We know our key customers. We not just know about them, but their interests, their favourite restaurants, when their son?s first day at school is, their dog?s name. Lladro?s Sachin Jain reveals part of his strategy to be successful in the Indian luxury market. Pay attention to the individual customer, treat him as an individual. No wonder his view?2009 has been the best year for us yet?is the opposite of what most in the sector have been saying. And 2010 looks to be better. ?The Indian market is 20 times bigger than what we are doing now,? he asserts.
Brave talk? That the luxury sector in India on the whole has not quite achieved that level of success is a given. India, touted to be the next big profit centre after China in the beginning of the first decade of this century, belied hopes for many a global brand. India?s landed elite continued their patronage of Champs-?lys?es and Bond Street, while the neo-rich proved to be too fond of bargains?readily available in Dubai. Higher duties led to shopping in Singapore, Shanghai and KL. Partnerships, when possible?between brands and Indian franchisees, JV partner, distributors?were fraught with the expectation of the other side doing more. The awareness level of the Indian customer extended to the saada Merc and its German cousins and pretty much ended there. Horror of horrors, luxe brands found themselves coexisting cheek and jowl with the darzi and the paanwala, almost?and had to exit earlier than planned. And when quality retail came up, the developer?s premium was such that sustaining losses was the only option.
The buoyant economy had taken care of that, but once the global downturn set in, addressing that became urgent. Sales in the core markets took such a nosedive that looking after them ?and they still generate about 80% of global luxury brand sales?has been a priority. Has India got a raw deal in the luxury sector or vice versa? The cacophony, even when it is in hushed tones over champagne and cheese, has tended to be vitriolic in its content in the past year.
Looking forward to the past
In 2010, the global luxury industry will return to growth and consumers in emerging markets (both at home and during international travel) will play a key role in driving this growth, says Sandeep Barasia, partner, consumer products and strategy practices, Bain & Company. NV Sivakumar, India leader for retail and consumer practice, PricewaterhouseCoopers agrees, saying, ?Luxury brands will need to re-engage their core customer bases of the truly wealthy and will also need to maintain contact with ?new millionaires?.?
The number of billionaires notwithstanding, just how big the market is still a matter of conjecture. Saloni Nangia, vice-president, retail and consumer products, Technopak Advisors, estimates that there are about eight-ten million consumers for luxury goods in India? those with an annual income of Rs 40 to 50 lakh or above.
?There are, of course, various levels of luxury consumption within India,? she says. Pointing out that the base for the sector is extremely low in India, she estimates that there is 15% per annum growth of people who can afford luxury. ?The luxury business is a sunrise sector in India, so regardless of how the economy does, it will grow, as the business is still very small, says Manishi Sanwal, GM, watch & jewellery division, LVMH, one of the five divisions by which the global luxury group is present in India.
Sharing, caring
Just recently has a thaw begun, and the principals seem to be a mood to kiss and talk to each other again, if not air kiss with a straight face. ?Most malls have become receptive to the revenue sharing model,? says Neelesh Hundekari, principal, who leads the luxury practice for AT Kearney in India and estimates a 25% growth for the sector in India in the coming years.
?There are minimum guarantees sometimes, but rents that once reached a level of irrationality have reduced.? He says from a market size of about $4 billion in 2006, it should grow to about $14 billion in 2010 and $30 billion by 2015.
Pinakiranjan Mishra, partner, retail and consumer product service, Ernst & Young, says, ?Luxury malls will take a considerable time to catch up. They have to realise that it?s not a quick market. Just like the way it happened in the eating out trend?a decade ago people would not eat out as much, but now there is a marked shift.? Sanwal, however, says rentals are still a consideration in prime properties. ?Doing a boutique is expensive. One has to get the size, location and staff right each time.? The brand has two boutiques in Delhi, and one each in Mumbai, Chennai and Bangalore. ?We are looking at Hyderabad and Kolkata next,? he says, explaining that about 30% of the sales are from the boutique while the rest are from different formats of points of sale. Though luxury watches have been in India for longer that most other categories, awareness levels are still not comparable to other markets. ?In India, people want to compare prices and brands. They usually come to buy an approximate price range in mind, not brand,? he says.
There is recognition, however, that in the long term, India still remains an attractive market for the luxury sector. Barasia says, ?It?s still early days, but the emergence of a strong luxury sector in India is imminent.?
Of the three major categories of the luxury sector, two are doing relatively well. Services, which includes the cyclical hospitality sector, are in demand again. Six Senses will open its first resort in India. The Maharaja Expresses look to extend the geographies of the luxe consumer in India. Asset creation remains a priority for Indians. Luxury homes are back in the market and prices are already escalating again. Names such as Ludhiana are the sweetest sounds for luxury car makers (see Opulence on Wheels, page 8). Jets and yachts are starting from an extremely low base, but the potential is immense, say experts.
The retail segment, despite some recent positive signs, is more tentative. Many brands have set up shop recently, like Porsche Design or L?Occitane, while others such as Mont Blanc have given a go ahead to their expansion plans, taking advantage of the downturn to renegotiate their rentals. Gaurav and Vikram Assomull of Marigold Fine Arts, who introduced Fornasetti to India earlier this year, plan to invest $1 million to set up two stores in the country.
?Brands seeking to be in India need to understand the Indian market,? says Nangia. ?At the moment, there is little visible effort to connect to the consumers. There needs to more investment in brand building, with both ATL and BTL efforts.? She also mentions inadequate understanding between partners, who have to be there as Indian laws stipulate the necessity of an Indian partner, as FDI is up to a maximum of 51%. ?Investments are not just monetary, but also about looking at India?s specific needs, pricing at par, marketing, right merchandise selection, etc.?
Duties remain another challenge, says Sivakumar. ?The regulatory landscape attaches duties between 20-40% on luxury goods. Sales of luxury products will increase as the duty structure becomes rationalised,? he says. Hundekari points out that as the duties may vary from 25% to 125%, brands tend not to absorb all of the difference. Nangia, however, points out that duties are not such a challenge as value chains work differently across markets.
Who?s buying?
?India is ready for start off luxury,? says Nangia, adding, ?For it to be profitable market, it will need a five to ten-year gestation period.? Mishra says consumer awareness has to develop, a brand has to establish itself as a premium brand and get people to identify with its value.
The idea is also to look at customers specifically and customise.
?The idea is that when one of my pieces becomes part of a consumer?s home, they will look at it daily, fall in love with it,? says Jain. Sanjay Kapoor, of Genesis Luxury Brands, which brings to India brands such as Bottega Veneta, Canali, Paul Smith, Kenzo and recently, Tie Rack, has chosen to focus to men?s luxury and accessories as he sees the best prospects for the market in these. ?India is at stage one of luxury consumption,? he says, ?and we merchandise according to the Indian market.? He targets sales worth Rs 3,000 to 4,000 per square foot for his 16 stores across eight brands on average, though this varies.
For him, the inflexion point is still two to fours away. In sharp contrast, Charu Sachdeva, COO, TSG Group, has chosen to concentrate on women?s apparel, and currently has eight brands, including Moschino, Alberta Ferreti, Stella McCartney, Marc Jacobs, Alexander MacQueen and Lanvin. ?Our multi-brand store Kitsch will allow us to enter more markets,? she says, revealing plans to reach 11 stores by the end of the year. She stresses upon the need to give importance to every customer who comes to the store, ?They will not come back otherwise,? she says, saying her first store in Mumbai has shown 120% growth since it opened.
Mishra says, ?Even for luxury, India is a value-conscious market. People will always weigh what value a product adds to your esteem. Price value equation, therefore, becomes important. Given a chance, even the richest like to negotiate, especially as customers travel abroad regularly, where they get the latest range and pricing options.?
Sivakumar says access to the Internet, knowledge about the latest luxury products and increased travel abroad have narrowed the gaps between what luxury consumers want and desire. Often, the desires and demands in one country mirror those in another, for this segment at least! Former cricketer Dilip Doshi, who now heads Entrack, which brought Mont Blanc to India in 1990 and opened India?s first monobrand boutique in 1991, says for luxury to develop in India, what will be needed ?is an understanding of luxury more than deep pockets?. He recently inaugurated the brand?s first salon in India at Delhi?s Taj Palace Hotel, one of the only about ten such in the world.
Jain points out that there are different kinds of customers. While high-end ones have been buying luxury for a while and need solutions suitable for them, there is also the category which is buying for the first time, for whom too the same level of quality, emotion and great luxury experience have to be ensured as one cannot lose the essence of the brand irrespective of the price. Lladro sells products in India from Rs 3,000 to Rs 1 crore.
For Jain, the biggest challenge is staff. ?There is not enough talent available,? he says. ?We invest heavily in training, which has worked well for us.? Training is usually the responsibility of the brand and done in the mother country, but poaching is a major problem, admit most players.
Made in India
Can India have home-grown luxury? ?You tend to develop luxury brands in areas you have competence in,? points out Hundekari. He cites the example of Ganjam as an Indian brand that is carving a niche for itself. ?Building a brand is not an easy task. In all the segments, the size of the top end is very small, and to reach that level takes years.? Designer Ayesha Depala points out that Indians have yet to really adapt to Western norms. ?As it will be some time before we see saris on the red carpet, Indians will have to adapt to become more acceptable to the Western markets.?
What?s doing well at the moment? ?The Indian watch and jewellery segment continue to witness brisk sales, while high-end consumer durables, such as TVs, mobile handsets, etc, are demanded by wealthy professionals,? says Sivakumar, adding that the demand for fashion and accessories is also increasing. Limited editions are a success story, according to Kapoor.
Future story
Key drivers for the growth of the sector remain the rapid growth of HNIs, rising international exposure through global travel, increase in per capita income and increased supply of global brands in India, says Hundekari.
Barasia says, ?It?s still early days but the emergence of a strong luxury sector in India is imminent. Not only will more Indians indulge in luxury purchases with increasing frequency, there will also be a shift in the purchases of existing luxury buyers. Some of what they currently buy during overseas trips will start shifting to India. I think we will first see ?affordable luxury? take off in India before the true ultra-high-end luxury market emerges.?
India is a promise for the future, points out Nangia. Given the turmoil in the home markets, most brands will be praying for that future to arrive sooner rather than later. What they will do to make it happen will decide the date though.
(With inputs from Sarika Malhotra)
Chasing the dragon
Will India be the next China for luxe brands? The year 2009 had been the worst year for luxury with an 8% decrease in the sector size globally, according to the just released Bain Luxury Market Update. In 2010, it predicts a global growth of 4% for the sector, with predictions of 15% for China and 10% for the rest of the Asia-Pacific region. Contrast this to expected 3% growth in Europe and 4% in the Americas, along with an expected decline of 3% in Japan, and you no longer wonder why brands are redrawing their plans for Asia.
On a recent visit to India, Andr? J Hoffman, president, Asia-Pacific, of L?Occitane, the Provence-based personal care brand, had pointed out that in China, the brand opened 50 stores in four-and-a-half-years. In India, the brand hopes to open 20 stores in the next five years.
?China let in departmental stores early,? he says. ?Once this begins in India, the speed of luxury consumption will go up.? There is a while to go before India reaches the levels of China?s consumption of luxury, agree almost all brands who have set up shop in both nations. Many are unsure that it ever will, given the comparatively heterogeneity of India.
Most major retail brands, luxury, premium or mid-market, are looking at China and India as the next destinations for growth, revenue and profits, says NV Sivakumar, India leader for retail and consumer practice, PricewaterhouseCoopers. ?Most major luxury brands plan to increase their presence in India and China and launch additional outlets.? But when it comes to measuring profitability and choosing between opening three stores in India or three stores in China, it is apparent that the chances of a store turning around profits is much better in the latter, points out Neelesh Hundekari, principal, AT Kearney, as a reason for the existence of comparatively few stores for even the iconic brands in India.
Some are more hopeful though. ?In five years, we shall be where China is,? opines Charu Sachdev of the TSG Group, adding, ?We have consumer demand in all levels, and it is only growing.? Experts believe the drivers for 2010 in China for the sector?strong urbanisation and infrastructure investments along with the heavy consumer spend?are pushing its growth. China is already among the top five global luxury markets, and the one with the fastest growth. Despite occasional accusations of a matching fake market, China is on its way to increase its clout in the global luxury stakes.
Two decades ago, saleswomen in Milan boutiques learnt Japanese to cope with the enormous amounts of people from land of the rising sun shopping there. The next global luxury language might well be Cantonese. Hindi is nowhere on the horizon, yet.