, developed by our partners, the DLF Group.”

While the luxury retail market in India represents only 0.4 percent of its total retail market, growth in the luxury sector is expected at 25 percent a year over the next 15 years, according to a 2008 Bain & Co. report.

Mohan Murjani, chairman of Murjani Group, which brought Tommy Hilfiger into India in 2004, put the scope of the local luxury market into perspective. “Our group has 850 points of sale in the country with eight added only this month. However, 98 percent of our revenue is generated by premier brands like Calvin Klein, French Connection and Tommy Hilfiger,” he said. “Though the group has also partnered with the Gucci Group, the luxury brands only account for 2 percent of our revenue, with brands performing at less than $500 per square foot.”

Murjani said luxury brands have to rethink their formula. Premier brands retail at a lower price in India than abroad, as the products are provided to the Indian partners at cost, with the brand making money off the royalty. Luxury brands, however, charge their profit up front. On average 30 to 60 percent import duty and government charges are added to the sale price of these goods, making the products more expensive than their international price, he said. “Then, there is a lack of luxury retail locations and those available soared in rent, skewing our business projections,” added Murjani. “Finally, there are no outlet stores where leftover branded goods can be sold with dignity.”

Murjani asked Value Retail plc chairman Scott D. Malkin, who was also at the conference, to open outlet villages here as well, but Malkin said he prefers working with brands directly, not distributors.

Patrick Chalhoub, co-chief executive of Chalhoub Group, contrasted the Indian and Dubai markets. “The Dubai market is saturated now, but the Indian retail structure is still fragmented, with only 4 percent organized retail market out of the total,” he said.

“It also contrasts with China, where there are second- and third-tier cities. In India, due to greater urban immigration, there are only first-tier cities; hence, the distribution patterns are different,” noted Vinay Dixit, senior director of Asia consumer centers for McKinsey & Co. That the Indian luxury retail market is at least 10 to 20 years behind that of China was the unanimous conclusion at the conference.

“The market in India is immature,” said Hooks, “but we have planted our flag here.”

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