The Hindu Business Line : Big brands, bigger bucks

Chanel was announcing its formal launch in India with a repeat of the haute couture show in Paris, complete with models flown in from France and elaborate exhibitions showcasing the brand's history and the current product lines.

Unusual is the fact that Chanel does not organise such fashion shows outside of France. According to estimates, the cost of the high-profile event ran into several crores of rupees. "We want to let the Indian consumer know what Chanel is all about. We see high potential for growth in India. In fact, top officials from Chanel have been visiting India for four to five years now. There is a definite social change that has taken place in the country," says Xavier Bertrand, General Manager - India, Chanel.

It is this `social change' that has grabbed the attention of luxury brands globally as several surveys identify India as a key driver for luxury products in the coming years. Little wonder then that over the last few years, the world's top luxury brands have made a beeline for the Indian market. Brands such as Louis Vuitton, Chanel, Bvlgari, Hugo Boss and Aigner have already established a retail presence. Also, the market for luxury watches (such as Rado, Omega, Breguet, Christian Dior, Tag Heuer, Corum and Franck Mueller) and luxury cars has been developing rapidly.

The reason, perhaps, lies in the numbers. Recent surveys point out that the number of high net-worth individuals in the country is on the rise, — a shot in the arm for luxury brands with designs on India.

Says R. Ravi Shankar, Senior Vice-President, TNS India, "The number of Indian millionaires has grown rapidly in the recent past due to the economy opening up and corporate and private businesses doing exceedingly well. This has given rise to the demand for luxury goods and premium brands. With rising incomes, the propensity to spend on luxury brands among the rich and the neo-rich has increased. Luxury brands are something they aspire to own, as they are symbols of success.

Secondly, as the market for these goods is limited overseas, these brands have to expand into emerging markets such as India and China, where more people would like to acquire them. The Merrill Lynch/Capgemini World Wealth Report, in fact, put the country in the fastest growing high net-worth individuals category, with 70,000 millionaires in 2004.

A study by the National Council of Applied Economic Research finds that the number of crorepati households had grown to almost 20,000 in 2001-02 and will increase to more than 50,000 by 2005-06; it is expected to cross 1.4 lakh by the end of the decade. The number of households in the annual income bracket of Rs 50 lakh to Rs 1 crore is expected to cross one lakh in 2005-06.

Says Gautam Nath, Executive Vice-President, TNS India, "Strict tax evasion-counter measures have created a boom in luxury spending as more and more businessmen are finding it increasingly difficult to park unaccounted money in bullion or property or stocks incognito. And where there is money, there will be supply."

Brand consciousness among Indians is also increasing steadily. The Synovate PAX media survey found that approximately 56.5 per cent of the affluent Indians surveyed said they preferred well-known brands, in comparison to 46.9 per cent in Singapore and 47.5 per cent in Thailand. In fact, the shopping list of affluent Indians includes high-end items such as digital video cameras, luxury watches (over $500), laptops, designer leather products, LCD/plasma TV and cars. LCD/plasma televisions, for instance, is a category growing at over 100 per cent per annum, with the size of the market expected to be 12,000-13,000 units this year.

An official from the Consumer Electronics and Television Manufacturers Association says that this segment is expected to account for a significant percentage of total value CTV sales in the next few years.

A sizeable percentage of sales of these products come from upcountry areas as well. Says Paru Minocha, Director, Synovate India, "The smaller-town richies and the larger-town ones are quite homogenous in their exposure as well as the need to exhibit status. In terms of sheer numbers, small-town richies as a whole are likely to be more. To give an example, these small-town high-income groups will mostly send their children to boarding schools, go for holidays abroad and be active trend-setters in their areas."

A chunk of action in the luxury brands domain is in high-end watches with almost every major global brand announcing its entry into the segment. At present, the market for high-end watches is estimated at Rs 600 crore and is growing at about 20 per cent annually.

Most recently, luxury watch brand Breguet announced its entry in the Indian market with watches priced between Rs 4.5 lakh and Rs 8.5 crore. At the launch, Rodolphe Schulthess, Vice-President (Worldwide Sales), Montres Breguet, said India was among the top five growth markets for the brand. Says Roland Streule, President, Rado Watch Co Ltd, "India has come a long way from the days when luxury was only about gold. Now, Indian consumers look at luxury brands as status symbols. We feel India has the potential to be among the top two or three markets for Rado in the next five years."

Rado is targeting a growth of 30-40 per cent this year and 35 per cent next year. (See Omega article on page 3)

A number of cars, including Maybach, Rolls Royce Phantom and Bentley, with a price tag of over Rs 1 crore, have also rolled out on Indian roads. While Porsche has set up dealerships in India, BMW is expanding its presence by setting up an assembly unit.

BMW sold about 100 cars in the country in the first half of the year through its dealerships and this number is set to go up with the assembly unit coming into operation. The carmaker will produce the BMW 3 Series and 5 Series saloons from its first assembly unit in India, coming up near Chennai, and due to be commissioned by 2007.

The company in a recent statement said it saw significant potential in the Indian automobile market in the long term and that it would be well positioned to fully tap it. The number of luxury brands on Indian roads is set to expand with market watchers pointing out that several luxury carmakers such as Aston Martin and Ferrari are in the process of charting out their foray into the domestic market.

Rajika Narain, Brand Manager (India) for German luxury brand Aigner, which began operations in India last year and runs two retail outlets in the country, says the response has been very encouraging. "We have been seeing sizeable growth in sales every month. The surprise element is that our men's fashion range is selling the most," she says.

Aigner sells T-shirts priced at up to Rs 10,000, while the pricing of its luggage range starts at Rs 55,000. The German brand is looking to establish its third outlet in Bangalore towards the end of 2006.

Chanel too is looking to expand its retail presence and plans to set up its second outlet in India in Mumbai next year. It has one boutique in the Capital. "We would also be setting up 10-15 fragrance/beauty product counters in major department stores across the country in 2006. The boutiques, meanwhile, will be showcasing almost all our categories including watches, bags and eyewear," says Chanel's Bertrand.

However, analysts point out that a deterrent to the spread of luxury brands is the lack of exclusive retail space for such brands. At present, a chunk of the luxury brands has restricted retail presence to only five-star hotels in metros. "A luxury brand needs a luxurious ambience as well, else the brand equity suffers," says the brand manager of a luxury lifestyle brand which has set up its outlet in a five-star hotel in the capital. The situation, however, is set to change with several real estate developers seeing an opportunity in the number of luxury brands entering the country, with plans to set up exclusive malls to sell luxury goods. This includes an Emporio mall by DLF Retail in the Capital, which will only sell luxury brands. The mall is expected to have more than 100 stores.

The rentals will also be much more cost-effective than those at five-star hotels. Market watchers say there will be an influx of luxury brands once retail spaces come up. Surely, things are only going to get better for the well-heeled Indian consumer.

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