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September 25, 2016
Nevin John, Business Today
How long will it take for India to create a luxury
high-street like Madison Avenue and Fifth Avenue in New York? It is
definitely a distant dream at the moment. Arvind Singhal, Chairman of
management consulting firm Technopak, says that India doesn’t have the
culture of luxury brands on high streets because of safety and security
issues. That’s the reason why most luxury brands in India are housed in
the shopping arcades of five-star hotels. The monthly rent of these
outlets would be Rs 600 to Rs 1,000 per sq. ft, say industry sources.
With Indians increasingly travelling abroad, their
awareness about luxury brands is on the rise. So, luxury shopping
logically should happen at least in the metros. This means that luxury
malls as a concept should work. So, why does India have just two luxury
malls? “The luxury consumers are frequent overseas flyers and they
really don’t care about buying here,” points out Rajneesh Mahajan,
Executive Director, Inorbit Malls. Indians do indulge in luxury
shopping, but it’s mostly overseas as it’s 30-40 per cent cheaper,
largely because the import duties on luxury items are very high.
Moreover, luxury shopping in India until recently
was fuelled by black money. Sales were affected after the government
started monitoring expensive transactions, says Singhal of Technopak.
In fact, a bulk of the luxury shoppers, according to a senior luxury
branding consultant, prefers shopping for luxury brands in the comfort
of their homes in order to avoid paying taxes.
However, considering the country’s projected GDP
growth and rise in disposable incomes, mall developers are hopeful that
the luxury market will also evolve. Retail industry consultants say
that the Mukesh Ambani-controlled Reliance Industries plans to enter
the luxury mall space either in Mumbai or Delhi. There were also
reports that Mumbai-based Oberoi Realty and Maker Group were looking to
build luxury malls in the city. But there is no clarity on when these
will happen, if ever.
With growth of legitimate wealth in the country,
Singhal of Technopak is optimistic about a robust luxury mall culture
in the country. Still, setting up luxury malls isn’t going to be easy
in an emerging economy like India. The cost of construction of a luxury
mall is almost three times more than a regular mall, and while the
returns are also higher, the fact remains that most Indians prefer
doing luxury shopping abroad. It takes three to five years to build a
luxury mall and the average cost for overall development (excluding the
land cost) in Mumbai and Delhi is in the range of Rs 7,000-9,000 per
sq. ft, compared with Rs 4,000-5,000 a sq. ft for a normal mall, say
real estate developers. The rental for a luxury mall ranges from Rs 500
to Rs 1,500 a sq. ft per month, while regular malls charge much lower.
Devangshu Dutta,
CEO of Third Eyesight, says that developers have to ensure a holistic
experience for customers at luxury malls. “The collections should be
the latest and the service should be ultra-premium. Pricing should be
competitive, considering the higher import duty on luxury products.”
The difficulty is in finding real estate at an ultra-posh locality for
building the mall, he adds.
Today, most luxury stores in a mall like Palladium in Mumbai often look deserted. Clearly, given the challenges, developers will definitely think twice before launching luxury malls.
(Published in Business Today)