High rentals dwarf luxury brands’ India gameplan

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SummaryFor several avant-garde luxury brands hitting the Indian shores, high rentals are already spoiling the party.

For several avant-garde luxury brands hitting the Indian shores, high rentals are already spoiling the party. Most are forced to charge a higher price for their goods in India as compared to picking up the same product in a market elsewhere in the world. Rentals and duties remain the key factors behind pushing up costs. On Friday FE spoke to a number of luxury retailers on the sidelines of the Mint Hindustan Times luxury summit. Of the two, rentals were considered the key reason by a unanimous choice. The cost of renting premium real estate is already similar to that in many developed luxury markets despite the Indian market for luxury goods being still in its nascent phase. This, too, in India comes without the necessary infrastructure for promoting sales.

At present, there are only a handful of developers that are getting into developing luxury real estate like DLF Emporio in Delhi, UB Mall and MBD Zephyr in Bangalore. As a result, most companies like Armani, Ferargamo, Christian Dior, Piaget, Lieber among others have already booked these spaces. For the rest like Gas and Rivetti, these rentals continue to be inhibitive. “Luxury brands cannot pay luxury rentals, often up to Rs 6,000 per sq ft, unless there are returns,” says Vivek Kaul, national director, JLL Meghraj, who have provided consultations to some of the upcoming luxury malls. Says high-end apparel brand GAS Apparel’s Gautam Vazirani, “for us the choice is to open stores in five cities or open a space in Delhi's DLF Emporio”. Alessandro Raniolo, MD, premium menswear brand Ermenegildo Zegna agrees that “the rents are exorbitant, especially, as infrastructure is not as developed, squeezing margins.”

In November 2007, Khan Market in New Delhi was rated as the world's 16th most expensive retail high street in a report released by estate firm Cushman & Wakefield's annual global report. It ranks higher than markets such as Moscow (Russia), Beijing (China), Kuala Lumpur (Malaysia), Amsterdam (the Netherlands), Toronto (Canada).

Developers in India justify the rentals given the high rate of procuring real estate in the country. “Developing such properties is also more expensive than making usual malls. One has to put in more details in architecture and interiors, both of which are labour intensive and costly,” says MBD ‘s director Sonika Malhotra. She adds that to achieve the look and feel of luxury in such properties, one ends up making investments that one would not make in a non-luxury mall. “All these factors add to the final costs and push up rentals,” she says.

She does see the rentals coming down by 25-30% as the supply of luxury retail destinations increases over the next two to three years. Her mall MBD Zephyr in Bangalore will be operational by mid 2011. While Emporio should open in a couple of months with the UB group’s Collection is preparing for 2009 launch.

For the moment, luxury retail should continue to be an expensive proposition.

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