Western luxury fashion set on cracking Indian market

Alys Francis, Nikkei Asian Review

New Delhi, 27 September 2014

A few months ago, a group of wealthy industrialists and other businessmen gathered in a plush Mumbai hotel suite to pore over a selection of John Lobb handmade welted shoes that cost up to $12,000 a pair.

It may just be a temporary “pop-up” store, but Thomas Collette, John Lobb’s commercial director for India, was excited. He said that a local agent for the bespoke shoemaker would start taking orders by appointment only. “This is a big step for us and a big step as well for the country,” he said.

Although international luxury brands have opened flagship stores all over developing Asia, they have hardly touched the Indian market. This may be about to change.

After all, many people in the population of 1.3 billion are steadily getting wealthier. According to the Associated Chambers of Commerce and Industry of India, luxury spending will reach $14 billion a year by 2016 compared with $8.5 billion in 2013.

But foreign luxury brands have had a tough time in the country, partly due to restrictions on investment.

Many major brands, such as Prada and Versace, only entered after 2006 when the government began to allow foreign investors in single-brand retail operations. Prior to that, foreign companies were only allowed to operate wholesale “cash-and-carry” outlets.

While companies welcomed the chance to open in India — albeit with the requirement that a local partner owned at least 49% of the business — they struggled with the lack of suitable retail space and trained staff, bad supply chains, and a raft of customs taxes and duties, as well as a long wait to turn a profit because there was only a nascent market for their goods.

Since 2006, Prada and Gucci have been among the 50-odd brands that have either left India, restructured or quit soured partnerships, according to a 2012 report by retail consultant Third Eyesight.

In 2012, India started allowing full foreign ownership of single-brand retailers but included restrictions such as the need to source at least 30% of products from local small and midsize enterprises. That is virtually impossible for most luxury labels since their brand integrity often rests on the craftsmanship of products made in their home country. Unsurprisingly, the new rules did not trigger an influx of foreign brands.

Jones Lang LaSalle, the real estate company, in August ranked New Delhi and Mumbai near the bottom of its list of 30 major Asia-Pacific cities in terms of the presence of top luxury brands.

Indians optimistic

Some foreign brands, like John Lobb, have decided that franchise and distribution deals are a better way to establish their presence in a difficult market.

John Lobb’s local partner is Regalia Luxury, which spent a year wooing the Hermes-owned brand before securing a deal to sell John Lobb’s “By Request” line of shoes that are custom-made for each client.

Regalia Luxury is one of a number of Indian companies eyeing the rising number of style-conscious local shoppers who are hungry for Western luxury brands but are wary of entering the market on their own.

“From a longer-term perspective, there’s immense opportunity if you do it the right way,” said Regalia Luxury founder Pratik Dalmia, who clinched a franchise for bespoke Italian suitmaker Kiton in 2013 and expects to sign up two more brands by year-end.

But he admits that the market boom has yet to start and that operators will have to “run a tight ship” for the next couple of years.

Indian companies that represent foreign luxury brands need to have a long-term view and keep a close eye on what the younger generation likes — these are the customers with the most potential, since they are more exposed to overseas fashion trends.

“India is all about the customer of tomorrow,” said Darshan Mehta, CEO of Reliance Brands, a subsidiary of Reliance Industries that was set up in 2007 to bring foreign luxury fashion to India.

Mehta often sits in a cafe at DLF Emporio, New Delhi’s first luxury mall which opened in 2008, and watches shoppers. He said many people shop at Zara but they walk into Gucci and Zegna just to have a look. “That is what makes markets like India so promising: the aspirational consumer,” he said.

Unlike China, where a lot of luxury retailers are now at a consolidation stage after years of rapid expansion, brands are still struggling to find space in India for their first shops.

Even in Mumbai, the Emporio is the “only true luxury mall,” according to Mehta.

It may take some time before India’s luxury market takes off, but the market has been boosted by a stream of well-off Indian professionals and students returning after working and studying abroad, including many bankers who left Wall Street and London after the global financial crisis.

Luxury players are also expecting a boost from the introduction of a Goods and Services Tax, which was promised by India’s new government and would get rid of complex multi-level taxes that are hampering the sector.

Reliance Brands, which also represents Reiss and BCBG Max Azria, expects to add three more brands to the company’s stable of 16 foreign brands by year-end.

A few pioneers are even setting up boutiques in smaller cities. Bangalore firm Fervour, which has licenses to sell Nina Ricci and Christian Lacroix, is planning to expand to Chennai and Hyderabad.

But most don’t see these cities as viable markets just yet.

“There is no sustained luxury market outside of Bombay and Delhi,” Mehta said. He expects luxury demand outside the two main cities to take another three years to reach critical mass.

Sanjay Kapoor, the founder of distributor Genesis Luxury, said India’s luxury market is not yet at the point where China was 10 years ago, even if the potential for growth is immense.

Kapoor founded Genesis Luxury in 2008 to sell foreign luxury brands in India and has deals with Jimmy Choo and Armani, among others.

“As awareness and retail space spread, demand will accelerate in smaller cities in the interior of India,” Kapoor predicted.

Tight ships

Amid the shortage of high-quality retail space, one option is to use the “shop in shop” model.

R&B International rents small spaces in other retailers’ stores to sell Australian luxury label Easton Pearson. The manufacturing firm supplied embroidery to the brand for years before nabbing a distribution agreement in India in June.

Dalmia also said he is in no hurry to open flagship stores for John Lobb and Kiton before 2016.

Instead he is targeting ultra-rich customers who want the pampering that comes with exclusive, by-appointment-only services. Clients are shown samples of Kiton’s made-to-measure suits and John Lobb shoes, and then measured by a trained team at a place and time that suits them, often at home in the late evening.

Collette said he’s been pleasantly surprised by how well the brand has been received in India. While the brand has wholly-owned stores in Japan and the U.S., Collette said it would have been impossible for it to enter India alone.

(Published in Nikkei Asian Review.)