Luxury costs too much in India

Louis Vuitton has 35 stores in China and four in India—two in Delhi and one each in Mumbai and Bangalore. Having entered India in 2003, it wants to expand its presence the country, but high import duties, poor infrastructure and a scarcity of luxury malls are some of the reasons inhibiting growth.

The Indian luxury market is pegged at Rs6,700 crore and poised to grow 21% by 2015, according to Luxury in India, a CII-AT Kearney 2010 report.

Representatives of major luxury brands in India agree that even though a sizeable population of the country has developed an appetite for branded luxury products, what with a growing category of aspiring individuals with disposable incomes, the high import duty structure, including customs and excise, continues to play spoilsport.

No wonder then that while brands such as Gucci and Christian Dior have as many as 20-30 stores each, in India the presence is much smaller. Christian Dior has been present in India since 2006 and has two stores—one each in Mumbai and New Delhi.

The brand will launch at least two more boutiques in India in the next couple of years, said Kalyani Saha, vice- president, marketing and communications, Christian Dior Couture, India.

“Given the high duty structure, the maximum retail price for a lot of luxury products adds up to 20-30% higher than prices in (places such as) China, London and Dubai," Saha said. “Unfortunately, the import duty on luxury products is high and that’s why customers usually end up paying more for the products in India."

Peter Raj Kapoor, director of Luxury Hues Consultancy Services India Pvt. Ltd, a consulting firm focused exclusively on luxury products, shares Saha’s point of view.

The firm estimates that there are 220,000 households of high networth individuals in India. These are individuals with a healthy appetite for buying luxury, but prefer to shop abroad because the products cost more at home.

“A high-end watch, for instance, will cost 30-40% more in India because of the high duty and tariff structure," said Kapoor.

He added that a Cartier watch costing $10,000 in the US would be available for $6,500 in Dubai and the same watch would be around 30% higher in India. Even though duty on luxury watches has come down to 30% from 34% in the last four years in India, China’s import duty on watches, however, is less than 10%.

Contrary to expectations, there were no changes in the levies in the last Union budget.

To be sure, duties on almost all branded products, including jewellery, leather goods, watches, shoes, spirits and apparel were reduced in 2007. However, those in the trade feel there’s potential for further reduction. The duty on leather goods is 21.97%, down from 34% in 2007.

Although the percentage had declined in the last four years, duty slabs were “obscenely high and terribly unrealistic" in the spirits segment, said Sandeep Arora, executive representative, South Asia, Whisky Magazine, a dedicated magazine on spirits.

In 2007, the import duty on all spirits was roughly 250%. Today, the sector attracts a duty of 161.8% plus local excise duty 30-200%.

Arora said that the business of luxury spirits in India is growing at 25-30%, but compared with China (where duties are not more than 4-5%), the growth hasn’t multiplied like it should have. “The entry barriers for luxury spirits is very high in India. However, the uber luxury category of single malts in India is witnessing an annual growth of 25-30%. Clearly, it’s an indicator that people are wanting to experience and taste luxury," said Arora.

According to International Wine and Spirit Research (IWSR), which started in 1971 as a subsidiary of market research company System Three Communications and publishes an annual report on spirits, India and China are expected to be the two fastest growing markets for spirits globally.

And according to IWSR, India will overtake Russia to become the second largest spirits market globally in 2013. Interestingly, all spirits categories will show growth in India.

However, according to Singh of Louis Vuitton, the 51% FDI cap should be removed and brands should be allowed 100% foreign investment. “Luxury is a sunrise sector with the opportunity to create more employment. It does not compete with the domestic market directly and we should make luxury a 100% FDI-allowed sector," said Singh.

abhilasha.o@livemint.com