In Haute pursuit of India

A FEW HOURS BEFORE CLINKING crystal with celebrity British Indian artist Anish Kapoor at the rambling, impossibly kitschy, half-a-century-old Mehboob Studio in Bandra, Mumbai’s Bollywood suburb, Yves Carcelle is sitting in an expansive suite at the nearby Taj Lands End Hotel. He’s admiring the city’s new five-and-a-half-kilometre cable-stayed bridge that curves over the Arabian Sea and has cut travel time between Bandra and Worli in mid-town Mumbai by more than half. “This is nice,” he says. “It took, what, 10 years? Beautiful view though.”

Later that evening, Carcelle (pronounced car-sell), along with Kapoor, would take the Bandra-Worli Sea Link to get to Mukesh Ambani’s new 27-storey mansion on Altamount Road, a little beyond Worli, for the house-warming.

The day in November 2010 is almost a metaphor for the way Louis Vuitton’s boss and one of the most influential men in the luxe business thinks about a country he often professes to love: loads of possibilities, but often unbelievably time-consuming. And as Carcelle navigates Louis Vuitton through impossibly challenging times, he is also playing the unusual, but no less significant, role of India evangelist.

While redecorating the shop windows across over 450 Louis Vuitton stores globally for the Fall 2010 collection, Carcelle settled on a Diwali theme where lamps were placed inside papier-mâché Vuitton trunks. In 2006, he had sponsored the ‘India of the Senses’ exhibition at one of Paris’s best known galleries, the Espace Culturel, exhibiting works of 10 Indian and French artists, including Bharat Sikka, Pushpamala N., Subodh Gupta, Raghubir Singh, Patrick Rimoux, Pierre Jeanneret, Lucien Hervé and Anita Dube. Then, in December 2009 and January 2010, Louis Vuitton partnered French philanthropist Albert Kahn to host a roving exhibition of Indian auto-chromes (early colour photographs). Anish Kapoor’s first exhibition in New Delhi and Mumbai was also backed by the pricey luggage maker.

Then, news leaked in February that Louis Vuitton’s regional investment arm, L Capital Asia, a $500 million (Rs 2,248 crore) fund launched in 2009, with investments in Hong Kong’s luxury retailer Emperor Watch & Jewellery, Singapore’s watch retailer Sincere, and shoe label Charles and Keith, was close to picking up a stake, rumoured to be around 15%, in Mumbai’s Rs 3,355 crore jewellery maker Gitanjali Gems.

Earlier in 2008, Louis Vuitton directly picked up a 20% stake in the Rs 100 crore, Puducherry-based leather goods manufacturer Hidesign. Its other well-known investment in Asia is its 6.8% ownership of Hengdeli, China’s biggest watch retailer. Carcelle was tight-lipped on the investment (as is Gitanjali) though it’s widely believed he is now evaluating other Indian design and manufacturing outfits.

It’s no surprise that Carcelle is showing the way. He is the poster boy inside Bernard Arnault’s LVMH Moët Hennessy Louis Vuitton (LVMH) luxury empire, whose revenue exceeded $28 billion in 2010. He heads its fashion and leather goods business, which brings in 37% of group revenues, and is seen as the best performing of LVMH’s 67 labels. Analysts estimate it accounts for 13% of the group’s revenues (LVMH doesn’t declare brandwise results). Besides the fabled
luggage label, the business Carcelle runs includes brands such as Fendi, Thomas Pink and Kenzo. At a 2007 luxury conference in New Delhi, Chanel president Françoise Montenay gave a public nod to Carcelle, saying he was a pioneer, and “we follow where he goes first”. Indeed, in some ways Carcelle is doing what GE’s Jack Welch did 20 years ago—repositioning India to other multinationals and alerting them to its possibilities.

Even so, by standards of the global luxe industry, such hard sell seems confounding. Today, sales of luxury products are higher in countries with comparable economies than in India. Taking the number of stores as an indicator, Louis Vuitton has 30 in China, four in Indonesia, four in Russia, and six in Brazil. Here, it has just four. Its outlets in Hong Kong, Singapore, and Dubai outsell those in India many times over. So why is Carcelle, and according to him also his boss, Bernard Arnault, chairman and CEO, LVMH, making a strong case for India?

He points to British adventurer Edward Terry. In his 1655 book Voyage to East India, Terry made this observation that Carcelle likes to quote from memory: “The natives there show very much ingenuity in their curious manufactures, as their silk stuffs which they most artificially weave, some very neatly mingled with silver or gold or both.”

But a book written during Shah Jahan’s reign is unlikely to be the only reason why one of the best brains in luxe is betting big on India. He’s not the only one: The likes of Stefano Canali (of Canali), Gildo Zegna (Ermenegildo Zegna), Tom Ford (Tom Ford) and Patrizio di Marco (president and CEO, Gucci), who have all visited India at least once in the past year, agree.

Di Marco says this is the next big market after China, while Ford argues that “India is quickly emerging as one of the most important luxury destinations”. Canali goes a step further and says that “there is perhaps no better country than India to propel luxury into the future”.

A VISIT TO UB CITY in Bangalore may hold some clues as to why. With a retail area of 100,000 square feet, the complex houses many of the biggest names in luxury. Though import duties have reduced over the last decade, they still make pricey stuff pricier here than in, say, Dubai or Singapore. But that hasn’t deterred a fortysomething marketing executive from buying a Rs 1 lakh Zegna made-to-measure suit. The fabric, he says, “is better than anything I’ve seen”. Elsewhere, a banker is about to buy an Omega chronometer priced above Rs 1 lakh. (Watch companies have traditionally absorbed duties to grow the market.) These are prosperous people, but definitely not the types Carcelle would bump into at Ambani’s house.

Given the secretive nature of the luxury business, it’s difficult to gauge how big it is here. A 2010 report by consultancy A.T. Kearney estimates that the country’s luxury market is worth $4.76 billion, of which $1.5 billion is for apparel and accessories, and the rest for real estate, cars and the like. This is likely to grow 21% every year till 2015. (According to the World Luxury Association, luxury goods sales in China, worth $9.4 billion in 2009, are expected to grow to $14.6 billion in five years, making it the world’s top luxury market.)

Sanjay Kapoor, CEO of Genesis Colours, the Indian affiliate of brands such as Bottega Veneta, Canali, and Jimmy Choo, says the industry has grown 25% year on year for the last five years, except 2010, when it dipped by 15%. In 2009, according to the Capgemini Merrill Lynch World Wealth Report, India doubled its millionaires to 126,000. This is indicative, since millions of Indians under-report their income and don’t show up on surveys like this.

There are other pointers. Olivier Bernheim, president and CEO of Raymond Weil, says it is planning to go beyond the metros to cities like Ahmedabad and Coimbatore. Swiss horologer Jaeger-LeCoultre has created watches specifically with the Indian consumer in mind. And ever since Canali launched its Nawab Jacket (think of it as a fitted, shortish bandhgala) in September 2009, some 750 pieces have been sold, each for a minimum of Rs 63,000. That’s about four to six times its stitching costs, fabric included, in any Indian metro. Again, the total number of stores selling luxury and super premium labels (Canali, Zegna, Paul Smith, and the like) has increased from five to nearly 100 in the last five years.

If rising prosperity is one of the reasons why luxe is flourishing, it also helps that India lacks branded luxury items of its own. Though luxury usually flourished where royal patronage existed (in Europe and Britain, for example), India’s colonial past prevented that from happening. If the maharajas wanted luggage, they turned to Louis Vuitton, if they wanted clothes they went to Savile Row, and for jewellery they visited Cartier.

Moreover, whatever luxury was created was never scaleable and depended on the skill of individual craftsmen. Thus, the reach of things like patola saris or Agra jail carpets (see photo feature) remained restricted. Though some aficionados claim bespoke luxe is a few notches above branded luxe, the fact is there’s still no local version of branded luxury. So when India’s new rich want to show they have arrived, they turn to inter-national labels, as in China and Japan.

Carcelle, however, wants to make an important distinction here. “In our thinking and our management map, we put India in Europe rather than Asia.” This perhaps is the single most important shift in Louis Vuitton’s approach. “If you look at the worldwide organisation of management and skill sets today, India actually is in many ways closer to Europe than to Asia. In management mindset it is closer to London or New York than Shanghai or Hong Kong,” adds Carcelle.

What that really means is that for him and others who follow, the importance of India is perhaps ultimately independent of items sold.

THIS IS HAPPENING IN THE midst of a profound shift in the $170 billion global luxe industry. The slowdown in the West, which pushed the likes of Christian Lacroix and Escada into bankruptcy and made deep cuts into the earnings of other brands, has triggered a bout of intense soul-searching—even the locus of luxury has begun moving Asia-wards.

For LVMH, Asia, excluding Japan, brings in 25% of total revenue—higher than France (13%), the rest of Europe (21%), and the U.S. (23%). Throw in Japan’s 9% contribution and Asia’s share is slightly over a third. With 1,580 stores in Europe and America, and 821 in Asia, 45% of LVMH’s invoicing is in currencies other than the euro and dollar.

The pattern is somewhat similar for its $20 billion rival PPR, which owns Gucci, Yves Saint Laurent, Bottega Veneta, and Balenciaga among other major brands. In 2009 and 2010, its North America revenue share remained static at 16% while western Europe dropped by three percentage points to 59%; Asia Pacific’s share jumped from 9% to 11%, while South America’s rose from 3% to 4%.

But, this industry isn’t just about market share. It’s equally driven by the next big idea around which product lines can be created. The paradox of the modern luxe brand is this: How do you retain exclusivity when anyone with money can buy the same product and when hundreds of pieces of the same product are being sold simultaneously around the globe?

If in the previous decade differentiation lay in over-the-top creations (think Alexander McQueen, Tom Ford’s revamp of Gucci and Yves Saint Laurent, or Gianni Versace), post recession, luxury has entered a quiet world, where it’s likely to stay.

Many terms have been coined to represent this shift: De-glam, non-bling, sans monogram, austere chic, sensible chic, quiet luxe, and green glamour. They all evoke a world in which even the wealthiest customers are demanding more value for money, and where logo-flashing is vulgaire.

“Customers are, and will be looking for a very different image of luxury in the future,” says Canali. “Brash and loud is not real and we must strive to give the most authentic and most real experience. That is our criterion.”

Adds Ford: “For many people today, true luxury comes from being able to enjoy beautiful things that haven’t had a destructive impact on our planet or on our people. It has to be steeped in integrity and authenticity—especially in an age when disposable culture is killing us and ruining our planet.” He adds that the key drivers of luxury in the future will be “authenticity, quality, and service”, all of which are available in India.

For those in the luxury space here, this is perhaps the moment they were waiting for. “Luxury needs ever newer pastures for inspiration,” says design guru Rajeev Sethi, who helped Louis Vuitton with the Diwali look last year.

AT THE ZEGNA STORE in Delhi’s 250,000 square feet Emporio Mall, Zegna is paying homage to the humble Indian darzi (tailor). “We are moving into a world where the biggest demand is for bespoke goods. Indians naturally understand that because they have always had tailors make everything to order for them.”

It’s not just the craft which is attractive to the luxe labels. As Carcelle puts it, India is bursting with overall knowhow. “Many words in our textile vocabulary come to us from India including calico, madras, chintz, cashmere, jute, jodhpurs, and pyjama.”

There is another dimension to all this. The talent luxe is seeking is fast disappearing elsewhere. Rta Kapur Chisti, one of the country’s foremost handspun exponents argues that “textiles are organic and are created using skills that have existed for hundreds of years. In a few decades, India will be perhaps the only place where you can find such skills.”

Does that mean India’s importance lies in the fact that ultimately it can be part of a global supply chain? Perhaps yes.

As authors Radha Chadha and Paul Husband wrote in their book The Cult of the Luxury Brand: Inside Asia’s Love Affair with Luxury, for all the fuss, luxury brands have quietly started moving production outside western Europe. Armani makes 18% of its Armani Collezioni line in eastern Europe while Prada has some of its shoes stitched in Slovenia. Hugo Boss has its $550 suits made in China, Valentino has its $1,300 men’s suits stitched in Egypt, and so on. Even LVMH’s Celine makes its Macadam line of handbags in China.

In a post-2008 world, outsourcing keeps costs down. As Chadha explains, the cost differences between western Europe and developing countries are so large that it is only a matter of time before the bulk of the production is outsourced. “On labour costs alone,” she says, “the difference can be fortyfold.”

(As the book notes, there are some ironies here. Often the made-in-Asia luxury gets sold in Europe, while the made-in-Europe stuff moves to Asia’s shelves. Then, when laws don’t demand a statement of where the product was made, designer brands have been known to rip the labels.)

When luxury brands build capacity elsewhere, they make end-to-end investments. It includes training the workers to develop and treat the raw materials, to creating the final product. That’s where bets like Hidesign, with its trained workers who make around 250,000 bags a year, can pay off. Like Carcelle, Hidesign owner Dilip Kapur refuses to confirm whether he’ll be making stuff for Louis Vuitton, except to say the “investment will give Vuitton manufacturing muscle in this part of the world”, a statement that can be interpreted many ways. But this is a model as good as any other.

Marketing consultant Rama Bijapurkar, who sits on boards of companies like Crisil and Axis Bank, explains that what Louis Vuitton is trying to do is perhaps classic reverse innovation. “We tell firms, bring your core competencies and then innovate in a market like India, but don’t try to dump goods. So in something like luxury, in a country which has so much heritage in handwork, reverse innovation could be very successful.”

Here, according to Chadha, India may have an advantage over China. The Cultural Revolution destroyed a lot of skills there, which, though neglected by lack of patronage, are still intact here. “The revolution helped China build scale and millions of products. They became a manufacturing giant but a lot of the really fine craftsmanship and hand skills were lost in mass industrialisation that swept across the country,” she says. “But even there, Hermès is attempting to revive whatever skill there is left with Shang Xia, a new local brand that they have launched.” Two years ago, Hermès had a worldwide celebration of the Indian monsoon with the release of a special perfume Un Jardin après la Mousson (A garden after the monsoon) inspired by Kerala in the rains.

WITHIN INDIA’S DESIGNER COMMUNITY, there is hope that once the global luxe brands begin to look beyond sales, the possibilities of creating the next Issey Miyake here will greatly improve. Sabyasachi Mukherjee, one of India’s best-known designers says Carcelle’s evangelism could be a “game-changer”. “They (Louis Vuitton) can open up a global market and the opportunities then are infinite.”

The hard reality for Indian couture houses is this. For all their talent, none has been able to make any global impact so far. While some of that may have to do with the fact that the local branded luxury industry was undeveloped and no label makes it big globally before becoming big locally, much of it also has to do with lack of expertise.

Designer Raghavendra Rathore’s forefathers from the erstwhile royal family of Jodhpur were once among the biggest buyers of luxe. He feels things are coming back full circle, though the nature of India’s engagement will alter. “This the perfect hub for whatever luxury needs today. Labour and manufacturing can be outsourced. Great textile traditions can be branded and absorbed. There is an ever-growing population of wealthy people to buy products. That’s a win-win,” says Rathore.