Top luxury brands return to India

Increase in purchasing power, a growing economy and liberalisation of FDI lure them back to domestic market.

December 30, 2015 11:44 am | Updated 04:25 pm IST

Ferrari

Ferrari

International luxury brands couldn’t have timed it better. After pulling out of the country a few years ago, they are now making their way back, affirming a revival of the economy, rise in purchasing power and clarity in the business environment.

The line-up is impressive: Two years after it left, Italian sports car maker Ferrari returned to India earlier this month, opening two showrooms in Mumbai and Delhi and appointing Navnit Motors as its dealer partner.

Maison Montblanc returned India this month 20 months after it left in the wake of disputes with erstwhile partner Entrack International. This time, Maison Montblanc has sealed a 51:49 per cent joint venture with Titan Company. The plan is to have five boutiques in India by March including two that have opened in Mumbai and Delhi.

Many more brands, which had shut shop are seen returning to India while those that have been waiting in the wings will come too. Menswear brands Alfred Dunhill and Alexander Amosu, besides luxury car maker Maserati and Italian fashion brand Salvatore Ferragamo are some of the global luxury brands in India.

“Luxury products are witnessing the highest percentage of growth in sales. Due to the polarisation of income, people are willing to spend, and brands do not want to be left out,” said BS Nagesh, founder, TRRAIN.

TRRAIN empowers those working in the retail sector and works to achieve immediate and lasting change in the lives of retail associates (workers) in India. “The market is such that no luxury brand can afford to ignore India. The timing could be either now or a few years after,” said Mr Nagesh. The consumption pattern in India is showing a growing trend. This is why one can see rapid growth in the sale of luxury cars and luxury apartments priced over Rs 3 crore in India, he added.

As Europe and the US see a slowdown, brands are turning their attention to India, besides other emerging markets like China, Russia and Brazil. Global luxury brands are also making a beeline for retail spaces. “Not many marquee properties are available or are vacant at prime malls. So luxury brands are coming now; else they have to wait for another three to four years for a new property to come up,” Mr Nagesh said.

FDI boost

“The relaxation of FDI rules by the government in single-brand retail has had a direct impact on a host of high-end luxury brands, which for years had to rely on local Indian partners for setting up shop; more importantly, they were taken for a ride by Indian partners,” said Ajimon Francis, Managing Director and Country Head, Brand Finance India, part of the UK-based brand valuation and strategy consultancy.

“Finally, they can set up shop, run their stores according to their brand disciplines and build their own customer relations as per global brand guidelines. The likes of Mont Blanc, Grohe (bathroom fittings brand) see this move as relevant,” he added.

According to Mr Nagesh, the allowing of 100 per cent FDI for single brand retail and the disbanding of the mandatory requirement of 30 per cent local sourcing have made it attractive for global brands to change their strategy for India. “Now they can come on their own and play for the long term in this market,” he said.

The affordable push

To make it convenient for a growing number of people, most luxury brands across segments have unveiled a series of affordable luxury products to achieve larger sales volume. 

“This trend is seen in watches, handbags, footwear, accessories and designer wear. Players like LVMH Watch & Jewellery India Pvt Ltd, Genesis Luxury Fashion Pvt Ltd, Hermès India Ltd and Burberry India increased the number of offerings in the Indian market in 2015 with an emphasis on affordable luxury to encourage more consumers to indulge,” Mr Francis said.

New millionaires

The demand for luxury goods is rising, he said, as the ‘flaunt factor’ is high in India, especially with the first generation millionaires.

“Research has shown that old-generation HNI are more conservative, less flashy and very selective in their luxury brand purchase. Indian HNIs of the elder generation may spend more but are ready to wait for the right brand and not necessarily to flash it in social circles,” he said.

However, the fast emerging set of first generation millionaires are just the opposite. They want to flash their Hublots, Cartiers, Guccis etc — even affordable luxury versions — as long as it adds to their ‘personal brand value’ in the social circles.

“It’s been a painful lesson for the luxury brands in India wherein they had to launch affordable series soon enough to ensure sustenance of their retail and maintenance costs,” Mr Francis added.

Online sales effect

The online world also plays a major role in the sales of luxury products. Brands like BlueStone sell jewellery worth lakhs online and the market for luxury goods is growing each day. Brands are seeing this as an opportunity and are investing in brick-and-mortar stores to gain the confidence of a section of buyers who seek the authenticity and warranty of luxury products.

The ‘bribe’ effect

“For Indian buyers, especially in the luxury space, many of the brands are popular ‘bribe items’. It’s a convenient gift that can be given to people in power. It’s often bought in cash; the gifting is for a favour received, and is perfected during the festive season. Eclectic buyers of luxury brands are few, whereas this gifting segment is large. For this segment, the brand plays a very important role in the perceived value it creates in the mind of the receiver,” said Mr Francis.

Whatever may be the reason, a major factor that is making the luxury brands come here is the improvement in the local economy. “Besides, the business environment in India has changed and more brands will come,” Mr. Nagesh added.

A lot is happening at the ground level to improve sentiment. Liberalisation in FDI limits coupled with a higher dosage of foreign inflows, pick-up in demand of vehicles and  consumer goods are not indicative of slowness in the economy, said Mukesh Butani, Managing Partner, BMR Legal. “The new government continues to address complex economic challenges to ensure there is a pick-up in the capital investment cycle. The ordinance to amend the arbitration law and address disputes in a time-bound manner is also a positive.”

He said increased inflows of foreign funds, coupled with moderate rates of inflation and interest, as well as low commodity prices augur well for India in the short to medium term. The GDP should grow at 7 per cent plus in the short to medium term.

This is certainly a good recipe for foreign brands.

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