The Hindu Business Line : Space crunch, high rentals a dampener for luxury retailers

‘Rentals for luxury space here is comparable with evolved markets like London, Tokyo. Fashion firms find it cheaper to penetrate markets like Thailand, Vietnam.’

Bindu D. Menon
Moumita Bakshi Chatterjee

New Delhi, March 31 Luxury retailers are in a Catch-22 situation when it comes to their expansions plans for India.

The $3.5-billion luxury goods market in India is on an exponential growth but the surging rentals and quality-space crunch are dampening aggressive roll-out plans.

“Luxury is not just about selling an emotion but also delivering an experience. Therefore, getting the space right is critical,” Mr Erico Marinelli, CEO, Frette, a luxury home furnishing company, told Business Line.

Noting that the five-star route is not always financially viable, he said, “Our international experience has been that a luxury store should give sales of $12-18 per square feet. However, it may or may not be true of India”.More than 200 international luxury brands are making inroads into India.

Wealth report

The 2007 Asia Pacific Wealth Report, released by Merrill Lynch and Capgemini, says that India has recorded the world’s second fastest growth in the number of high net-worth individuals (HNIs) at 20.5 per cent, making it a lucrative luxury market.

“On an average, the space requirement for luxury brands is higher (2,000-3,000 square feet) and only a handful of places fit the bill,” said Mr Rajneesh Mahajan, Director (Retail), Cushman & Wakefield India.

Mr Mahajan further pointed out that most luxury brands are currently housed within five-star hotels. “With leading developers planning a slew of hotel ventures, the demand-supply may ease,” he said.

Differentials

Industry observers point out that there would always remain a huge differential in rental for luxury spaces compared to regular retail space, as superior finishes come at a higher price tag.

Says Mr Mark Lee, CEO, Gucci, “India will emerge as one of our key markets. However, today it is still in a state of fantasy.” Currently, Gucci has two stores here and plans two more this year. However, he added that infrastructure remains a constraint. Unlike China, where Gucci opens one store every six weeks, the company is far more cautious here. Echoing a similar view is Mr Paolo Canali, Sales and Marketing Director, Canali. “We want to set up eight boutiques by 2010. However, we may slow down our expansion if the right ambience is not available,”

A CB Richard Ellis report pegs India at 44th in the list of places for international retailers looking to expand, while China is way ahead at nine.

Real estate company DLF’s Emporio in New Delhi is slated to be launched mid this year. “We are clinching good rentals. This will be the first-of-its-kind luxury mall and will have leading global brands,” a DLF spokesperson said.

Mr Leonardo Ferragamo, Chairman, Altagamma, the association of Italian luxury goods manufacturers, said, “Partnering with real estate companies and acting as their anchor tenants will solve some of the problems”.

“The skyrocketing rental means that high fashion companies find it cheaper to penetrate other Asian markets like Thailand and Vietnam compared to India,” an analyst said, adding that the rentals in India for luxury space was comparable with evolved markets like London and Tokyo.

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