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Sep 21, 2010, 05.55 PM IST | Source: Moneycontrol.com

Retail perspective: Is India ready for luxury shopping?

Luxury shopping is a function of considerable disposable income, which only now coming back into evidence after the global economic slowdown in India – or, for that matter, in the rest of the world.

Retail perspective: Is India ready for luxury shopping?
Shubhranshu Pani is Jt Managing Director – Retail Services, Jones Lang LaSalle India

Let’s look at this question logically. Luxury shopping is a function of considerable disposable income, which only now coming back into evidence after the global economic slowdown in India – or, for that matter, in the rest of the world.

As long as there’s affluence to any degree, the yen to go buy luxury goods follows – to that degree. So, there is demand for luxury brands right now – but when it comes to India, I don’t blame luxury players for looking only at the three major metros of Delhi, Mumbai and Bangalore for expanding their footprint right now. After all, these are the cities where luxury retail is really understood – and where a certain degree of demand for luxury retail exists.

That said, I still feel that the critical mass needed to sustain profitability of luxury stores is currently not available even in these cities. There’s no getting away from the fact that at the core, Indian retail will continue to be defined by value-consciousness, which means that value retail will always have the upper edge in terms of numbers. And so, there are still only two full-fledged luxury malls operational in India – UB City in Bangalore and DLF Emporio in Delhi. And they are HUGELY outnumbered by the Big Bazaars of this world, which sort of proves my point.

On the other hand, Indian shopper sensibilities and inclinations are slowly evolving. We are beginning to see wealth creation happening even in the smaller cities and towns of India. So, other than the three major metros of India, cities like Chennai, Pune, Hyderabad, Kolkata and Ludhiana are also on the radar for the future expansion plans of luxury retailers. In the first place, these cities have always been traditional centres of commerce, and they also have a high concentration of old money families. But luxury retail coming there in force over the next two years? No, I really don’t think so….

At this point of 2010, developers are still a bit leery of planning luxury malls ANYWHERE in the country. That is not to say that there’s no evidence of luxury retail at all – there certainly are luxury shopping components to existing malls such as Phoenix Palladium in Mumbai, and Spencer’s Mall in Kolkata also plans to have such luxury outlets. Also, most 5 star hotels such as the Grand Hyatt, Taj Mahal Palace and Oberoi Trident in Mumbai and similar establishments in other cities have a component of luxury shopping.

Are any new luxury brands planning an entry into India right now? Yes – but as retailers, not as mall developers. In that spirit, brands like TopShop, Zara, Diesel and a few others have already tied up with local partners so that they can get a foothold on Indian soil. In fact, a few of them are even talking to potential partners for JVs.

Even so, luxury retail is going to face some challenges in India over the next two years. During the boom period, there was an incredible demand because the stock market was sizzling, and that resulted in considerable disposable income. Compared to those high times, matters are still sort of stagnant on the luxury retail front. And why should that surprise anyone? After all, luxury retail requires very high initial investment. There are pricey factors like standardised fit out procedures, high import duties and what have you to consider.

Also, it doesn’t make much sense to launch a luxury mall at the faltering beginning of revival in Indian retail – the gestation period to break even in this business can be as long as far as 5-7 years. And we’re not even talking of the high rents applicable to luxury retail… rents high enough in cities like Mumbai to cross the eyes of even the most well-heeled international brands.

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