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Last Updated : Mar 25, 2020 05:22 PM IST

Coronavirus impact: Disrupted supply chains, cancelled export orders hamper India’s fledging luxury industry

The blocking of the raw material supply chain has hurt most niche Indian luxury brands the hardest.


On February 17, the Reserve Bank of India’s consumer confidence survey revealed that the current consumer confidence index had dipped to 83.7 (where 100 is the dividing line between pessimism and optimism), the lowest since March 2015. But that, says Meenal Agarwal, owner-founder of Marvel Designs, was just the tip of the iceberg. “At the end of the second week of March, as the news of the spread of coronavirus (COVID-19) across the world gained momentum, the consumer index had touched rock bottom.”

Marvel Designs may not be a known name to the world outside, but the company, much like others design and embroidery firms, are the lifeblood of the global couture industry. They hire highly skilled Indian artisans and embroiders to create beautiful clothes for big brands such as Christian Dior and Prada. “My own company hires at least 100 artisans and embroiders. But in the last two weeks, we have had a spate of cancellation of orders, as global brands put off new collections and call of fashion shows. I have had about 25 order cancellations in five days,” says Agarwal. “I am now faced with the prospect of letting a large part of my artisanal team go if things don’t get better within the next month or two.”

While many essential businesses may revive in the third quarter, once things settle down, India’s gilded luxury industry — estimated at $23.8 billion in January 2020 by Assocham — may have to wait a tad longer. Insiders say that the slowdown, nay recession, will last more than a month what with parts of the world in ‘lockdown’, shops, restaurants and theatres closed, and events cancelled.

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On March 6, FDCI postponed the Indian Fashion Week, scheduled from March 11 to 14 in New Delhi. This was even before the Indian government called for social isolation. FDCI chairman Sunil Sethi says designers who do business at India Fashion Week will miss making big sales at least this season, incurring losses.

Tiffany, LVMH’s iconic jewellery brand that opened its flagship store in Delhi in February, has called off all marketing campaigns for the country, with its Europe head office under a lockdown. In Mumbai, Royal Western India Turf Club suspended racing and off-course betting operations from March 15, until further notice, the first time it has done in its 222-year-old history. Internationally, many of the large auto shows, art and watch events and summits such as Art Basel Hong Kong, Art Dubai, the Geneva auto show, which sees major participation by Indian players, stand cancelled.

Anuj Kejriwal, MD and CEO of Anarock Retail, estimates that retail will continue to witness a domino effect much after the crisis has passed. “It will take a while for organised luxury retail to recover given the disrupted supply lines and the low sentiments that allow you to spend only on essentials.” The luxury economy is built on discretionary consumption. From dining out to buying art, buying couture or spending on personal services such as spa sessions and meals in restaurants are based on how good you feel about the life you lead. “We are already facing an economic recession. Any further hardship due to coronavirus will push sentiments down further,” says art dealer Meenakshi Pahwa, who is also the agent for global galleries such as American Greg Kucera gallery in India.

Samir Modi.

Samir Modi, Founder, Colorbar predicts that it will take a minimum of a year for a turnaround. “It took us a year after demonetisation. I don’t expect the consumers to come back to the stores immediately after the crisis blows over. We are seeing very little business even online.”

Here is how COVID-19 is leaving so many luxury businesses anxious.

Retail

French kidswear fashion label, Born by Elodie Le Derf, which forayed into India in the last week of February, has closed not just its retail store but even its e-shop indefinitely for now. Le Derf says that the situation is dire back home in France, a country dealing with high COVID-19 cases, forcing her to postpone her India plans.

Most luxury brands in India have their stores within malls, which have been ordered to shut operations in cities like Mumbai. Gaurav Mehta, Founder, Jaipur Watch Company, who has a shop-within-shop in Delhi’s Select City Walk, says that he expects the capital to follow suit. More worrying, he says, is the fall in retail sales with footfalls down by almost 80 percent in the last one week. Mehta, who also retails on TataCliq, says that while he used to sell watches worth Rs 4.5 to 5 lakh per month on the online e-commerce platform for luxury goods, the sales are down to Rs 50,000. “And the bespoke business is also down because of the massive fluctuation in the gold market. A client booked a watch when the gold was priced lower. By the time I got down to making it, gold had touched Rs 44,000 per 10 gm. Now I have shifted focus to bespoke 3D printed gold-plated watches, which are far cheaper.”

Jaipur Watch Company's stamp watch.

Luxury textile brand, Ekaya, which works with weavers and artisans in Benares and sells through stores in Delhi, says they have seen very few walk-ins. “Currently we are working with buffer stock and we will cross the bridge when we come to it, in terms of how to deal with alternatives once that runs out. This isn’t the time to market or sell and while online has picked up, the sales haven’t been as envisaged.” Artisans, back in villages, are going to be worst hit by any rollbacks in production.

Rahul Mishra.

Coronavirus has made fallow the best-laid plans of designers such as Rahul Mishra who regularly show and sell their collections abroad. “We had a presentation of our FW 2020/21 prêt-à-porter collection at the Paris Fashion Week at the end of February. Our retail team did not get a chance to interact with our routine buyers from the eastern countries such as China, Japan or Korea as none of their representatives was travelling at the time. The orders were placed after looking at digital look books,” says Mishra. “Even while we’ve seen a lot of interest in the collection, several European buyers have put their orders on hold in consideration of the sentiment.”

Global retail is not at its 'most encouraging’ state at the moment and the Indian consumer is also slowly withdrawing. “The economic slowdown had ensured that a large chunk of the consumers was anyway purchasing for occasions such as weddings,” says Mishra. Since large gatherings are out of the question for the moment, the fate of glitzy weddings hangs in balance.

Disrupted supply chains

The disruption of supply chains for raw materials and finished luxury goods will come into play soon. According to Mishra, while most of the raw materials he uses, such as handloom textiles, are produced in India, they do import a few key fabrics from countries such as China, Korea and Japan and export their finished products to various markets across the globe. “If the situation continues, we will have to innovate and find alternatives right here,” he says. “An online point of sale would help sustain better and hence we’re working on upscaling our Instagram services so that we can handle queries directly from there. As the fashion cycle demands our new collections should roll out towards July, we are focusing on post-quarantine.”

Mehta, who imports some watch parts from China and movements from Japan, via Hong Kong, says he was prepared for the two countries taking a break for Chinese New Year and had stocked up on buffer. “But that is running low and imports have been hampered, forcing us to drastically reduce our manufacture.”

Ms. Suparna Handa- Managing Director- Sarita Handa

Sarita Handa, a brand of luxury home furnishings that exports to mature European markets and retails in India contend that their supply chains import raw materials such as dyes and chemicals and certain yarns. They are looking at innovating and finding new sources domestically. “The fallout is going to be global. Good and efficient companies will survive and come out stronger by reinventing themselves.”

Many businesses, such as Colorbar, may not have these choices. “We get about 70 percent of our cosmetics from Germany and Italy, 10 percent from Switzerland and 20 percent is made in India. In my business, I cannot look at any alternative sources because of the quality we require. I have had to put off some major launches in April and May. We recently ventured into exporting to Bangladesh, Turkey and Sri Lanka, and we are now saddled with stocks we had invested in.”
Ankur Ahuja - The Luxury Living, an interior design business, with tie-ups in China and Italy, has had to scramble to find vendors that deliver quality within India. “A lot of our high-end units come from Milan. We procure a certain amount of raw material from China. We’ve turned to ‘Make in India’. We’ve found ways and means to compensate for the situation with immediate effect and fortunately, the pace is steady. This will, of course, impact the cost but we’ve tried to locally compensate for it, reducing the impact on our clients,”  says Ankur Ahuja, CEO and Founder.

There is no getting away that luxury businesses will see millions being erased from their market value. Ask Indian jewellers, who rarely see a downturn, even in the worst economy. “Retailers are doing only 20-25 per cent business across the country," All India Gem and Jewellery Domestic Council chairman Anantha Padmanaban contend. “Indian jewellery business is driven by weddings, and right now several large weddings have been postponed or called off.”

Indigenous Indian luxury

India has its thriving premium-to-luxury industry and they are likely to be worst hit. And that’s because they don’t have very deep pockets. One of Mumbai’s leading art galleries Sakshi Gallery announced that their team will work remotely to address sales enquiries. They, however, reveal that no one is buying art, not even online. Home-grown beauty brands such as Kama Ayurveda and Forest Essentials have shifted their focus to online sales, as government shutters malls, which hold their retail stores. “The sales have fallen by almost 70% because no one wants to put in a Rs 6,000 for a skin product at the moment,” says a Forest Essentials insider.

Mr. Yogesh Mehra

Tribe Stays, a premium accommodation chain for young Indian professionals who pay a higher cost for upmarket facilities, has been forced to jettison its expansion plans. “There is a loss of labour since most have gone home. The cost of raw materials has skyrocketed. We are dependent on the international markets for some of our furniture accessories,” says Yogesh Mehra, CEO, Tribe Stays.

Colorbar, which has been toying for a year with the idea of using advanced Microsoft software to create systems that allow working from a remote distance, have had to install it within 24 hours so that work can continue. “While I believe luxury and beauty retail will eventually go back to the store format because of the nature of the purchases, in terms of the backend, much of it will shift to remote operations or even work from home,” says Modi.

Colorbar.

Ultimately, the lack of any contingency plan to handle any pandemics is a factor that will plague the revival of the premium to the luxury segment. Unlike essential businesses, which will see a rapid turnaround if India is able to handle the spread of infection, Rahil Sayed, Member Experience Manager of the luxury David Llyod Clubs Talwalkars clubs says that the crisis will affect them for at least two quarters as “it has impacted India’s backbone, its economy. What was a consolidation phase for us as a new fitness business, in which we had invested heavily, is now turning out to be an adverse situation”.

Mehta contends that unless the Indian government offers some sort of economic revival package and relief in taxation, things will get out of hand, especially if lockdowns continue to stay in place. “There is no way for small entrepreneurs in the luxury industry, like us, to make money. There is a bloodbath of unprecedented proportions on the stock markets, we cannot speculate on gold since the market is so volatile, and retail is likely to be badly affected for a while.”

Deepali Nandwani is a journalist who keeps a close watch on the world of luxury.

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First Published on Mar 20, 2020 05:10 pm
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