Luxury Retail Stores in India and Their

Coming of Age
Until a few decades ago, luxury retail was limited in India and was associated with the rich
and upper-middle classes only. Today, with introduction of a large number of international
luxury brands in the country, the face of luxury retail in India has undergone a
dramatic transformation. ‘Luxury’ is term mostly misunderstood to be beyond
the common man’s reach. But over the years, more and more luxurious goods are becoming
necessities, not just for the rich classes but also for the middle class populations.

Luxury retail has four important elements - quality, value for money, customer satisfaction,
and creativity. For a luxury brand to be successful, it will need to fulfill and sustain these
criteria on a long-term basis if it is to survive competition and remain in the market.
Retailers often use the term “luxury” to signify their high-end expensive products for the
users. The Indian luxury retail market is growing currently at a compounded annual growth
of 25% meaning that consumers of luxury goods are increasing day by day in the country. In
fact, India is the future destination for luxury retail brands across the globe. Many global
luxury brands are planning for great expansion in India and Indian customers are more than
ready to spend on these high-end luxury brands. India is set to evolve in a major way if
industry experts are to be believed.

India has a huge population of young and fashion conscious shoppers who aspire and follow
international lifestyles. Indians people have been travelling globally and they have great
exposure to these international brands. They know that these international brands are famous
for their quality, durability, and covetedness.

India has the presence of most of the luxury brands of US and Europe which are getting
more popularity and consumption of their goods among the people here. Luxury retail is not
only limited to foreign brands but there are many Indian retail brands producing luxurious
goods for the users. The niche retailing is getting more and more popular day by day and it is
a sure indicator of the newest trend catching up with the needs of Indians. Middle class
people who are getting huge rise in the disposable income is because of the booming IT as
well as other sectors in India. Growth in income is the reason behind the increase in
consumption of luxury brands and better lifestyle as well as convenient living and comfort of
middle class people.

Indian retail sector is on an upswing and luxury brands are getting more popular among the
middle class people is a not doubt thing. The Indian retail sector is expected to grow from
$400 billion to $700 billion as predicted by declared by Northbridge Capital. Today’s
retailers offer comfort shopping by becoming more active in offering consumers the world
class experience. Retailers sense the new psyche of today generation and understand the
pulse of Indian shopper who is price conscious yet ready to get the value for money in return
of luxury brand and also the retailers are coming with good new product of reasonable price.
Retailers allure customers with innovative new schemes in addition to comfort factor. There
is no doubt that the Indians are increasingly getting hooked on the modern luxury retail
environment.

Luxury retail has great presence in Indian market and growth is expected in the coming
years. When talking of the challenges and hindrances for the Indian luxury market it is
believed that the international luxury brands need to take care of many aspects to ensure its
future position in India

Indian Luxury Goods Market To Touch

USD14.72billion By 2015

A recent CII – AT Kearney Report says that the luxury goods market in the country is set to
touch a mark of USD 14.72 billion by 2015.

According to the ‘Luxury in India: Charming the snakes and scaling the ladders’ report,
which was released at the 'Luxury Goods Forum' organised by Confederation of Indian
Industry (CII) on October 7, the growth of India as a luxury goods market and its emerging
potential can be gauged by the increasing number of premium luxury brands entering into
India. Jyotiraditya Scindia, minister of State for Commerce and Industry, Government of
India, remarked, "India has historically been a sourcing area and now it’s becoming a market
for luxury goods. India is already aware of creating luxury with the skilled workforce, but
what is needed is consistency, marketing and technology to transform this niche market."

Scindia urged the foreign designers to establish manufacturing hubs in India and make it the
gateway to other parts of the world. He summed up the five reasons for the huge potential:
ready consumer market; high growth in tier I, II and III cities with disposable incomes;
credit and leverage in finance available; brand awareness; and role of government.

Armando Branchini, executive director, Altagamma, announced that Italian brands will soon
announce investment plans in India. Thomas Varghese, chairman, CII National Committee
on Retail and CEO, Aditya Birla Retail, said, "The challenges faced by the market are to
segment exactly and understand the psyche of luxury customer in India. This understanding
will drive the product and service offerings, formats and business models. On one hand, we
have new customers emanating from the middle class backgrounds whose higher disposable
incomes may not necessarily translate in to higher spend. We need to induce trials, educate
and create awareness about various luxury brands, products, services at suitable price points.
On the other hand, we need to ensure that the expectations are well catered to in terms of
range and freshness of merchandise. Also infrastructure development, regulatory framework
(especially FDI), fiscal incentives and suitable employee skill sets are also challenges."

Sanjay Kapoor, chairman, CII Luxury Goods Forum and MD, Genesis Luxury Fashion, said,
"The new aspiring middle class, tier II and III cities with emerging population will lead the
growth story forward and they present a huge scope. Luxury good awareness is growing
exponentially. The mindset of the discerning customer is changing slowly to suit our
lifestyle."

Neelesh Hundekari, principal and head, Luxury and Lifestyle Practice, AT Kearney India
remarked, "In the matured markets growth has plateued and the Indian middle class with an
income of around Rs. 10 lakhs household income per annum, this market is the one which is
highly under penetrated, will give the luxury market in India huge fillip. Indian Luxury
market is currently estimated to be at 4.76 billion in USD and has a latent demand of USD 3-
3.5 billion, which is ready to be tapped. The major component of this market is jewellery.
The hindrances are supply chain constraints and initiatives are needed in this side and
scattered customer. What is needed is micro-segmentation of the customer. What is also
needed is getting the real estate component with local knowledge of real estate and right
pricing for the Indian customer to hit it off the right way."

John Hooks, deputy chairman, Giorgio Armani Group said, "New vistas of marketing need
to be delved, and India needs to remove barriers in trade to luxury market to become more
accessible."

According to the report lack of proven real estate model, a highly fragmented consumer base
and no central organisation to address regulatory issues are the main problems that luxury
retailers still face in India. The report further stated that the critical success factors for a
luxury player include attracting the right footfalls, getting the pricing right, providing a
world class experience, getting the cost structure right, experimenting with new formats and
developing a robust real estate management capability.

Luxury shopping is a function of considerable disposable income, which only now coming
back into evidence after the global economic slowdown in India - or, for that matter, in the
rest of the world.

As long as there's affluence to any degree, the yen to go buy luxury goods follows - to that
degree. So, is there a demand for luxury brands right now? Sure - but when it comes to
India, I don't blame luxury players for looking only at the three major metros of Delhi,
Mumbai and Bangalore for expanding their footprint right now. After all, these are the cities
where luxury retail is really understood - and where a certain degree of demand for luxury
retail exists.

That said, I still feel that the critical mass needed to sustain profitability of luxury stores is
currently not available even in these cities. There's no getting away from the fact that at the
core, Indian retail will continue to be defined by value-consciousness, which means that
value retail will always have the upper edge in terms of numbers. And so, there are still only
two full-fledged luxury malls operational in India - UB City in Bangalore and DLF Emporio
in Delhi. And they are HUGELY outnumbered by the Big Bazaars of this world, which sort
of proves my point.

On the other hand, Indian shopper sensibilities and inclinations ARE slowly evolving. We
are beginning to see wealth creation happening even in the smaller cities and towns of India.
So, other than the three major metros of India, cities like Chennai, Pune, Hyderabad, Kolkata
and Ludhiana are also on the radar for the future expansion plans of luxury retailers. In the
first place, these cities have always been traditional centres of commerce, and they also have
a high concentration of old money families. But luxury retail coming there in force over the
next two years? No, I really don't think so....

At this point of 2010, developers are still a bit leery of planning luxury malls ANYWHERE
in the country. That is not to say that there's no evidence of luxury retail at all - there
certainly are luxury shopping components to existing malls such as Phoenix Palladium in
Mumbai, and Spencer's Mall in Kolkata also plans to have such luxury outlets. Also, most 5
star hotels such as the Grand Hyatt, Taj Mahal Palace and Oberoi Trident in Mumbai and
similar establishments in other cities have a component of luxury shopping.

Are any new luxury brands planning an entry into India right now? Yes - but as retailers, not
as mall developers. In that spirit, brands like TopShop, Zara, Diesel and a few others have
already tied up with local partners so that they can get a foothold on Indian soil. In fact, a
few of them are even talking to potential partners for JVs.

Even so, luxury retail is going to face some challenges in India over the next two years.
During the boom period, there was an incredible demand because the stock market was
sizzling, and that resulted in considerable disposable income. Compared to those high times,
matters are still sort of stagnant on the luxury retail front. And why should that surprise
anyone? After all, luxury retail requires very high initial investment. There are pricey factors
like standardised fit out procedures, high import duties and what have you to consider. Also,
it doesn't make much sense to launch a luxury mall at the faltering beginning of revival in
Indian retail - the gestation period to break even in this business can be as long as far as 5-7
years. And we're not even talking of the high rents applicable to luxury retail... rents high
enough in cities like Mumbai to cross the eyes of even the most well-heeled international
brands.

Bumpy road for luxury retail

Recently, 150 all new glittering Mercedez Benz cars rolled out of the company’s premises to
be delivered to Aurangabad Group in Aurangabad, a small town of the country. The group
consists of top industrialists, businessmen and professionals. Bookings for US-made Harley-
Davidson cruiser bikes, expensive luxury and sports sedans from Mercedes-Benz, BMW,
Audi and Porsche have hit the roof, with some dealerships experiencing shortfall in vehicle
supply.

Luxury in India is fast approaching and that is quite evident. Luxury retailers from across the
globe are thronging India in order to make themselves available, where they see a lot of
potential for luxury retailing. But since there are other problems like that of real estate and
government policies, the growth rate has not been what the retailers would have wanted to
and hence the expansion is taking a hit.

How potential is the Indian market?

Luxury exists in India though its numbers may not be the same as of some other markets.
“China for instance has far more millionaires, a middle class which is larger than India.
Luxury brands are not only bought by the wealthy people, it is bought in different ways with
different products”, opines Devangshu Dutta, Chief Executive, Third Eyesight. He further
adds, you may not be able to afford an Armani suit but maybe you can buy a bottle of
perfume. It is like you buy into a brand. And it’s growing, maybe not as fast as the luxury
retailers would have want it to be, but yes, with the economy growing in income and wealth,
and the number of rich and the middle class growing, the scenario is bright. In the mature
markets, growth has plateaued and the Indian middle class with minimum income of around
Rs10 lakh per annum and who loves to get the taste of luxury, this market is the one which is
highly under penetrated, will give the luxury market in India huge fillip, feels Neelesh
Hundekari, Principal & Head - Luxury & Lifestyle Practice, AT Kearney India. Indian
luxury market is currently estimated to be at 4.76 billion in USD and has a latent demand of
3-3.5 billion USD, which is ready to be tapped.
It could be seen that the industry believes that there is a huge potential for luxury retailing in
India but it will take some time to mature and be ready to be exploited by the retailers. The
market matures with the availability of brands and the increasing numbers of consumers
buying and using luxury brands. Since luxury brands started coming to India only recently, it
is expected that it will take some time before the market matures. Consumer maturity and
market maturity are interrelated. “Consumers will evolve and will make markets evolve in
tandem. There is always a certain lag, wherein sometimes market is ahead of consumers and
sometimes consumers are ready but market is not. My belief is that by 2020 Indian market
will be a serious luxury market for all global luxury brands. The basis for saying that is by
2020 Indian economy will be as big as Chinese and Japanese economy today. China and
Japan are very large and serious luxury markets and are expecting that India will follow that
path,” suggests Harminder Sahni, MD, Wazir Advisors.

Traditionally, luxury brands in India have been sold in five star hotels and stand-alone
stores. However, these businesses have not been able to attract sufficient footfalls to sustain
themselves. And in case of malls where luxury goods could be sold, conversions and rental
costs have not worked out very favourably for all tenants. Rentals have exceeded 20-25 per
cent of revenues in many cases, making the business unviable. Additionally, while several
malls had offered revenue sharing options to retailers during the recession, making this an
attractive value proposition for them, they have now begun reverting to fixed rentals with the
market picking up again (source: CII- AT Kearney Report 2010). Luxury players today are
yet to crack the real estate puzzle in India.

Can Government policy help?

Indian Government’s only policy that can impact the luxury market is the customs and
import duties, feels Sahni. In many luxury items, these duties are too high and either make
the brand too expensive or some brands even choose not to enter the market. The
Government should take a more liberal view on this and reduce duties. With lower duty
rates, the Government may actually collect more duties on larger volumes of imports. For
Hooks, India needs to remove barriers in trade to luxury market to become more accessible.
FDI is permitted only up to 51 per cent in single brand retail and is not allowed in multi-
brand retail. International players who are looking to enter India are forced to tie up with
Indian partners even when they would prefer entry on their own. While some partnerships
have been successful, others have not done too well as international players ended up finding
partners that did not have the necessary skill sets to manage luxury businesses in India
successfully. Furthermore, import duties on most luxury categories are prohibitively high,
which has created barriers for international entrants and lowered profitability of luxury
players.
The Government needs to tackle at the policy level, rather it needs to tackle at the
execution level because retail is something an industry which requires support at the
municipal level and not at the national level. So, if a certain municipal government takes a
view that retail will add something, and a good retail ambience and infrastructure will add to
the local economy, they will do far more and far better and will benefit the retail business for
more than any policy of the national Government”.

Despite rising incomes and top notch luxury brands entering the Indian market, the growth
in the $4.8 billion luxury retail market remains sluggish. The reason: dearth of luxury
shopping destinations, high pricing of products and low brand awareness. The Indian luxury
market forms only 2 per cent of the global market for luxury goods. In the lifestyle segment,
which includes apparel, footwear and accessories, premium global brands like Armani,
Tommy Hilfiger, FCUK, Calvin Klein, Louis Vuitton, Dolce and Gabbana to name a few
have entered the market in the last five years. However, their reach and visibility is limited
to metros only. The Collective, a super premium lifestyle retail chain, stocks about 100
luxury brands in its three flagship stores in Delhi, Mumbai and Bangalore. The Collective
has maintained a growth rate of 19 per cent in the last three years. Its best-selling brand is
Hackett, which has grown at 50 per cent and Armani, which has grown by 30 per cent.
Though overall growth has been on the slower side, it’s expected to rise as the customer’s
propensity to spend is increasing.

The lack of good luxury shopping centers is another factor that has impacted retailing in this
segment. Luxury retailing in India is limited to a few shopping plazas, select high street
locations, malls and five-star hotels. Three centers which are in the luxury segment are DLF
Emporio in Delhi, UB City in Bangalore and Palladium in Mumbai. However, the right
location and the retail ambience for a brand are crucial. Lack of proper retailing channels
across the country can mar the growth of a brand.
Another constrain is that luxury retailers offer a limited product range and stock second-rung
products at astronomical prices. Also, there is no brand consciousness in India when
compared to the West. Despite the challenges, retailers are hopeful of a bright future in
India.

Is India Ready For Luxury Shopping?

Let’s look at this question logically. Luxury shopping is a function of considerable

disposable income, which only now coming back into evidence after the global economic
slowdown in India – or, for that matter, in the rest of the world.

As long as there’s affluence to any degree, the yen to go buy luxury goods follows – to that
degree.

So, there is demand for luxury brands right now – but when it comes to India, I don’t blame
luxury players for looking only at the three major metros of Delhi, Mumbai and Bangalore
for expanding their footprint right now. After all, these are the cities where luxury retail is
really understood – and where a certain degree of demand for luxury retail exists.

That said, I still feel that the critical mass needed to sustain profitability of luxury stores is
currently not available even in these cities. There’s no getting away from the fact that at the
core, Indian retail will continue to be defined by value-consciousness, which means that
value retail will always have the upper edge in terms of numbers. And so, there are still only
two full-fledged luxury malls operational in India – UB City in Bangalore and DLF Emporio
in Delhi. And they are HUGELY outnumbered by the Big Bazaars of this world, which sort
of proves my point.

NO REAL EXPANSION
On the other hand, Indian shopper sensibilities and inclinations are slowly evolving. We are
beginning to see wealth creation happening even in the smaller cities and towns of India. So,
other than the three major metros of India, cities like Chennai, Pune, Hyderabad, Kolkata
and Ludhiana are also on the radar for the future expansion plans of luxury retailers. In the
first place, these cities have always been traditional centres of commerce, and they also have
a high concentration of old money families. But luxury retail coming there in force over the
next two years? No, I really don’t think so….
At this point of 2010, developers are still a bit leery of planning luxury malls ANYWHERE
in the country. That is not to say that there’s no evidence of luxury retail at all – there
certainly are luxury shopping components to existing malls such as Phoenix Palladium in
Mumbai, and Spencer’s Mall in Kolkata also plans to have such luxury outlets. Also, most 5
star hotels such as the Grand Hyatt, Taj Mahal Palace and Oberoi Trident in Mumbai and
similar establishments in other cities have a component of luxury shopping.

Are any new luxury brands planning an entry into India right now? Yes – but as retailers, not
as mall developers. In that spirit, brands like TopShop, Zara, Diesel and a few others have
already tied up with local partners so that they can get a foothold on Indian soil. In fact, a
few of them are even talking to potential partners for JVs.

CHALLENGES AHEAD
Even so, luxury retail is going to face some challenges in India over the next two years.
During the boom period, there was an incredible demand because the stock market was
sizzling, and that resulted in considerable disposable income. Compared to those high times,
matters are still sort of stagnant on the luxury retail front. And why should that surprise
anyone? After all, luxury retail requires very high initial investment.

 There are pricey factors like standardised fit out procedures, high import duties and
what have you to consider.
 Also, it doesn’t make much sense to launch a luxury mall at the faltering beginning of
revival in Indian retail – the gestation period to break even in this business can be as
long as far as 5-7 years.
 And we’re not even talking of the high rents applicable to luxury retail… rents high
enough in cities like Mumbai to cross the eyes of even the most well-heeled
international brands.
 Indians have become brand conscious over the time and now are ready to invest in the
luxury brands yet the international retail has limited scope because of the presence of
certain percentage of people who do not still see luxury as an important need.
 Indian retail space has failed to match the international standards except for the five
star hotels. This shortage of retail space exists because of the high rentals in the cities.
 India still does not have any street which can be called high fashion street that like of
New York’s Fifth Avenue and London’s fashion streets.
 Satisfying the customer is still a bit difficult for an international brand in India mainly
because of the lack of services.
 The challenges in India are not a lack of wealthy customers but rather a retail
landscape that cannot support luxury retailers.
  Indian consumers spend $500 million on luxury brands abroad,equal to the amount
they spent in India last year.
 Bollywood stars shop for Western designer goods, but most consumers maintain a
strong cultural focus on intrinsic value rather than brand value. For jewelry, for
example, the Cartier or Tiffany name has little appeal beyond the quality of the
product.
 Before 2006, foreign single-brand retailers could not own more than 50 percent of a
local venture in India, and though they may now own up to 51 percent, they still
require a local partner.
 Luxury brands thus really only entered the market in 2006.Moreover, high import
duties and tremendous regulation limitations drive prices more than 25 percent higher
than the price of the same products found in Dubai or Singapore. Some retailers must
offer only outdated products, because of the high price of imports on new products.
The World Trade Organization has recommended cutting these taxes to balance the
situation.
 Infrastructure not up to the mark :-For the international luxury brand, real estate and
infrastructure have been a major problem. For them the location of their stores and the
manners in which they present themselves to their customers and their target
consumers, are the most important part of their businesses. They will never
compromise on that. “An international luxury retailer will never end up in a location
where they wouldn’t like their brand to be seen, especially when it comes to emerging
countries like India where the general public environment is not that great”, quips
Pranay Sinha, MD, Star Centres. If they enter a European country, they don’t have to
be that concerned about it because generally the city would be clean, Sinha feels. John
Hooks, Deputy Chairman, Giorgio Armani Group, whose company has three stores in
the country, feels the same. According to Hooks, it is difficult to have street stores in
India because of several reasons.”I would like to see many more malls like DLF
Emporio and Palladium coming up. We would also sometimes love to be present in
the street location” informs Hooks. Armando Branchini, Executive Director,
Altagamma said that Italian brands from Italy will soon announce investment plans in
India, but feels that the lack of quality space in the country for luxury retailing is a
concern.

Finally, India suffers from a lack of retail spaces; even decrepit locations fetch higher rents
than those in Amsterdam and Stockholm. Many luxury brands locate in high-end hotels,
which offer minimal visibility. The first all-luxury complex, the Emporio Mall, construction
is built and operational. It may mean luxury brands finally have the appropriate platform for
growing and developing in India. Whether the rents will be affordable is another question.
Despite of all these challenges experts and people still believe that Luxury retail in India has
good future.