Indigenous Luxury: Is the time right for Indian Luxury to step into the spotlight?
Kaustav Dey

Introduction

India has always had a heritage of luxury, both in terms of creation and consumption. The Indian luxury market is estimated to be worth $ 1 Billion and is slated to touch $ 30 billion by the year 2015 according to a recent study conducted by AT Kearney. Yet when it comes to the establishment of its own luxury industry, it has not faced the success it richly deserves.

As far back as 1928, the house of Cartier crafted the ceremonial choker with mine-cut diamonds for its most treasured customer, the late Maharaja of Patiala, Bhupinder Singh. This is but a drop in the ocean that has been India’s luxury consumption history. Towards the end of the 19th century, the French luxury house of Louis Vuitton constantly supplied Indian royalty, most notably Maharaja Jagajit Singh, with its signature hand-crafted luggage.

In addition to this illustrious past, India has always been a silent epicenter of manufacturing of luxury goods. The US based couturier renowned the world over for his constant classicism, Oscar de la Renta gets most of his intricate hand-woven embroidery done on Indian shores. Fabric sourcing for the largest and most well-established luxury houses such as Hermes and Donna Karan take place in Rajasthan. Some of the creative directors of these houses such as John Galliano (Christian Dior) and Jean Paul Gaultier (Hermes) regularly look towards India for both inspiration and raw material – Hermes’s ‘Fantasies Indiennes’ theme explored India in all its colourful, exquisite glory and Christian Dior was the first international luxury house to hold an exclusive showing in India as far back as 1962. Kirat Young, who is of Indian origin, designs jewelry for the house of De La Renta and sources her precious stones and jewels from her native hometown, New Delhi.

As exciting as India’s liaison with luxury has been, the indigenous industry still lags behind the rest of the world when it comes to being a recognizable, respected force as far as luxury is concerned.

Current Scenario

After the turn of the millennium, India began to be recognized as one of the most promising markets for luxury with over 50 well-established players such as Louis Vuitton, Dior, Chanel, Salvatore Ferragamo, Bottega Veneta and Jimmy Choo making a bee-line for the Indian super-rich who were expected to grow at a rate of 25.9% annually. Currently, of course the situation is very different – In the throes of what many experts say is the worst economic crisis since the Great Depression, many of these brands seem to be floundering in an unexpected twist of fate.

With corporate India facing job insecurity and pay cuts, luxury brands such as Gucci, Ermenegildo Zegna, Moschino and Charriol have now started offering discounts of about 30-50% on their Autumn-Winter 2008 collections. For most of these brands who always subscribed to a no-discounts policy for fear of eroding their identity, this is a first. Internationally, luxury and premium retailers had moved their sales periods ahead by a month to October as developed economies spiralled into recession. Taking a leaf out the global markets - in India, sales are being held in December instead of January.

According to the US consultancy Bain, worldwide luxury goods sales are expected to fall this year by 10-15 percent, from around 234 billion dollars. In addition to this, large luxury retailers are facing the sharp edge of losses - For the quarter to January 2009, US retailer Saks reported a net loss of 98.8 million dollars while Neiman Marcus posted a loss of 509.2 million dollars.

Advantage: India

With the international luxury industry battling the downturn, the focus moves to the Indian consumer and why this could be the best time for indigenous Indian luxury to move into the spotlight. Firstly, the Indian consumer is very different from his/her counterpart in more evolved markets. Exposure to brands such as Versace and Valentino is still relatively limited in India as compared to say, the European or American markets. Sabyasachi Mukherjee, the Indian designer, says “India is not brand obsessed like the rest of the world”. Hence, the consumer who is capable of affording a luxury product upwards of 1,50,000 INR is looking more for the time-honoured Indian tradition of value rather than brand loyalty. Claudia D’Arpizio, Bain and Co’s Milanese partner and author of a recent luxury report says of the Indian market, “The preference is for the intrinsic value of the jewellery rather than the brand, so a Cartier or a Tiffany's will have a hard time cracking the mar ket".

Secondly, the Indian luxury consumer pie, according to AT Kearney looks like this - Industrialists or owners of small businesses (49 per cent), professionals from the aspiring class -- the corporate sector (29 per cent), followed by IT/ BPO (8 per cent), and others like doctors, lawyers, media and finance professionals. It only stands to reason that considering the situation in corporate India today, the palpable spending power of these individuals is markedly diminished. Sandeep Chaudhary, Business leader - Consulting for India, Middle East and SAARC, Hewitt Associates says, "About 40 per cent of Indian organisations this year are looking at very conservative bonus payouts. This will have an impact across the board.”

He also adds that for the top bracket of management the situation is equally, if not more grim - "35 to 50 per cent of senior executives’ compensation is variable pay and this will be impacted 20 to 25 per cent this year. Also, stock options, which account for 40 per cent of the annual pay of top-paid executives, are also down to 10 per cent," he adds.

Thirdly, the Indian market is still relatively less evolved than say Europe or even the Far East. Indian consumers still equate a luxury purchase with that of ‘flaunt-value’, where monograms and logos simply stand for the amount of money that it must have cost to acquire them – rather than the quieter, more subtle indulgence of the self. The current stance taken by luxury houses on discounting by at least 30 – 50% unwittingly brings Indian luxury brands to almost the same price bracket, thus likening them, at least to the aspirational buyers who still may see luxury as a function of money. This entrenches the identity of indigenous brands in the consumer’s mind space that might originally have been reserved only for higher-priced brands.

Finally, and most consequently – the fact still remains that international luxury is still by and large, inaccessible in India. The high tariffs on imported goods in India ensure that the cost of acquiring an international luxury product on Indian shores can be at least 25 per cent more expensive compared to Dubai or Singapore. The lack of luxury retail spaces and the extremely high rentals in existing ‘posh’ locations (New Delhi's Khan Market with monthly retail rentals of 1,200 INR per square foot was recently ranked among the world's most expensive retail real estate, higher than better equipped retail areas in Amsterdam and Stockholm) limits the expansion of international luxury brands in India, under-utilising their optimum potential in niche locations such as five star hotels, where even though the ambience may be right – the footfalls are abysmally low. Additionally, 29% of the Indian luxury consumers are aspirational buyers who might not visit these locations as frequently as required to make enough of an impact to influence a purchase decision.

Making the best of a bad situation is typically an Indian trait, and establishments such as Hidesign, hoteliers such as the Taj Group and luxury destinations such as Ananda in the Himalayas are no stranger to either the Indian ethos or the constituents of true luxury. There are 1.5 million households in India who can afford luxury goods, according to McKinsey’s recent study and it is these consumers who are looking for something with a luxurious edge but not something that they’d have to mortgage their house to be able to afford in these times.

Take the case of Hidesign – probably among the first few brands to have retailed as an Indian brand globally from the early '90s, long before other brands even made it to the international arena. A homegrown luxury leather goods manufacturer, it bases itself out of Pondicherry and operates in India as well as internationally. The company currently has around 38 stores in India and 15 overseas, including Russia, China, South Africa and the Middle-East. An Indian brand that has grasped and got the fundamentals of luxury right, it is poised to step out of the shadows of Louis Vuitton, Bottega Veneta and Salvatore Ferragamo for the Indian market.

The potential that Hidesign possesses is enormous –infact, the leading luxury giant, LVMH even picked up 20% stake in the company. The setting up of Les ateliers de Pondicherry gives Hidesign visibility and the stamp of approval that is so crucial for any luxury brand. Though LVMH would not be sourcing goods from Hidesign, the association with the French luxury goods leader not only increases Hidesign’s productivity (two new production units increased its manufacturing capacity by 53%) , it also gives the Indian company the capability to leverage LVMH's redoubtable reputation in markets worldwide and get a footing in new markets.

Economically, for the perturbed consumer of today, Hidesign makes sense. It offers almost the same levels of craftsmanship that any luxury brand boasts of. High quality leathers, solid brass fittings, design innovation spearheaded by Alberto Ciaschini (ex-Armani) and of course a strongly grounded ecological awareness make this a ‘flaunt-worthy’ brand – at 1/10th of the cost. Take for example, a laptop bag – Louis Vuitton’s selections will easily set you back by about 1,00,000 INR whereas Hidesign’s offerings rarely cross 10,000 INR in spite of the 220% markup from the factory manufacturing cost.

Conclusion

Luxury in India is here to stay, but is far from settled. It is probably articulated best by Christian Blanckaert, executive vice president of Hermes International, “Before India becomes a very big business for us, I am already a grandfather and I think I would be a grand, grand, grand, grandfather before that happens.”

Especially in these challenging times, international luxury is going to have an excruciating battle ahead but ironically enough, it could just be the shot in the arm that Indian luxury needed. Lack of import duties, much lower price points and internationally comparable standards propel the indigenous industry forward whilst the Indian consumer starts looking inwards again as an exercise in extracting the most value possible for every hard-earned rupee.
India shining, at least in luxury terms, could become a reality at a time we had least expected it to.

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