: For the fashion and luxury goods segment in India, the massive cash crunch triggered by the government’s decision to demonetise high denomination currency notes has been a show stopper. With cash acknowledged to be a large part of luxury spending in the country, the sector has taken a direct hit in sales across the board.
The question now in the industry is whether dwindling demand will leave the sector permanently starved of customers, or will it bounce back in the coming three-to-four months once the situation normalises.
‘Psychological disaster’“In terms of sales, it has been a disaster psychologically,” said designer Tarun Tahiliani. “It has made everybody feel very poor and uncertain and, made people want to sit in and not spend their money. The government has behaved as though all money in circulation is black money, which is entirely a fallacy.”
His comments echoed the popular sentiment that all cash money did not equate to black money; and that there were alternative ways of making payments such as cheques or credit cards that all luxury outlets already provided. The problem, however, was that the cash crunch was affecting other small vendors as much as the consumers. Payments for multiple vendors be it for crystals, threads, or for embroidery (which were largely in cash, despite the provision of proper bills) had been impacted.
Gaurav Mehta, founder of the Jaipur Watch Company had even more reason to be despondent, “The fashion/ clothes etc. can still recover, but (sale of) niche objects like luxury watches will go for a toss.” Alternate ways, albeit risky, such as extending credit lines to regular customers had been mulled. Focusing on foreign clients instead of domestic had also been considered, Mehta said, adding “fixed costs are very high in the luxury business. We are the best payers of salary in the business (because it’s a very specialised job).” With revenue declining and fixed costs remaining constant, the only alternative for niche luxury businesses like Mehta’s may be to either explore greener pastures in the Middle East, which seem to be the only places where luxury is booming, or be prepared to lose people over time.
“In a city like Jaipur, the bullion market has been shut for 3 days; the jewellery market for 2 days and there are no gold rates” Mehta said. With such a sharp dip in sales there is also going to be parallel reductions in sales tax and luxury tax which will harming the public purse. How the government will make up for this loss of revenue isn’t clear.
The owner of Lehenga House, a popular trousseau store at Chandni Chowk said that sales had been hit by 50-60 per cent. “Those who can’t push their wedding are buying but they too, instead of having a 2-3 days function are keeping it only for 1 day. This move could have been timed better; the wedding economy forms a large chunk of the Indian economy.”
Since the trousseau and venue are the only things in a wedding that are paid for months in advance, the real impact of this sales dip will be known in the coming 3 months. The government did issue an exception allowing a household with a wedding to withdraw Rs.2.5 lakh.
Rajeev Talwar, CEO of DLF, said people appeared to be reacting too soon to the developments. “It is hardly the first week; people are still coming to terms with the new way of functioning.” While it was understandable that the customer was going to prioritise spending — and luxury goods were likely to take a back seat for a while, he said, “we don’t make projections based on the experience of a 10-day period.”
Zero salesWhile many brands had reported zero sales since demonetisation, Talwar remained confident, “How many LV stores are there in India, how many Zegna stores for that matter? Luxury stores in India have never been a profit-making model. They are in the seeding phase, and therefore might take a hit in sales but are strong enough to sustain it.” Talwar asserted that “a new growth story is being written for the luxury market and will reflect the economic growth story of India, which is poised to rise.” Others like Tahiliani were sceptical. “There is nothing wrong with black money being curbed, but you have to curb it at the political level too,” he said.
(The writer is a Delhi-based fashion journalist)
