When Nita Ambani went shopping for 25,000 pieces of high-end Japanese crockery, she did not go to the Noritake store in her posh neighbourhood of southern Mumbai.
Instead, the wife of richest man in India called a Noritake store in Sri Lanka, where the upscale dinnerware for her new $1-billion (U.S.) home would be far cheaper.
Ms. Ambani’s decision illustrates why India’s growing number of wealthy consumers has not translated into riches for luxury retailers such as LVMH or Prada despite what, on the face of it, looks like a no-brainer.
An economy growing at nearly 9 per cent has spurred more than 200,000 millionaires, trailing only the United States and China.
The total net worth of “ultra” high net worth individuals – defined by net worth of more than $5-million – is $1-trillion and is expected to surpass $5-trillion by 2016.
Yet India accounts for only half a per cent of the global luxury market at $846-million. Greater China, on the other hand, accounts for 10 per cent of the global market at $17-billion.
Trying to sell expensive chic in India faces several challenges: steep import duties of up to 30 per cent, inadequate luxury retail infrastructure, real estate regulations and a clientele that prefers to buy its luxury overseas for reasons of cash and cachet.
“India is a tough market, the system is laborious,” Gayatri Ruia, development director of Palladium in Mumbai, a mall that houses several brands, including luxury and premium.
“And the Indian spending pattern is different. In Japan or China, even an entry level secretary would not be seen without a Louis Vuitton bag.”
Wealthy Indians are not opposed to spending money on expensive goods, as can be seen in the proliferation of Porsches and other high-end cars in Indian cities. But a rich businessman driving an expensive foreign car may not spend lavishly on luxury branded suits, for example, Ms. Ruia said.
“The average Indian wealthy person sees no value in branded goods. The few who do are in the habit of shopping while vacationing abroad.”
Signs are that this will not change soon. The Indian luxury market is expected to grow at an average of 5 to 10 per cent between now and 2013, compared with a robust 25 to 30 per cent forecast for China, according to consulting and research firm Bain & Co.
Part of the problem is providing the Indian consumer with a luxury shopping experience in a country where streets are strewn with garbage and squalid slums sit across from posh mansions.
Luxury retailers are attempting to get around this by selling their wares out of five-star hotels, international airports and malls built exclusively to sell designer labels.
But only two luxury malls have been built so far – one in the capital of New Delhi and the other in Bangalore.
Mumbai, home to some of India’s richest, including the billionaire Ambani brothers and Bollywood actors, does not have a single dedicated luxury mall like those littering China, Singapore and Western capitals.
“The challenge is infrastructure. Luxury requires an ecosystem,” Anand Ramanathan, manager at KPMG Advisory, said.
“It’s pointless having a luxury mall on a road that is potholed. Even the so-called ‘luxury malls’ in India are not really luxury. They have issues with basic infrastructure, with training of staff, it’s just not a luxury experience.”
India’s first stand-alone luxury retail store opened in July, a 3,000 square-feet store for France’s Hermes that has an art gallery on the second floor and a glass elevator to travel the two floors.
“There is no need for this two-speed network of shops,” said Bertrand Michaud, president of Hermes India. “We have to be on the street, not in hotels. And we have to offer what is offered overseas,” Mr. Michaud told Reuters in an interview at the opening of the flagship Hermes store in Mumbai.
The problem is, most of India’s rich prefer buying their luxury abroad.
“This is partly because, unlike in the west, even the rich Indian is a price-conscious one,” said Shobhaa De, Indian newspaper columnist, socialite and novelist.
With import duties of up to 30 per cent, luxury goods are often far cheaper outside India.
“Also, the variety is much more overseas, the service is much better, the whole experience is much nicer,” said Ms. De, whose daughters shop for their luxury mostly outside India.
In a recent popular Bollywood movie titled Zindagi Na Milegi Dobara, a lead character asks his friend living in Europe to buy the Hermes Ostrich Kelly bag worth €12,000 ($17,000) as a gift for his fiancée in India, reflecting the limited variety in Asia’s third largest economy.
Several Bollywood actors have been detained by customs at Indian airports in recent months, allegedly flying in with undeclared branded accessories bought overseas and having to pay thousands of dollars in duties before being released.