Luxury retail cries for prime space

With 200 to 300 international luxury brands entering the Indian retail sector, ‘luxury’ has become today a catchword. Currently, the luxury market is worth approximately Rs 24 billion and India is being estimated as a good luxury-goods hotspot. Despite the fact that the Indian consumer is ready for high-end luxury goods, there is a scarcity of premium luxury retail space in India. International luxury brands also grumble about the lack of premium retail space in India. Until recent times, Indian luxury market’s retail space was limited to five star lobbies. Though the situation is changing, there is still no high fashion street or finest mall in the Indian retail space. Today, luxury brands want retail space outside five-star hotels. With the emergence of a new class of very affluent young Indians of tremendous purchasing power, India is no longer a mere testing ground for luxury brands but a lucrative market with explosive growth potential. 

Maturing luxury retail

Until a few years ago, only a few high-end merchants were interested in the country. The reason was, on one hand, poverty and low purchasing power of people and, on the other, unsophisticated retailing environment operated mainly by small and independent shops. A handful of luxury brands operating in India were quietly selling their brands at boutiques located in five-star hotels, as there was virtually no other option. While India is in the midst of a mall-building boom, there are very few upscale shopping centres in which companies can showcase their luxury products alongside those of similarly chic retail neighbours. What's changing, of course, is India's demographic makeup as the nation's booming economy mints a critical mass of newly affluent consumers. According to a study conducted by Hewitt Associates, a global human-resources company, the average Indian salary surged last year by 14 per cent (18 per cent for I-T professionals), the highest wage growth in Asia. The Knowledge Company, a management-consulting firm in New Delhi, finds that there are, at present, about 1.6 million Indian households that spend an average of $ 9,000 (approximately Rs 3.654 lakh) a year on luxury goods. As regards the entry of international luxury brands in India, Ms Kajal Aijaz, Director DT Cinemas and CEO, DLF Emporio Mall, says, “With economic liberalisation, the last decade has seen an enormous growth of the Indian economy. Consumers with high disposable incomes have clearly shown a marked preference for organised retailing in the last two to three years. Markets in western countries having reached saturation market, luxury brands are now looking to the untapped markets of the BRIC countries to make their presence felt.” With increasing international exposure through travel and internet, the attitude is changing from the traditional emphasis on savings to a spending approach. The expense basket is shifting from necessity to lifestyle products.

Luxury brands in India

Foreign brands that entered early have made rapid progress. Upscale watchmaker, Tag Heuer, which has averaged 40 per cent growth rate in India over the last three years, expanded its 80 shops to 120 in 2006. And, Jimmy Choo is looking to open 10 shoe stores in India by 2011. The first store will be launched in New Delhi at the end of 2007 under the terms of a distribution agreement with the New York-based Murjani Group, which also distributes the Tommy Hilfiger brand in India. It helps that more retailing locations are becoming available. Two luxury malls are being planned in Delhi, and hundreds of others are in various stages of construction and planning throughout the country. Still, many luxury-goods retailers predict that their India business will develop relatively slower as compared with their business in other emerging markets such as China. One major barrier is India's stiff tariffs on high-end imports: tax on imported watches, for instance, is 50 per cent. One study pegs the Indian market potential of the 15-35 year bracket at a whopping $14 billion (approximately Rs 568.4 billion). As per the Synovate PAX media survey 2006, the ownership of luxury goods has grown from 15 per cent to 19 per cent since last year. Those owning luxury jewellery ($ 500 or Rs 20,300 and above) now account for 17 per cent of affluent India. Spurred by this growth in the purchasing power of young India, these brands are actively looking either to launching themselves here or scaling up their existing presence.

Expectations from mall developers

A large number of international luxury brands are making a beeline to enter the Indian retail industry. Under these prevailing conditions, expectations are high from mall developers who can play a significant role in facilitating the coming of luxury brands in India. Mr Anuj Puri, Chairman and Country Head, Jones Lang Lasalle Meghraj, opines, “Developers must come up with more creative ideas for differentiating their luxury malls from ordinary ones. The idea is not to attract mass traffic, but to offer an atmosphere of exclusiveness. In other words, luxury mall developers must learn to eliminate the commonplace components and introduce high-end features in their place.” Highlighting the responsibility of mall developers, Mr Mehul Choksi, Chairman and Managing Director, Gitanjali Group, says, “Mall developers need to understand the brand mix, target audience and, then, create luxurious ambience and unmatchable services. It’s important for a developer to keep the USP of premium and super premium offering in their real estates”. Giving an observant comment on the role of a mall developer in facilitating luxury brands in India, Ms Aijaz says, “Luxury retailing comes under one extreme end of the various retail formats being planned by mall developers today. So, developers have to take into consideration their requirements before planning a mall for high-end luxury retail. It is imperative that a consonance of the luxury brands is obtained before one goes ahead and plans a luxury mall.” Advocating requirement of personnel with apt experience, Mr Suresh D Bhatia, Country Head and Director, Major Brands (India) Pvt. Ltd, opines, “What mall developers need to keep in mind is to hire trained personnel and employ mall managers with experience in luxury.”

Upcoming luxury malls

Till date, only DLF and UB group have executed their plans for luxury malls in India giving birth to DLF’s Emporio in Delhi and UB Group’s UB City in Bangalore. ICICI Ventures, Crossroads, Oberoi and MBD Group are all hoping to launch luxury malls soon, but nothing has materialised yet. Giving a briefing on design, architecture, location, catchment area, footfalls etc., Mr Choksi says, “Our Luxury stores shall cater to non-apparel category offering the best of jewellery, watches (Swiss and Italian), international cosmetics and perfumes and other related sub-categories. These luxury stores shall be located in hi-end destination malls, particularly in HNI catchments where lifestyle is a way of life.”  Regarding Emporio, Ms Aijaz informs, “The mall is slated to open in the first quarter of 2008. Emporio has been positioned as a super luxury mall and will offer a unique shopping experience with the accent on exclusivity, space and aesthetics. Architect Mohit Gujral has designed the centre in the genre of a five-star style setting. Our aim is not to blindly emulate western trends for we catering to mainly Indian consumers. Therefore, Indian designer couture also features in the retail mix.”

Providing luxury environment

Will Indian mall developers be able to provide the kind of infrastructure and ambience that could match standards the luxury brands? Here is what the industry experts say about the issue. Mr Puri believes, “Only developers with previous exposure to international standards and proven capability of catering to them, will be able to do so. The rest will have to settle for the usual upmarket for mass brands. The criterion is not one of mere opulence, but of refinement. Sustainability also matters here: current demand for luxury brands will reach its most favorable proportions only in five years or so.”  On the other hand, Mr Choksi observes, “India is going through a retail revolution and the winds of change are picking up. Hi-street formats are taking shapes and the infrastructure is offering various formats to retailers. Our designers have picked up the complexities of designing a mall very easily and, in near future, India shall see some of the best structures as retail formats.” Ms Aijaz highlights, “The focus of these luxury malls is more on the ambience rather than on retail. The entire experience counts rather than a single retail transaction. The ambience will be on a par with those of five to seven star hotels”

Luxury malls with regard to space, investment, security

Luxury brands require exclusivity. Therefore, they need special space, investment and security measures. In this context, Mr Puri informs, “A luxury mall faces the tricky challenge of providing a synergistic atmosphere for competing, yet compatible brands targeting affluent buyers. It must provide a unique gateway to the luxury marketplace. Achieving this is an art of combining human psychology, aesthetics and marketing strategy.” Mr Choksi informs, “Currently, we are working on the formats from 8,000 sq.mt. to 12,500 sq.mt. Financial parameters are being worked out at this stage.” Highlighting luxury aspects of Emporio project, Ms Aijaz explains, “Emporio is spread over an area of 3.2 lakh sq.ft and comprises more than four levels. Efficiency of security system will be on a par with the best in the country for the mall will have very high value products.” However, Mr Bhatia observes, “The kind of investment that goes into opening a luxury store varies from brand to brand, size to size and product to product.”

Appropriate location

As luxury malls have to be entirely different from ordinary shopping malls, there are essential factors to be considered before finalising the location and city for the development of a luxury mall. Mr Puri believes, “The location must be a suitable-distance away from aesthetically unappealing components such as slums. It must be able to accommodate a good approach road and ample parking facilities. For all these reasons, the location need not necessarily be central. Discerning and affluent buyers are not necessarily averse to traveling some distance to reach an exclusive shopping destination. However, it must be at an appropriate distance from similar establishments. Generally, the location should have access to a catchment with a concentration of high-income buyers.” Giving his opinion on the same issue, Mr Choksi says, “It is important that we do a profile mapping of the city’s industries, buying power, fashion quotient. Location selection is purely based on demographics, physcographic and fashion quotient of the city.” Highlighting his observation further, he says, “We are in the final stages of finalising the blue prints and have tied up with international brands like Morellato, Roberto Cavalli, Sector, Pirelli, Just Cavalli, Ms Sixty in watches and Greggio in silverware. We are in talks with several other international brands, which shall be a part of our offering.”

Competition from five-star hotels

Until recent times, the best space for a luxury brand in India was a five-star hotel, which provided some target-consumers to the brand. Luxury malls will face competition from luxury hotels. However, disagreeing to the above statement, Mr Puri informs, “Most luxury brands in India are eager to move out of five-star hotels. They are not happy with the flagging sales volumes. Today, only about one per cent of the tourists residing in luxury hotels actually shop there, and make only last-minute impulse buying. They actually get better and cheaper buys at duty free shops. Other discerning shoppers would rather have more under a single roof, and, at more accessible locations.” Mr Choksi observes,  “Hotel luxury space has the limitation of space required for various retail mix and this constraint leads to only a limited offering that is targeted to hotel visitors. Coming up star-rated hotels will have to revise the retail space they earmark in the lobby and will have to treat it with keen interest of developing it as a destination for the entire city and not just for hotel residents.” As regards rental, Mr Puri says, “That depends significantly on location and offered amenities. However, hotels do not offer anything different to customers – they already have fine dining and ambience in place. Luxury malls, on the other hand, have to establish the necessary infrastructure that recreates the ambience and environment of five-star hotels resulting in the rise of rental by 30 to 35 per cent.”  As of today, Mr Bhatia says, “There is no luxury mall in the country but there will be hardly any difference between the rent one would pay in a five-star hotel and that in a luxury mall.”

Notwithstanding this opinion, Mr Choski argues, “Rent is a relative entity for it is very comparable and competitive.” However, Ms Aijaz informs, “The competition does not really exist since five-star hotels are not luxury retail destinations. These hotels just have about four to five shops in an alley and that certainly cannot be touted as a retail experience. They just coexist in the scheme of things.” Further elaborating on rentals Ms Aijaz opines, “They vary largely since the malls have a dedicated retail space whereas hotels have a very exclusive space.”

Inferential overview

 Luxury is all set to expand greatly in the Indian retail industry. With mall developers realising their responsibility towards providing premium space for international luxury brands, the future of luxury retail appears bright and quite promising. We have investigated and discovered that mall developers in India are ready to take the responsibility for making premium space available to luxury brands – a work that has already begun. But, it will take its own time as does everything. With the completion of luxury malls, luxury brands will avail themselves of infrastructure and positioning they wanted for their products.