By  on December 27, 2006

Despite limited retail space, a cumbersome bureaucracy and high import duties and taxes, India is emerging as one of the most alluring markets for the luxury goods industry.

According to a study by luxury goods consultant Armando Branchini for the luxury goods association Altagamma, consumption of international luxury products and brands in India is expected to triple in the next five years. In 2005, the total market size for upscale and luxury products in India was estimated at $14.8 billion, and Branchini said he estimated a 14 percent annual growth rate of the market. By 2010, India is expected to have 150,000 families with an income level of $250,000 per year or higher.

"There are one million very wealthy people, between 6 [million] and 7 million very affluent, 9 [million] to 10 million affluent and 14 [million] to 15 million upper middle class," he said.

Jewelry accounts for 27 percent of the luxury retail market in India, followed by designerwear, accounting for 16 percent of the total. Recent trends show that spending has shifted toward handbags and footwear and that female consumers are earning and spending more, according to the research. "Despite higher prices of luxury goods in India, the younger consumer is strongly impressed with the international luxury brands and aspires to possess them," said Branchini.

"India should move fast and catch the moment," said Michele Norsa, chief executive officer of Salvatore Ferragamo, during a conference about the Asian nation organized last month by Altagamma.

Norsa, who said he first visited the country 31 years ago and "loves" it, pointed to an "unbelievable" bureaucracy, a lack of infrastructure and a poor knowledge of India as some of the main reasons for unnecessary delays and a stilted growth rate.

"Most people don't know India, and Indians themselves don't really know their own country because they don't travel," said Norsa, who urged his peers to control their businesses there directly out of that country. "It's a major mistake to run your business from Hong Kong, for example," he said, noting how easy it is to be distracted by larger markets in terms of revenues.

Norsa said India needs foreign investment over the next five or six years to develop roads, shopping malls and attract tourists. "The Indians don't have that sense of urgency, it's their mentality, versus, for example, the Chinese, who are much more aggressive," he said.Joey Kaempfer, founder and chairman of real estate developer McArthur Glen, said in other countries in Asia he generally gets "requests each week to partner to create new outlets." In India, on the other hand, "we are banging on their door, but there is no response. [Indians] have a more independent mind- set," said Kaempfer.

Francesco Trapani, chief executive of Bulgari, said that while China is more mature, "future investments in India will drastically change [the country]," although not in the short term.

Gildo Zegna, ceo of the Ermenegildo Zegna Group, viewed both China and India as "opportunities — you cannot go to one and miss the other, although they have a very different state of maturity."

Zegna, too, lamented the lack of real estate spaces and said the people should work on improving the country's image abroad, promoting it as a luxury resort tourist destination, improving its airports and luxury hotels. "This would really help us," he said.

However, Zegna praised the new laws that allow overseas companies to own a majority of their single-brand stores in India. "We had a franchisee in the late 1990s but were not happy, and the new legislation helped us relocate our store," he said. In 2007, the firm will open stores in Mumbai and in New Delhi. "Indian customers are the most loyal, buying our brand from Singapore to London," Zegna added.

Indeed, the scenario in India is quickly changing thanks to the landmark change in the store ownership law, a revision that was promoted by Kamal Nath, India's minister of commerce and industry. Nath was present at the conference and was part of a group of 125 Indian entrepreneurs who traveled to Italy, meeting with local politicians and executives. Italy's prime minister, Romano Prodi, is expected to travel to India in February, and an Altagamma delegation is scheduled to visit India in early 2007.

"Italy is India's fourth-largest trading partner, but this is not good enough. There is a vast potential, with 25 million people entering middle class and reaching out to quality [and] who are able to recognize design skills," said Nath, who pointed to a common heritage between the two countries, which have depended on skilled artisans, manual craftsmanship and creative design to build their reputation."This is a very natural partnership," said Nath. 'There are proud people in the country, looking at the future to redeem themselves from the history of poverty," he said.

Nath himself was proud of his country's democracy, where there are no intellectual property issues and laws are implemented, he said. "We respect trademark legislation, and our government never accepts counterfeits."

Leonardo Ferragamo, ceo of Palazzo Feroni Finanziaria, which controls diversified investments for the Ferragamo family, and chairman of Altagamma, said "counterfeits are not relevant" in India, which promotes "creative and not imitative" design. Ferragamo said he was hopeful the remaining barriers that limit access to the Indian market will give way to free trade and a more reciprocal exchange that will "be advantageous for India," as well.

"There is a change in the mind-set, an openness taking place and a tidal wave of aspiration," said Anuradha Mahindra, editor and publisher of Verve, India's premiere fashion and lifestyle magazine. "There are 500 million people aged 18 to 30, a whole generation with aspirations to be part of the best in the world, who want to be part of the international fraternity, carrying the best bags and wearing the best suits."

Mahindra said Indians' craving for celebrities, developed by the Bollywood film world, is an added asset for the luxury goods industry. "The celebrity factor is huge and can really help our business, something which is lacking in China, for example," said Norsa.

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