Mumbai: A self-confessed India enthusiast Armando Branchini, executive director of Fondazione Altagamma, a trade body of 74 Italian luxury brands such as Gucci, Bulgari, Fendi and Valentino among others, having collective sales of €45-50 billion, is convinced that India has the potential to be a big market for luxury goods. Branchini was one of the speakers at the Mint Luxury Conference in Mumbai on 25 March. In an interview, Branchini elaborated on some of the key challenges in the market, and what luxury brands can do to woo the Indian consumer.
What are some of the challenges for Italian luxury brands in this market?
The first few Italian brands to come here were Ermenegildo Zegna and Gucci at the end of the 90s. The time was terrible due to absolute lack of proper retail infrastructure and spaces. Before that, the customs duties were higher than now, and the non-tariff barriers were still higher. In particular, FDI (foreign direct investment) in luxury brand retail was introduced by the government, permitting the famous 51-49% scheme. I devoted, personally, a lot of energy to the development of the Indian market but, unfortunately, on a larger scale it is still a long-term prospect.
Growth market: Branchini says the consumption of luxury goods in India will be driven by luxury cars, yachts, watches, women’s bags and shoes. Abhijit Bhatlekar/Mint
Whereas cars or yachts can’t be smuggled, all our products that can be worn or put into a piece of luggage can be bought outside India and imported as used, without paying any duty. This is the trade-off which is very difficult to understand. There is a conservative approach in this country and the common culture is to keeping this market as protected. Should the Indian government reduce the duty from 37% to 17%, which is what it is in China, I am sure Altagamma brands would invest more in the Indian market. Of course, a number of obstacles (such as FDI, infrastructure, customs duty) would have to be reduced, but once they are removed, 50-60 stores would be opened directly by brands (with 100% ownership, not with partners) and you would have to consider an investment of $3 million for each store, and consider at least 10-12 units of new employment per store.
How important is a market like India for Italian luxury brands?
I am an India enthusiast—I have been for more than 10 years. I perceive and share the general view of the strong potential of this market of luxury goods consumption. The environment (in India) is not yet favourable, but as soon as the market opens, and there is substantial reduction of tariff and non-tariff barriers, a lot of Italian brands will enter the market, invest and bring in employment.
What is your forecast for the luxury goods market?
I believe that in the next 10 years (2020), it is my personal forecast, the volume of consumption will at least double in real terms as compared to the €173 billion (luxury) market in 2010. My forecast is based on two separate forecasts, of having a compound average growth ratio by 4% in the old markets, in combination with a compound average growth ratio of 10% in newer markets. Also, India will grow by this ratio, but volumes are so small that it will take some time (to catch up).
What categories will drive growth in the luxury market?
In the last 30 years worldwide, women’s bags have been a sort of metaphor for luxury. But in the same time, we had a terrific growth of luxury cars, boats, sailboats and watches which are men’s jewels, especially in Asia. It depends on the local culture. (Consumption of luxury goods in) India will be driven by a cocktail of products, from luxury cars, yachts, watches, women’s bags, women’s shoes, men’s suits and accessories.
Indians tend to veer more towards accessories such as bags and shoes, rather than clothes. What can luxury brands do to change that?
The point is of being in a position of providing your customers who may want to wear a saree with things such as some shoes, bags and jewellery that can be matched the best way (with the sarees). What is mandatory is dealing with local culture and matching the expectation in a way that the luxury product will complement it. But I would not recommend in a certain season to having all international luxury brands produce something that has an India flavour. That would just be a mess. It is up to the top management of each individual company to decide what the values of the brand and company are. And to figure out what the opportunities are to better fit and better interact with the local culture and local consumer expectations.
This is a price sensitive market. A fair share of Indian consumers tend to buy their luxury goods abroad. Is that changing now?
The (Indian) government seems to be doing everything they can to keep the prices much higher that they actually are. Who is stupid enough to buy something at a 35% premium here when they can buy it cheaper in Singapore? It is true that people tend to buy a lot abroad. While I can’t put a number on what percentage of Indian consumers shop abroad, I can say that for certain products such as watches, the percentage can be as high as 95%. Everything will happen if the government will create conditions for change. This market and economy is over regulated by the government.