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Luxury Retailers Chase Fast-Growing India Market

India's luxury market is getting more and more crowded.

NEW DELHI — India’s luxury market is getting more and more crowded — and it’s just the beginning.

Foreign labels such as Moschino, Christian Dior, Salvatore Ferragamo, Burberry and Versace have opened their first stores in the country in the last 12 months, joining established boutiques like Louis Vuitton, Chanel and Bulgari, and beauty brands MAC Cosmetics and Revlon.

By the end of this year, new outlets will be launched for Fendi and Ermenegildo Zegna. A slew of designer labels — from Gucci to Giorgio Armani and Paul Smith — have said they hope to open in India in 2007, and executives from companies including Tod’s and Saks Fifth Avenue have made exploratory trips to the subcontinent in recent months.

They are all chasing a market that is booming. A study by consultant Bain & Co. for the Italian group Altagamma estimated the Indian luxury goods market grew 25 percent last year, second only to China in its rate of growth.

And while China is attracting more buzz, India is increasingly a focus for industry executives. In fact, Altagamma today will hold a conference in Milan, “The Experience of Excellence in India,” with presentations by senior Indian government officials as well as by Francesco Trapani, chief executive officer of Bulgari; Maria Cristina Buccellati; Ermenegildo Zegna, and Michele Norsa, chief executive of Ferragamo and former ceo of Valentino Fashion Group.

For now, the question isn’t whether India can support such a huge rise in luxury retailing — a strong interest in foreign brands and a growing middle class of about 300 million almost guarantee that it will be a leading luxury market in the future — but whether the country is running out of retail space.

“Location is the biggest problem [for luxury brands in India] right now,” said Marielou Phillips, a spokeswoman for Chanel in India. The brand’s own experience is a good example: Since opening in the Imperial hotel in New Delhi last year, Chanel has been searching for another Mumbai location, but has been unable to find a suitable space.

“It’s very difficult to find the perfect environment,” Phillips said. “Luxury brands are currently limited to five-star hotels. The number of options is small.”

India’s loosening of restrictions on foreign direct investment means the squeeze for space isn’t likely to end soon. As of January, foreign companies are allowed to own 51 percent of single-brand retail outlets, an attractive lure for many fashion brands looking at expanding into the market. Industry watchers predict that restrictions on multibrand stores will also loosen in the near future, which could spark a surge of luxury department stores (not to mention mass discounters like Wal-Mart) into the country.

Luxury retailers in India are now confined to a few key locations, all in top hotels. In New Delhi, the main hub is the Oberoi hotel, where brands Louis Vuitton and Bulgari were recently joined by Christian Dior, which converted a chunk of hotel office space to open its first India boutique in January.

In Mumbai, the luxury center is the shopping arcade at the Taj Mahal Palace & Tower, a historic hotel in the city’s south whose two-year-old Louis Vuitton boutique was joined by Moschino in October 2006 and will be by Burberry in December 2006. The hotel is adding boutiques for Fendi and Bulgari, along with a 3,600-square-foot Ermenegildo Zegna flagship, which is taking over a prime space housing a nightclub.

With the retail space at both hotels near capacity, other brands looking to enter or expand in the Indian market have had to venture to less-established locales. Their choices are just starting to show: Ferragamo, for example, opened last March in the new shopping plaza at the Grand Hyatt in northern Mumbai — more than an hour’s drive through the city’s traffic-clogged streets from the stores at the Taj. Versace opened in June in the JW Marriott hotel in the northern Mumbai area of Juhu. And Valentino is considering a spot in New Delhi’s Shangri-La hotel.

“At the moment, there are not many good locations for luxury brands,” acknowledged Fulvia Visconti Ferragamo, vice president of Salvatore Ferragamo Italia SpA, who was in Mumbai a few months ago for the opening of the new store. “Cities like Mumbai and Delhi are so large that you really need two or three opening points [to reach a wide range of customers]. Location is something we’re analyzing carefully.”

India’s luxury retail landscape could start to change soon. In the next year or two, companies say they expect the start of a shopping mall boom, which may provide more site options. Although hundreds of malls are in development across the country, only a few — like the New Dilli Dome and Emporio, both in New Delhi — seem to have the potential to be true luxury hubs, said brand representatives.

“There’s a definite need for new types of retail space,” said Charu Sachdev of TSG International, the Indian franchise partner of the Aeffe Fashion Group and operator of the Moschino store in Mumbai. “With hotels in particular, there are huge limitations on the maximum amount of space you can get. For a brand like Moschino, we need larger store formats. When you can’t offer the entire product line to customers, you’re limiting the experience.”

One possible option is the New Dilli Dome, a 50,000-square-foot luxury shopping center that will be part of a bigger mixed-use center called Select Citywalk. The southern New Delhi complex is due to be finished by the end of this year and will likely open in the first half of 2007, according to Pranay Sinha, president and ceo of Select Infrastructure, the developer of the property. Sinha said nearly 40 luxury brands have expressed interest in the 20 to 25 store locations in the Dome property.

Brands are also considering Emporio in south New Delhi. The developer, the DLF Group, had expected the 300,000-square-foot luxury shopping complex to open by the end of the year, but a court ruling in early May shut down construction until the property completed an official environmental evaluation. A DLF spokesperson said the company expected construction to be finished by early 2007.

These locations are the first viable luxury malls appearing in the country and could become prominent test cases for the new retail format. Still, many companies say that because the luxury mall is a new concept to both India’s property developers and consumers, there are plenty of risks.

The biggest concern for now is how the malls will be managed. Representatives for both Emporio and the New Dilli Dome said they’re considering partnering with international management companies, but neither had made a decision, which has made many retailers nervous about signing on.

“As long as the mall developers can’t guarantee international, professional management, no one will take that risk with their brand,” said Karen Wilson Kumar, India retail manager for Louis Vuitton. “The risk is much too high.”

The question of management also has made brands that have not yet entered India, such as Tod’s, hesitant about what retail options they should pursue. “I think we need to approach this market in a very cautious way,” said Stefano Sincini, ceo of Tod’s, who has made two exploratory trips to India in the past few months. “There are a lot of things that are changing very fast here. There are many mall projects developing, and everyone would like to be in a luxury mall, but we still don’t know what will be the right location for the future.”

Tod’s will likely enter India within the next 12 to 18 months, he said.

Sincini’s eagerness to find the right retail outlet is understandable. India’s staggering population of 1.1 billion and rising numbers of middle-class consumers have made the country a prime target for future luxury sales. Many companies are hoping to make inroads in the country now so they are fully established before the market’s expected boom.

Anil Chopra, vice president of Indian beauty giant Lakme’s Lever Division, told the WWD Beauty Summit last May that the Indian economy currently was worth $300 billion and is expected to hit $700 billion in 2006. By 2025, India is expected to be the fourth-largest economy in the world. There currently are 6.9 million stores in India — mainly small shops — and that number is expected to grow by 25 percent over the next few years, he said. Most important, three years ago there were only three shopping malls in India and today there are 354.

While India has a long history of high-end shoppers who have traveled abroad to shop, brands in the country say the luxury clientele has recently started to show very promising changes.

“In just the last year, our client profile has definitely been expanding,” said Wilson Kumar of Louis Vuitton, which opened its first store in New Delhi three years ago. “We still have a customer that travels widely and shops abroad. But we’re now seeing a new wave of clients that are young, upwardly mobile, double-income couples with expendable money. We’re also seeing a young generation that looks for the fashion side of Louis Vuitton — the new looks, brighter colors and latest bags. There are a lot of youngsters buying the pochette as their segue into Vuitton.”

At the new Dior store, the established luxury clientele that the brand has seen abroad for years has been joined by a growing number of customers making first-time purchases of wallets or small handbags, according to Kalyani Chawla, brand ambassador for Dior in India.

“By opening in India, we’re getting fresh clientele — a person who is just starting to make money, but hasn’t traveled a lot abroad and is just discovering the Dior brand,” said Chawla. “There is a huge aspirational element. The middle class is probably the largest consumer group right now, and they’re looking for bigger and better products. Today, a woman who wants to buy a bag would rather save up her money and buy one expensive bag instead of buying four or five not-so-nice bags. It takes more time, but they’ll wait to buy one coveted piece.”

Foreign brands are also being bolstered by India’s growing number of magazines and newspapers, which devote significant space to new fashion looks and trendsetting celebrity styles. “Magazines are becoming critically important,” said Shefalee Vasudev, editor of the new Indian version of Marie Claire, which was launched last June. “The media has become crucial to helping women learn about fashion and beauty and what is happening in these areas around the world.”

As the number of brands in India increases, the longtime Indian luxury consumer is finally starting to shop more at home instead of only buying abroad — although Indian tourists were one of the reasons sales of luxury goods in Europe rose 7 percent last year. A widening range of products — including top categories like leather accessories and shoes, but also ready-to-wear from brands like Chanel and Burberry — have helped boost the appeal of shopping in India. Though most items still cost about 30 percent more in India due to duties on luxury goods, some labels such as Moschino have adjusted their prices to be equal to the European market in hopes of increasing their appeal.

Luxury executives say they’re able to lure more and more customers by offering an experience equal to — or even better than — what they’d have shopping abroad.

“A customer needs to feel exactly the same way when she walks into a Chanel store in Delhi as when she is in Paris,” said Phillips of Chanel, whose New Delhi store was designed by architect Peter Marino. “The collection that we have in the store is the same as in any other store in the world, but it also is slightly adapted to the Indian market. [Our buyer] knows to stock lighter-weight fabrics and the smaller handbags that women like to wear with their saris.”

Tikka Shatrujit Singh, brand adviser for Louis Vuitton in India, said, “Our customers like to shop in India because they get excellent service. The staff knows them by name and they know what they like. The interaction is personal.”

Despite the squeeze on retail space, executives in the country said they are optimistic that they’ll find locations for upcoming expansion. Sachdev said she expected to bring the rest of the Aeffe brands — including Jean Paul Gaultier and Alberta Ferretti — to India next year. Louis Vuitton is hoping to open a second New Delhi location and a boutique in the business hub of Bangalore next year. Ferragamo is looking for a second Mumbai store and a New Delhi outpost. Christian Dior and Chanel are both looking to expand to Mumbai. The list goes on and on.

“The potential for us to generate new, first-time customers is massive,” said Singh of Louis Vuitton. “We’re only at the tip of the iceberg in India. The only thing holding us back is a lack of suitable locations. It’s definitely moving in the right direction, but it’s just not moving as quickly as we’d like.”

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