Right Brain, Left Brain | Will India Fulfill Its Luxury Potential?

Back from a whirlwind trip to Mumbai, India, BoF’s editor-in-chief, Imran Amed reflects on the development of the local economy and the luxury goods and fashion market.

Hermès Flagship on Horniman Circle, Mumbai | Source: skyscrapercity.com

MUMBAI, India — It’s always nice to be back in Bombay to see the ongoing development of the economy — and local luxury goods and fashion industry. This time was no exception.

One might have thought it was fashion week, as there was a slew of fashion events taking place each evening during my stay. Tod’s held an opening at the Piramal Gallery for a new exhibition by acclaimed photographer Maimouna Guerresi. Self-described ‘concept store’ Le Mill held a celebratory event for Saloni Lodha, a BoF Spotlight alumna whose business is flourishing in India and abroad. Manish Arora held an opening party of his own for a new store featuring his diffusion line, “Indian, by Manish Arora,” which targets India’s burgeoning middle classes. And Hyderabad-based Anand Kabra and Calcutta native Kallol Datta, two promising young fashion talents looking to follow in Mr Arora’s footsteps, held back-to-back off-piste, off-schedule presentations that attracted the city’s fashion media doyennes, art crowd and the always-present socialites.

But beneath the frothy surface of non-stop events and parties, the Indian economy is stalling. Indeed, many business leaders and professionals from the luxury and fashion industry seemed despondent, saying the country has simply not been fulfilling its economic potential. For a few years — even amidst the throes of the global financial crisis — India’s economy was growing at 8 to 9 percent annually. But just yesterday came the announcement that growth of India’s GDP had slumped to 4.5 percent in the last quarter of 2012, the slowest growth registered in the past 15 quarters.

It’s no wonder, then, that everybody seems to have their eyes on the upcoming national elections in 2014, which are expected to pit Rahul Gandhi, of the dynastic Indian family and ruling Congress Party, against Narendra Modi, the controversial chief minister of Gujarat, who is known for his role in the 2002 Hindu-Muslim riots in which over 1000 people were killed. Mr Modi is said by some to have condoned the violence against Muslims, who suffered the brunt of the attacks, but has also been credited with the rising economic fortunes of his home state. Gujarat’s economy continues to grow at more than 8 percent annually, far above the national average.

Indeed, while the ruling Congress party continues to be dogged by charges of corruption, inefficiency and other scandals, many business people in India are looking to Mr Modi as a potential saviour of the country’s economy. Gujarat has attracted investment from many of India’s most powerful industrial families, who are also backing Mr Modi for election. And importantly, while he is certainly not a widely loved political figure, and still refuses to acknowledge or apologise for his role in the devastating riots, Mr Modi remains untainted by corruption.

This is not a minor point in a country where everything seems to grind to a halt unless you know how to grease the wheels. So endemic and long-standing is corruption in India that a U.S. Embassy cable from 1976, recently released by Wikileaks, said that “it is impossible in any single message to give a description of the extent and modalities of corruption in India. Entire books have been written on this subject and there is little doubt but that these only dealt with the tip of the iceberg,” adding that it is a “cultural/political/economic fact of life.”

It seems not much has changed in the past 35 years. Even a brand new institution like the hugely-popular Indian Premier League, or IPL, which has only been around since 2008, has been ravaged by controversies around money laundering and spot betting. If doing business in India remains so complicated, and getting things done continues to require being able to navigate the labyrinthine corridors of corruption, India may indeed be held back.

But all is not lost, the underlying economic fundamentals remain strong and the march of the luxury goods sector in India continues. With a growing population that has a voracious appetite for luxury brands and products, the luxury goods sector in India is said to be expanding at more than 20 percent per year.

At the Sabyasachi boutique in south Bombay, would-be brides (and their entire families) were trying on (and arguing over) $20,000 wedding lenghas while industry insiders were whispering about the arrival of even more major international luxury brands to the unfortunately-named, but beautiful Horniman Circle, where Christian Louboutin opened a flagship store just a few weeks ago, following in the footsteps of Hermès, which has helped to spark interest in this historical part of Bombay, known for its Victorian architecture.

If the rumours are true and Tiffany, Cartier and Tod’s are the next international luxury brands looking to set up shop on the street, Horniman Circle may emerge as the definitive conglomeration of street-level luxury in India — and the antidote to the formulaic upmarket shopping malls and five-star hotel lobbies which currently dominate the luxury retail landscape.

But getting customers into these stores may be another matter altogether. On a quick trip to the boutiques on Horniman Circle one weekday afternoon, all was quiet. There was not one customer at the Louboutin store and Hermès had far more salespeople than clients. We’ll be watching closely to see how things evolve.

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7 comments

  1. Fantastic to see more of the in-depth and balanced reporting on India’s luxury market and brillant also to see an article that brings in this broader perspective on politics and corruption in relation to consumer and investor confidence.
    I feel one of the problems with the luxury market in India is a real lack of scope and depth in terms of understanding the much feted “Indian luxury consumer”. What do those 20-30% growth projections really mean? Whilst working as a business journalist in India I tried to get to the bottom of the projections for India’s luxury market and came up with a guesstimate based on breaking down some of the most quoted luxury reports which put the market in South- East Asia (segmented into apparel, accessories, personal care and jewellery) at $8 billion, at six to seven times bigger than India’s.

    That would put the Indian market’s worth for those segments at $1.3 billion.With jewellery accounting for $730 million, the balance amount (around $500 million) is spread across the other three product segments. (full article can be viewed here: http://www.mydigitalfc.com/fashion-and-style/devils-wear-prada-716).

    Given also the strength of the market for traditional bridal and ethnic wear vis-a-vis what is called “Western” apparel. I would say for international luxury brands its accessories and bags that will do well, but for them the luxury apparel market, at least for womenswear, remains small. At DLF Emporio in Delhi stores such as Gucci and Louis Vuitton and Bottega Veneta do seem to do brisk business in bags, with women spending upwards of a lakh a time. Infrastructure remains a huge issue, and what Hermes has done by trying to develop a space of architectural heritage melded with an art gallery and luxury commerce is laudable, and although the store might not be as busy as in say Paris or London, it’s an innovation that is incredibly important for both its existing coterie of customers as well as future brand equity in India.
    The energy and creativity of Indian designers is very exciting and they deserve far more recognition on a global scale, although to be honest, most are doing very nicely in the booming domestic market. But there are huge issues of scaling and capitalisation for young designers.
    That will it/ wont it sense of the Indian luxury market market is indeed part of the broader problem with India’s economic growth story, but that’s what makes it so important and interesting to follow.

    Phyllida Jay from Chesham, Buckinghamshire, United Kingdom
  2. Agreed with most points – though beyond the omnipresent corruption there is still the matter of foreign direct investment (FDI) policies which have traditionally impeded brands strategic partnerships from flourishing. For example, Gucci is on it’s third Indian partner, Versace recently liquidated 80% off at all outlets following its parting ways with partner Blues Clothing Company.

    Malika V Kashyap from Kumar, Himāchal Pradesh, India
  3. Great summarisation by Imran on the socio-political scenario.
    I would tend to agree with phyllida here that the value growth is really in the so called ‘asset class’ as compared to the minuscule fashion and accessories category. Clearly, this category brings in the most of the buzz due to high volume and high visibility but is very much at the bottom of the value segmentation of over all market size. Sections like real estate, automobiles, jewellery, hospitality, travel, medical tourism contribute to the major component of the so called 20% growth. While the lust for consumption by the middle or aspiring lass is very high, various factors lead to slow growth. One could read my article at The Luxury Society blog

    Abhay Gupta from India
  4. Great summarisation by Imran on the socio-political scenario.
    I would tend to agree with phyllida here that the value growth is really in the so called ‘asset class’ as compared to the minuscule fashion and accessories category. Clearly, this category brings in the most of the buzz due to high volume and high visibility but is very much at the bottom of the value segmentation of over all market size. Sections like real estate, automobiles, jewellery, hospitality, travel, medical tourism contribute to the major component of the so called 20% growth. While the lust for consumption by the middle or aspiring lass is very high, various factors lead to slow growth. One could read my article at The Luxury Society blog http://luxurysociety.com/articles/2013/01/india-demystifying-the-luxury-mantra

    Abhay Gupta from India
  5. Great analysis and article, Imran. I was equally fascinated when I visited not too long ago. As you saw, it all seems a bit mismatched, who are these customers for the luxury brands, where are they, who are the Indian designers designing for( seemed like 90% was bridal wear), why are all the stores empty- questions I was debating, with my media colleagues and friends. And India needs more people who ask these questions, who can guide and lead the foreign brands into the country. Professionals with an international background and a local understanding of the culture and the nuances of the customer are key.
    India’s retail market is governed by too many issues that need understanding. Along with the strength of the economy, there is an emotional factor and a consumer behavior that is very unique to India.
    A growth potential of 20% in the luxury sector…that seems a high reach, but may the day dawn soon!
    http://www.styledabba.com- London, UK

    Sangeeta from Stanmore, Harrow, United Kingdom
  6. Great analysis indeed! The points mentioned are true of any business in the country. FDI and the restrictions that come along with it as mentioned earlier also remain a huge obstacle. As someone who has worked in India and tried to work with partners in India whilst based in Europe, I can say from experience that it is not exactly a smooth journey. Having said that, I still believe that there is immense potential for accessories like bags/shoes for intl luxury brands. These accessories are being bought by a younger, more aspirational consumer in India, which for me is in contrast to what I see in Europe. It is also high time that these brands start offering their latest collections for the Indian consumer as people truly interested in these products are increasingly frustrated with the dated offerings. On the point of a store being empty on a weekday, I believe, it is more to do with the fact that the younger generation of Indians also end up shopping/ indulging more during weekends due to the way work lives are organized there. That does not mean that there will huge crowds in these stores as lets not forget that still a very big part of the Indian population is poor. Nevertheless, India as a market remains interesting in several sectors and will continue to get attention since it simply cannot be ignored.

    Nirali from Germany
  7. Great political and fashion analysis of a diverse complex economic nation. loved it.

    ritu jadwani from United States