Label of love

PUBLISHED : Friday, 01 June, 2007, 12:00am
UPDATED : Friday, 01 June, 2007, 12:00am

In the 1880s, Maharaja Jagjit Singh of Kapurthala ordered 54 exquisite leather Louis Vuitton travel trunks, each decorated with his initials and crest.

It was the start of a rush, with the Parisian designer soon flooded with orders from the maharajas of Kashmir, Jodhpur and Baroda. They wanted custom-made Rolls-Royce interiors of the softest leather, elegant hampers and stylish polo club bags.

When the British left India, and the maharajas lost much of their land and wealth, Indian orders for luxury goods from overseas largely dried up. But in 2003, when it became clear that the newly liberalised Indian economy was creating a new breed of wealthy, discerning buyer, LVMH (Moet Hennessy Louis-Vuitton, now the world's largest luxury goods maker) made a triumphant return, opening a shop in the Oberoi in Delhi, one of the capital's most expensive hotels.

In recent months, the move by LVMH and other luxury goods companies to set up shop in India has resembled a stampede. A multitude of designers from all over the world have announced plans to enter the Indian market and cash in on the new 'luxahaholics', as one newspaper has dubbed India's growing legions of well-heeled and brand-hungry buyers.

In March, Italian designer Dolce & Gabbana announced it would open its first directly operated outlet in Delhi - the beginning, it said, of a 'long-term investment plan' in India. Christian Blanckaert, executive president of French fashion house Hermes, visited the capital to scout out boutique locations the same month. Italian designers Gucci, Giorgio Armani and trendy shoemaker Jimmy Choo are also on their way.

'The Indian luxury market is growing at a rapid pace: 30-40 per cent per annum,' said Marielou Phillips, spokeswoman for Chanel in India. 'Indians are more brand conscious and India is now on the global map for luxury. And the demand will increase in coming years.'

A spate of economic reports has given luxury goods companies all the reasons they need to invest huge amounts of money in this developing country, in which two-thirds of the population still depend on agriculture to survive and the average annual income is about 31,000 rupees (HK$6,000).

Income levels in India will triple over the next two decades, according to management consultancy McKinsey in a report published last month. 'The Bird of Gold: the rise of India's consumer market' predicts that more than 291 million Indians will escape from poverty, and the country's middle class will swell more than 10 times to 583 million by 2025.

Assuming annual growth averages 7.3 per cent over two decades, India may overtake Germany as the world's fifth- biggest consumer market, McKinsey reckons.

Much of that demand is coming from young Indians. More widely travelled than their parents, they have also been exposed to western spending habits and styles via international TV channels.

'God, I love bags,' said Anisha Verma, an 18-year-old student in Delhi, as she shopped for sandals in South Extension market, a prosperous neighbourhood in the capital. 'I don't think about the clothes so much, as I wear jeans, but maybe one day.'

As the owner of two designer handbags - she hopes to add another to her collection soon - Ms Verma represents a tiny fraction of the Indian population. Few Indians are able to contemplate even purchasing the smallest bottle of foreign perfume. But it is the future prospects of India, with its breakneck economic growth and one billion-plus potential spenders - half of whom are under 25 - that are causing the world's most opulent brands to salivate.

The Kearney's Global Retail Development Index, which measures developing countries in terms of attractiveness for global retailers, has ranked India No 1 in its most recent survey.

The country's retail sales are projected to soar from US$300 billion today to US$637 billion by 2015, according to estimates by Indian firm KSA Technopak.

This growth will naturally create a boom in all consumer markets. But while restrictions on foreign investment are making it difficult for multi-brand supermarkets such as Wal-Mart to enter India, single-brand companies have had an easier time. Since February last year, they have been allowed to take up to 51 per cent in Indian joint ventures.

Many brands are establishing their place in the market through the Murjani Group, which brought Tommy Hilfiger into India in 2004. Murjani - run by Mohan Murjani, who launched Gloria Vanderbilt and Tommy Hilfiger globally before he returned to the land of his birth - will launch Gucci, Tumi, Calvin Klein and others by the end of this year. Industry experts believe that restrictions on multi-brand stores will also loosen in the near future, which could herald the advent of the luxury department store in India.

There are other advantages to doing this kind of business in India. Unlike China, the country does not - yet - have a thriving parallel business in designer fakes.

The market for luxury goods will be given a further boost this year when fashion magazine Vogue launches in India.

The market is still young, however, and one of the best ways for designer brands to secure a foothold in India - and win the loyalty of future buyers - is by marketing comparatively affordable makeup and perfume.

'With the booming Indian economy, we have seen more growth of the middle and upper middle classes,' said Didier Villanueva, managing director of L'Oreal India, which got a big boost this year from the wedding of its brand ambassador Aishwarya Rai to Bollywood star Abhishek Bachchan.

'Demand for high-quality branded products has increased and will keep on increasing,' said Mr Villanueva.

Some barriers to growth in India for the world's luxury behemoths remain, with the shortage of appropriate retail space a major problem. India, where most shopping is done in chaotic, tiny family-owned outlets, has no high streets, department stores or luxury shopping malls.

Any brand hoping to sell more than makeup is still limited to renting space in a five-star hotel, where only the most dedicated shoppers - and guests - venture.

'The lack of retail space with a luxury environment still hampers us in most cities,' said Chanel's Ms Phillips. 'It's very important to be present not only in five-star hotels, but also in luxury malls and other shopping environments that are adequate for luxury. The main reason for this is to increase visibility and to target a wider range of clients.'

This will soon happen. LVMH has already snapped up the most prestigious spaces in the new Emporio shopping mall that will open in Vasant Kunj, a prosperous neighbourhood of south Delhi later this year. More luxury malls are expected to follow.

The other big barrier to growth is high import duties, which means that India is still one of the most expensive places in the world to buy luxury goods. Considering that the Indians who buy luxury goods are also those who travel widely - passing through duty-free shops in Europe and America on the way - this is a major problem.

There are hopes that this, too, will change. In late March, the government said it would consider reducing some import duties if it could be done without hurting domestic industries.

In all probability, luxury malls will spring up and import duties will fall. But even when these practical barriers to growth are removed, some luxury goods moghuls believe there will still be problems in India.

'India is a fragile and diverse market,' said Devyani Raman, chief executive of the India chapter of the Luxury Goods Council, an international organisation of 675 luxury goods and services companies, which opened in India in October 2006.

'It's like having a cupboard full of beautiful clothes with a new outfit arriving every day - it could start to look messy without the right care.'

The challenges ranged, she said, from giving sales assistants the right skills, to understanding a market that varies greatly from region to region.

'There's still so much work to do here,' she said. 'There are issues like, how do you introduce people to the very concept of luxury? How do you educate them about the difference between a designer bag that costs US$400 and a much cheaper leather bag that functions perfectly well?'