Real estate demand from luxury brands outstrips supply6 min read . Updated: 26 Mar 2013, 04:51 PM IST
Lack of appropriate space primary challenge for key labels wanting to grow beyond existing cities, say analysts
New Delhi: The demand for suitable real estate from international luxury labels looking to enter or expand their operations in India continues although last year was not remarkable in terms of sales.
“2012 was neither bad nor a great year for luxury brand retailers," said Amitabh Mall, partner and director at consulting firm Boston Consulting Group, but the demand for appropriate space continues to be a primary challenge for key luxury labels.
In 2011, the local luxury market saw a robust 20% growth to touch $5.8 billion, according to Indian Luxury Review 2011, a report prepared by lobby group Confederation of Indian Industry, or CII, and consultancy AT Kearney.
India was scheduled to overtake China as the world’s fastest growing market for luxury goods in 2012, driven by an explosion in the number of rich people, said an October report by researcher Euromonitor. It was also expected to grow at 22% a year in the next five. The Indian luxury market will touch $7 billion in value by 2017, while China will grow 15% over the same time, the report said.
“The problem with the sector is not that of a slowdown. The critical issue is the lack of right retail spaces and environment. If luxury sector growth in India has to escalate, it has to look beyond same-store sales and set up new stores at the right places. That’s how it grew in China," said Darshan Mehta, president and chief executive officer, Reliance Brands Ltd. Same-store sales is the amount of sales generated from shops that have been open for at least one year.
The demand for space is coming from the apparel, accessories and footwear labels looking to open more stores in India, as well as those keen to set their foot in the country.
Hermès, the French luxury fashion brand known for its Birkin bags, and Louis Vuitton, the bags and accessories label, are evaluating appropriate realty options across the top Indian cities, according to at least two real estate consultants. In January, Mint reported that a lack of mainstream retail options has hindered the entry plans of Italy’s Prada, which sells apparel, accessories and footwear.
“We keep getting queries all the time, but the right opportunity and space is always a concern," said Pankaj Renjhen, managing director, retail services, at Jones Lang LaSalle, a property consultant. Cities such as Mumbai, Delhi, Chennai, Kolkata and Hyderabad have the potential to add luxury retail spaces to cater to the growing interest in these cities by foreign brands, he said.
Indiyeah, a report on the luxury sector by Reliance Brands published in January, pointed out that there were only three malls in India with adequate ambience, brand mix and location to be considered luxury shopping destinations. “Of all the factors hampering the growth of this segment, a severe lack of appropriate real estate is the single most important one," it said.
Tikka Shatrujit Singh, adviser to the chairman at Louis Vuitton Moet Hennessy, said that spaces or the lack of them dedicated to luxury brands continue to be a challenge for brands wanting to expand beyond the existing cities.
The Reliance study maintains that more luxury space will be added only to the top four cities in the near future.
It also says that while eight cities are suitable for luxury retailers, Delhi and Mumbai are still the so-called hot zones.
If cities such as Kolkata and Hyderabad are provided with the right real-estate options, they could be high-potential luxury markets, Singh said.
Reliance’s report, meanwhile, categorizes Chandigarh and Hyderabad as cities with a big promise for luxury.
“For the next three-five years, companies and brands will continue to look at the top metros, that is Delhi and Mumbai, to the extent of adding more stores and maybe single stores in cities such as Chennai, Hyderabad and Kolkata," said Renjhen. “Bangalore would be very selective for certain brands only."
Sanjay Kapoor, managing director at Genesis Luxury that has brought to India a clutch of luxury brands, including footwear brand Jimmy Choo, menswear brand Canali and fashion brand Burberry, claims that outside of the key metros there has been a real paucity of developments.
However, “there have been some new openings such as the Bergamo mall in Chennai that allow luxury brands to take their footprints to these cities." Genesis is exploring new markets such as Chennai and Kolkata. “We just opened Jimmy Choo and Canali in Chennai at the new Bergamo mall and have booked spaces for our brands in Spencer Mall, Kolkata," said Kapoor.
To meet the surge in demand for real estate for luxury retail, several developers are coming up with new projects in Delhi, Kolkata, Mumbai and Chennai in the next 18-24 months. Dinaz Madhukar of DLF Ltd—the country’s largest developer by market value which runs the luxury DLF Emporio Mall in New Delhi—said in an earlier interview that it was coming up with two Emporio-like projects in the national capital region.
The two malls, which are expected to be operational between 2013 and 2015, will come up in Chanakyapuri in New Delhi and Gurgaon.
“Considering that we cannot accommodate many brands here (at the Emporio) due to lack of space, we are in talks with multiple brands for our new projects" said Dinaz Madhukar, vice-president at DLF Emporio, who is privy to multiple queries coming in from retailers from countries such as Italy, France, Singapore and the US.
Additionally, the RPG Group is opening a luxury mall in Kolkata by the end of 2013, according to many people aware of the development who spoke on condition of anonymity. The company declined to comment on the tenant mix but confirmed a project was underway. Once operational, the mall will be the first premium retail establishment in eastern India.
Phoenix Mills Ltd, the developer of High Street Phoenix in Mumbai that’s home to Palladium, is building a project in Chennai, while in Mumbai, the Wadias of Bombay Dyeing and Manufacturing Co. have a similar project coming up.
Real estate developer 3C Company is expected to build Delhi One, a shopping arcade meant for high-end luxury brands in Noida on the outskirts of Delhi, by 2015. The development will also house a Four Seasons Hotel, apart from residential and commercial buildings.
A spokesperson for the company said it is talking with many luxury brands.
Mehta of Reliance maintains that although developers are building luxury malls, they must offer the correct tenant mix for luxury brands to operate in a suitable environment. “I cannot name the mall or the brands, but at least 12 luxury brands refused to sign up with a luxury mall when they discovered that its anchor tenant was a departmental store. So it is not just about creating real estate, it is about getting it right," he said.
Little surprise then that some luxury brands are actively looking at high-street options to locate their stores. In 2011, French fashion brand Hermès opened doors to the Indian luxury shopper in Mumbai’s iconic Horniman Circle. Some months later, footwear brand Christian Louboutin followed suit and opened its second store in India in the vicinity of Hermès.
Meanwhile, the real-estate developers are devising ways to accommodate new brands. According to a report released by real estate consultancy CBRE South Asia Pvt. Ltd in February, “Luxury retailers are entirely focused on tier-I locations but continue to refine their strategy and product offering for India, which in selected cases has seen them consolidate and reduce the size of some stores."
Delhi’s DLF Emporio undertook some re-sizing exercises to be able to accommodate more brands.
“Everyone comes in and wants to have big stores, sometimes it’s not required, so we work around re-sizing," said Madhukar. Reduction of store sizes of Botegga Venetta and Armani took place a few months ago.