Is India ready for luxury?

The last two decades have seen an influx of ‘luxury’ — bags, watches and cars — in the Indian market. However, is it still a far off dream due to high duty structures and low distribution?

Participants:
Dinesh Dayal (COO, L’Oreal), Sunil Karer (managing director, Watch Market Review), Vishal Mirchandani (CEO, Wadhawan Lifestyle Retail Pvt Ltd) Anna Bredmeyer (India’s first luxury brand ambassadress)

Changing mindsets
You have been in the market for so long and have seen it grow. What do you think has triggered the market?
Sunil Karer: Before 1990, when watches were not allowed to be imported into India, people were ignorant about brands other than Rolex, Omega, Rado and Tissot. Somewhere around 1995-96 when the import market opened and all these brands walked in, surprisingly, they were welcomed. But changing mindsets was the greatest challenge because people were so used to Titan, Citizen and HMT. So if an HMT would offer a watch for Rs1000 it was difficult to absorb the fact that some international brand charged you over a $1000 for a watch. But with all those hurdles, I think we have managed and now we can see the results.

Although the luxury segment is growing, the manufacturers face a big problem thanks to the duty structure. Earlier it was around 100 per cent, and today it is around 60 to 65 per cent which is still pretty high. If you go to Dubai or Singapore, the duty is either zero or 1 per cent so the question is — someone who can afford a Rs5lakh watch can obviously travel, so why buy it here, paying a higher duty. The fight with the government to reduce duty has been going on for years but has proved futile.

How has the country changed its attitude, especially in the early phases?
Anna Bredmeyer: When Beautiful Boulevard (the first store to get major luxury brands into India) launched, people were coming in but they were extremely apprehensive especially due to the 100 percent duty structure. Now the duties have reduced, the mindsets are changing but still, they’d think twice before buying it here. Later, people understood that we were trying to give them a compatible price point and also that they could pay in Indian rupees. 

To buy, fly abroad
Do you think that the awareness is created here but the sales happen abroad?
Sunil Karer:  A famous luxury retailer in Chennai once said, the kind of prices here are exorbitant  while the airfares to Singapore or Dubai are so cheap that a person would want to fly there on a weekend, have a nice holiday and buy a watch at a much cheaper rate.

Anna Bredmeyer: That’s with watches but if you look at the luxury market in general, brands like Mont Blanc that give you functional luxury (writing instruments, card holders etc) keep their price points at German retail in India and so, people would be quite happy to buy it from here.

The struggle
L’Oreal had quite a struggle, especially in the beginning because it had to break into a market that was traditionally into home cosmetic or hair care. How was it tackled? 
Dinesh Dayal: Before we came in, the market wasn’t innovative. We did things like opening stores or counters in departmental stores and that itself was considered luxury. With globalisation, new prosperity came in and suddenly there was a bunch of people who were ready for our luxury brands like Lancôme or Ralph Lauren or Armani fragrances. Our adventure is just two years old and we are discovering everyday but we’ve found that if we offer the right service and environment, business is growing everyday.

Decoding luxury
How is ‘luxury’ interpreted in India?
Vishal Mirchandani: Luxury means different things to different people and it is at a very basic stage in India. There are zonal, regional and cultural and income differences. For some one, a Rs 2000 worth product would be luxury but in the real world of luxury, it has to be around Rs2lakh or 3 lakh to be luxurious. That difference is yet to settle due to income disparity. The challenge that every luxury brand will face in India is to create the right aspiration and thankfully, the process has just started because of influx of so many brands and with people flaunting these products.

Anna Bredmeyer: Luxury is fulfilling a wish picture of you. It could be Rs 2000 for one person and Rs 2lakh  for another. The definition of luxury is fulfilling a wish picture of yourself for your society, your world.

India calling
Why do luxury brands want to come to India in the first place?
Sunil Karer: India is a growing market and a country of millions. The brands are trying to focus on those who are willing to buy their products here. But Emporio mall in Delhi failed miserably. So are we really ready for luxury? That’s the big question.

Vishal Mirchandani: Brands look at the market size and want to enter it but the real market size is not equal to market potential of every brand. The energy and the hierarchy of the desire led by the combination of category and brand create a success story in a market which is at a nascent stage. You may launch 20 categories of a brand handbags but it may not be a success because the market is not ready yet. The consumer has not crossed the first level of aspiration where brand and value categories have started to play. Suppose if I buy Rolex today, I can flaunt it for the next 10 years. It’s a status symbol forever. This is the case for a first level entrant and these are factors that not many brands are reading into. They think that if Louis Vuitton is successful or if some brand is successful so let’s charge. That’s not the way to look at it.

Flaunting brands without a tag
When we talk of flaunt value, we talk of brands but with fragrance or cosmetic, there is no flaunt value, how do you crack that?
Dinesh Dayal: I think there is a lot of education to be provided to the market to be able to create that whole aura of what a Ralph Lauren or Armani fragrance represents. Here, the flaunting is more subtle so all we have to do is demonstration and education. That’s the route we take. We use it as a tool kit to tell the audience of the look and feel we can give if you use certain products in a certain way and they can see the difference for themselves.

Has it been easy?
Dinesh Dayal: Its really early days. The challenge for us is to have the right distribution for luxury cosmetics in India. On one hand you have fragrances that are historically the largest chunk but they are distributed with less display across the country in diverse shops. Branding is not easy there and when it comes to skincare and makeup you need to implement it. There are departmental stores and also new luxury hubs coming in like certain malls. That’s where we can push and try to increase our traffic.

How is the cosmetic industry expanding?
Dinesh Dayal: In terms of market share, it’s very small; in terms of growth, it’s growing at a fast pace of 20 to 25 per cent in the last two years. I’d say there is so much catching up to do. There is a mix of different behaviour of consumers.

Anna Bredmeyer: One ties in with the other, today the awareness is high. Earlier it used to be just the models or Bollywood stars but now everyone wants to look good. People are more aware of themselves. There are exercise parlours mushrooming in every corner.

Show me the space
What’s your take on the fact that we don’t have the right places where luxury products can be exhibited in one place…do they anyways succeed?
Anna Bredmeyer: For the mall set up to catch up is still going to take a lot of time. Emporio is a perfect example… everyone rushed to it saying it’s the perfect ambience but it’s fallen flat on its face. We are still relying on five star hotels for our luxury space which is sad because the rents are so high. The big question is — will all the brands be able to sustain it? Some brands like Louis Vuitton or Mont Blanc have been able to pull it off because people are willing to pay for these bags or writing instruments as it can be passed on to generations. Earlier Mont Blanc had all their boutiques at 5star hotels but now they are experimenting at street locations. But it’s easier for brands that have functional luxury to be successful… other than something that you will be flaunting for just one season and putting away like gowns or clothes. In a mall, you cannot stop anyone from walking in. They are not educated enough and it’s still their picnic spot.

So, would brands look for flagship stores?
Anna Bredmeyer: Sure

Sunil Karer: All major watches now have their stand-alone stores.

Vishal Mirchandani: Armani in Italy, its own country has just two stores but when they looked at India, they wanted six stores. Why? Because someone else is investing for your brand and you are firing over somebody else’s shoulder. This business of luxury is a side business for many where people who have already made a lot of money are investing because you get to partner with a big brand.

There are about 30-40 malls that would support the expansion plans of these luxury brands. But where is the market? There are examples of bridge brands, talking about pulling out from the Indian market after opening five or eight stores just because they went overboard and expanded. You need to have a judicious combination of having an exclusive store and build multiple distribution points for good sales.

Do you think that on one side there has been sporadic growth but on the other end, there has also been some pulling back in terms of visibility, education, advertising or PR activities? Is it that they are not investing enough to show people what values they bring to the table? Is that why some of the brands have failed?
Vishal Mirchandani: Once again, market size is not equal to market potential of every brand so if you are going to have too many similar brands then you are going to have problems. The focus shifts towards the marketing the brand rather than the retail experience of the products. The problem with India is that we have a very herd mentality than having a studious approach. Is the brand relevant for the country? Is the market is ready for the brand? Are there any gaps and how do I fill those gaps?

My ad-to-sales ratio is less than 10 percent but my sales per sq ft are highest amongst the competition. But Ed hardy as a brand doesn’t require too much marketing. We sell a T-shirt for Rs 6000 to 7000 and CK sells theirs starting at Rs 1000 but we still outsell them because there is a larger flaunt value… There is no other brand like Ed hardy in the country.

Dinesh Dayal: This is a market that looks at ‘value’. We were never exposed to so many brands anyways. One way is to start telling them the story of the origin  of the brand and the other is to make it relevant to the market. The value is when that brand is relevant to the population.

Vishal Mirchandani: Take Tommy Hilfiger for example. It is not even in the luxury segment but it has such strong flaunt value. But there are very few brands like that that are going to be differentiated and find early acceptance. That’s the real challenge — finding early acceptance to get Return on investment. Maybe not today but at an early tomorrow.

The competition within
With watch groups, take Swatch for example. Brand managers are competing within themselves so what makes one brand work better than the other?
Sunil Karer:  Earlier, I always wondered how can you take care of India sitting in Singapore or Dubai. You need to be present here. Finally, they came here and that has made all the difference. They’ve invested, they have their own staff here But Swatch hasn’t put enough emphasis, considering its potential… 

Anna Bredmeyer:  Swatch did a lot when they came in but it kind of fizzled out because there was so much else that came within that price segment. Besides, the plastic make made all the difference-people would rather buy something that’s not so plastic looking and in the same price point.

Sunil Karer: Swatch had huge hopes in India with plastic. They invested millions in the Malaysian markets but they failed. It reminded you of the cheap plastic watches or the Casio days. In fact even digital is considered very down market. Now everyone wants metal, hand winding ones — it’s like going back to the past.

In search of perfection
Have these big brands influenced the Indian companies to up themselves with their eye for detail and perfection?
Sunil Karer: Definitely. Where retail is concerned, they have definitely up themselves. Some of our showrooms here can be now compared to the luxury ones abroad. Even in terms of products. Take Titan for example, they are doing pretty well and I recently heard they launched a watch for Rs 80,000. It’s a good sign but I don’t know how much of it will sell. The Swiss have conquered the market and have had everyone brainwashed, generations after generations.

Vishal Mirchandani: We don’t have a history of selling a brand slightly above a particular price level and suddenly we are going out and saying that you are going on to make luxury products; it’s hitting it too hard. Yet, it’s a long-term process that has started but I’m hopeful and wishful that there will be success as the market grows.

Dinesh Dayal: When it comes to IT companies, I don’t think Indian companies give any discounts. In fact they charge more.

Talking of fashion, like how embroidery comes to India, with the best craftsmen, why does the watch industry look at India?
Sunil Karer: You can’t call a watch Swiss-made and make it in India. Citizen once had made a solid gold watch, spent lots on advertising it but failed drastically. Our brackets are limited and every brand has its own market share. At a party, you’d rather wear a Piaget than Titan or a citizen.

How many of the limited edition watches do come to India?
Sunil Karer: A few do come but it’s always kept under wraps.

Vishal Mirchandani: The hierarchy of preference to own limited editions is more in Asia where the developing markets are. A young guy in China would be more tempted to pick a limited edition than someone in US who probably already has one. In fact, China is importing 43 percent watches.

Fighting fakes
How does one tackle the problem of fake market?
Vishal Mirchandani: My store is on Turner road and in a radius of 200mts, there are around seven to eight vendors selling fake Ed Hardy products. These kind of grey market stores are there everywhere.  You go to the cops and they say that today we will take care of it but if it comes back tomorrow, we can’t do much… I think the answer lies in making the product more accessible in terms of price, so that it gets more challenging for the grey market.

Sunil Karer: It’s worse in case of fragrances. The grey market is three times bigger.
Anna Bredmeyer:  That’s another thing that your skin might start to peel off after using it.

Vishal Mirchandani: I don’t know how they sell Marks & Spencer (M&S) products when M&S doesn’t sell their products outside their store. There are serious products like food that can have serious health impacts. It’s a dangerous situation.

Anna Bredmeyer: I think all the brands should go and bombard the government to do something serious about this.

Sunil Karer: But even if the duty reduced to zero percent, will the grey market stop?
Vishal Mirchandani: But your consumer will be more attracted to buy your product from you. You are not targeting your sub-optical consumer. What’s important is to not lose your consumer or a borderline consumer to these guys. First protect your own consumer set who you can lose because their product is so close to your product. Even in Milan, the fashion capital, you’ll find a fake manufacturer. It’s a global problem.