India Takes Centrestage In Luxury Giants’ Growth Plans

RIYA SHETH and her husband Mayank are on their way back to Dubai after attending a five-day wedding in Delhi and Jaipur. The investment banker couple stops at Mumbai before heading home. They decide to shop and, no, they don’t walk into Bombay Store or Fabindia. Riya’s birthday is round the corner and she buys a ₹3 lakh Bottega Veneta’s classic ‘Intreccio’ leather tote bag at the newly opened Jio World Plaza.

But why did she buy in India when she can get the best of luxury in Dubai? “It is cheaper to buy luxury in India. I have started shopping more in India over past three-four years,” she says. Managers of luxury stores at the Jio World Plaza say pricing of global luxury products in India is now on a par with most mature markets. In fact, prices in Singapore and Middle East are 7-10% higher than in India. “India is second cheapest for luxury after Europe, where these products are made,” says a sales executive at the Louis Vuitton store in Jio World Plaza.

This is surprising as India imposes 30-50% import duty on luxury products and 28% goods and services tax. Wasn’t that the reason buying a luxury brand in India was prohibitive and Indians preferred shopping for an LV bag, a Zegna suit or a Rolex watch abroad? Not anymore. “We can’t afford differential pricing any longer,” says Georges Kern, CEO, Breitling.

Why this change? “Conviction in Indian market and ability to build scale have compelled luxury brands to ensure parity pricing,” says Anurag Mathur, partner, Bain & Company. Luxury industry has realised that India is where its next growth will come from. “Brands are under pressure to ensure price parity as consumers are increasingly buying in India,” says Angshuman Bhattacharya, partner and national leader (consumer product and retail sector), EY India. Many are even ready to compromise on gross margins (50-70%). “Global brands are looking at India as a 15-year rather than a three-five year journey,” says Abheek Singhi, MD and senior partner, BCG. Gopal Asthana, CEO, Tata Cliq, says luxury brands have also started looking at unit economics. “When you have a ₹3,000 product with 30% margins, you earn ₹900, but if you have a product priced at ₹50,000 with 10% margins, you make ₹5,000. This is where the mindset has changed.” Consumers are also tallying prices. “If a brand is from Italy, they see the price there. Then they see the price in markets closest to them which, for Indians, is Middle East. If a product is priced at $100 or $200 in Dubai and $250 in India, nobody will buy,” says Asthana.

India is no longer an underdog in the luxury race. Bain & Company pegs the Indian luxury market at $17 billion, expected to touch $85-90 billion by 2030. India has one million households with annual income of $1,00,000 and above. These are the main consumers of luxury. Nine million households earn $60,000-80,000 per year and consume luxury as well as bridge-to-luxury brands. No wonder 30-40 global luxury brands have entered India in last two years. While Bulgari, Tiffany, Versace and Hermes have come back after exiting in 2013-14, Canali, Tod’s, Dior and Chanel have expanded their retail presence from a single store in a five-star hotel to multiple stores. India has added over 6,00,000 sq. ft. luxury retail space in the last one year.

India Vs China

CEOs of top luxury brands say the Indian luxury consumer is the same as any other luxury consumer. However, this was not the way global brands looked at India a decade ago when China’s GDP was growing at 10% and the average Chinese wanted to show off his/her newly acquired wealth. The Chinese customer did not prefer an understated bag or shoe but wanted to show the world he/she had an LV or a Gucci. That was the time when every luxury brand looked at India as China’s poor cousin and dumped second season inventory into the market. It was flashy and fiercely expensive. The strategy did not work. “When luxury brands came in 2007, it was too early. They didn’t understand the Indian consumer. The product line was not good. It was full of logo mania as the Chinese were buying it. There was no Gen Z that time. And youngsters couldn’t afford luxury. The ones who could afford were the older classy people and they didn’t want a monogrammed leather Gucci jacket or an LV bag,” says Akash Seth, CEO, Magnanimous, a luxury marketing services company.

Carlo Beretta, CEO, Tod’s, agrees. “There was a time when everyone thought India was the new China. Everybody came here. But it’s not like China at all. It’s much more similar to the western world. Indians are mature towards beauty, art, quality and craftsmanship. The Chinese want to show off.”

The show-off moments of rich and famous Indians centre around fancy houses, cars and big fat weddings, says Bijou Kurien, chairman, Retailers Association of India. “The Indian way of consuming luxury is experiential. We are willing to spend crores on weddings. Similarly, for an ultra-rich, buying a ₹300 crore house is a mark of distinction; despite this, he may be comfortable wearing a ₹2,000 shirt,” says Kurien.

Global brands misread the Indian market and had to exit, say industry experts. Versace and Tiffany, for instance, brought the merchandise they were selling in China. The Chinese wore subtle greys and off-whites for special occasions while the Indians were all about gorgeous, colourful saris and lehengas. They didn’t want to spend lakhs on a Versace gown. Neither did a minimalistic Tiffany jewel which they had to buy off the shelf make sense for them. They preferred exotic custom-crafted pieces from their family jeweller.

Local Tie-ups

The biggest plus for global luxury brands wanting to do business in India today is strength of their Indian partners. Most have tied up with deep-pocketed players such as Reliance Brands and Aditya Birla that have the appetite to invest for the long term. Reliance has partnered with brands such as Canali, Tod’s, Tiffany, Versace and Zegna to name a few, while Aditya Birla Group, which has partnership with Ralph Lauren and Ted Baker, among others, is getting ready to launch Galeries Lafayette in India.

A Versace or a Tiffany will find it tough to become profitable in India for next few years but will have the comfort of a strong partner willing to invest. Also, with the Chinese economy plateauing, luxury brands are shifting a chunk of budgets to India. With India’s GDP growing consistently, making the average rich Indian richer, it is certainly India’s moment. Global brands are ensuring that the Indian consumer has access to the latest Dior, Gucci or Chanel product the same day it is launched in, say, Paris.

As shortage of luxury space was also a dampener for the brands a decade ago, developers are now focusing on building quality retail space. While DLF is launching its second luxury mall in Delhi (in addition to DLF Emporio), Reliance has opened two malls in Mumbai (Jio Drive Mall and Jio World) in a span of two years. Phoenix has converted Palladium mall in Mumbai from premium to luxury. Similarly, Mall of Asia in Bengaluru has dedicated floors for luxury. Of course, India still has a shortage of luxury space, which is holding a lot of brands from entering the market. However, even as they await addition of more luxury real estate, many companies have deployed their teams to study the Indian market and consumers, says Asthana of Tata Cliq.

There has also been democratisation of luxury over last four-five years. It is no longer about celebrities sporting a high-end bag or a dress. “You see senior management at corporations and even entrepreneurs wearing labels all the time,” says Bhattacharya of EY.

Luxury in Tier II-III India/Localisation

Around 57% Indian luxury consumers reside in Tier II/III India, say the brands. Around 55% of Tata Cliq’s luxury business comes from these markets. “We sell watches worth ₹10-50 lakh online,” says Asthana. While consumers in cities such as Chandigarh, Jaipur, Lucknow and Ahmedabad often travel to Delhi or Mumbai for luxury shopping, brands are going all out to ensure they reach these consumers via trunk shows and private sales. Christian Louboutin, for instance, takes 80 pairs of shoes to Ahmedabad for two days and invites the uber rich for an afternoon tea or an evening champagne. At the end of two days, it is able to sell at least 20 pairs, each priced between ₹80,000 and ₹4 lakh.

Localisation is also catching on. Bulgari launched the Bulgari mangalsutra necklace last year and, more recently, the kada bracelet. “Our approach is to honour the rich heritage of India while infusing our signature flair for innovation and design,” says Jean-Christophe Babin, CEO, Bulgari. Canali has launched its interpretation of the bandhgala jacket. Dior has a limited-edition fuchsia pink Lady Dior bag with motifs of elephants, peacocks and tigers. Similarly, Panerai has launched limited edition watches inspired by the Gateway of India.

Most luxury brands are also trying to create in-store experiences that don’t intimidate consumers. “Brands are ensuring that their staff are able to converse in local languages and not just Hindi or English. There could be a lady who would walk into a Tiffany store in a stylish linen dress and buy a ₹20 lakh solitaire ring but there could also be someone unassuming from a smaller city who would enter a Rolex store to buy a ₹50 lakh watch,” says Seth of Magnanimous.

India has definitely made it to the luxury scene, but the evolution is slow and steady.