India's Growing Prosperity Opens Up A New Market For Luxury-Goods Firms

AT THE end of the 19th century, India's maharajahs discovered a Parisian designer called Louis Vuitton and flooded his small factory with orders for custom-made Rolls-Royce interiors, leather picnic hampers and modish polo-club bags. But after independence, when India's princes lost much of their wealth, the orders dried up. Then in 2002 LVMH, the world's largest luxury-goods group, made a triumphant return to India, opening a boutique in Delhi and another in Mumbai in 2004. Its target was the new breed of maharajah produced by India's liberalised economy: flush, flash, and growing in number.

Other purveyors of opulence followed, from Chanel to Bulgari. In recent months a multitude of swanky brands have announced plans to set up shop in India, including Dolce & Gabbana, HermÐ"Ёs, Jimmy Choo and Gucci. And Indian women will soon be invited to spend over $100 on bras made by La Perla, an Italian lingerie firm. Only a tiny fraction, of course, will do so. But it is India's future prospects that have excited the luxury behemoths.

India has fewer than 100,000 dollar millionaires among its one billion-plus population, according to American Express, a financial-services firm. It predicts that this number will grow by 12.8% a year for the next three years. The longer-term ascendance of India's middle class, meanwhile, has been charted by the McKinsey Global Institute, which predicts that average incomes will have tripled by 2025, lifting nearly 300m Indians out of poverty and causing the middle class to grow more than tenfold, to 583m.

Demand for all kinds of consumer products is about to surge, in short. And although restrictions on foreign investment prevent retail giants such as Wal-Mart and Tesco from entering India directly, different rules apply to companies that sell their own products under a single brand, as luxury-goods firms tend to. Since January 2006 they have been allowed to take up to 51% in Indian joint ventures. India is also an attractive market for luxury goods because, unlike China, it does not have a flourishing counterfeit industry. Credit is becoming more easily available. And later this year Vogue, a fashion magazine, will launch an Indian edition.

Barriers to growth remain, however. High import duties make luxury goods expensive. Rich Indians tend to travel widely and may simply buy elsewhere. Finding suitable retail space is also proving a headache. So far most designer boutiques are situated in five star hotels.

But things are changing. Later this year Emporio, a new luxury-goods mall, will open in a prosperous neighbourhood in the south of Delhi. It is likely to be the first of many. Even so, India could remain a difficult market to crack. Last October the Luxury Marketing Council, an international organisation of 675 luxury-goods firms, opened its India chapter. Its boss, Devyani Raman, described India's luxury-goods market as “a cupboard full of beautiful clothes with a new outfit arriving every dayвЂ"it could start to look messy without the right care”. This, she said, included everything from teaching shop assistants appropriate manners to instilling in the Indian public a proper understanding of the concept of luxury. “How do you educate them”, she asked, “about the difference between a designer bag that costs $400 and a much cheaper leather bag that functions perfectly well?”

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New Delhi entrepreneur Natasha Chaudhri chases after expensive fashion products like a big-game hunter in pursuit of wildlife pelts. Owner of three restaurants in Bombay and Goa, two lifestyle stores in Delhi and an export business, Chaudhri, 30, has the money, if not necessarily the time, to go on shopping safari, and her closet is full of trophies: Louis Vuitton, Prada and Chanel handbags; sunglasses by Bulgari and Gucci; countless designer outfits; shoes by Sergio Rossi, Tod's and Jimmy Choo. These days, she doesn't have to go overseas to indulge. Jimmy Choo, for example, just announced plans to open its first outlet in India, much to Chaudhri's delight. "I think it is fabulous," she says, "because India has become a great luxury goods market." Upscale Indians "are super-trendy," adds Chaudhri. "We love brands."

And brands love India. Jimmy Choo and Gucci are just the latest makers of luxury goods to target India as the next hot growth market, joining HermиÑ-¬ Christian Dior, Louis Vuitton, Cartier, Piaget, Tiffany, Moschino and others. Last October, Chanel launched its brand by organizing an exhibition and haute couture extravaganza in New Delhi's tony Imperial Hotel with models flown in from Paris. That same month, Swatch Group introduced its Breguet watches (average price: $30,000) to India, which it hails as one of the world's most enticing growth markets. In January, the Indian government gave upscale retailers a further boost by allowing foreign companies to own a controlling interest of 51% in joint ventures operating "single-brand" stores. Although multinational chains like Wal-Mart and Tesco remain effectively barred from India, the move is expected to make the country more appealing to retailers like Nike and Cartier that sell their brands in exclusive outlets. "I am very, very optimistic about India," says Xavier Bertrand, India general manager for Chanel.

Not long ago, few high-end merchants had any interest in the country, put off by its pervasive poverty and an unsophisticated retailing environment populated mainly by small, independent shops. The handful of luxury brands operating in India did so quietly, selling mainly from boutiques located in five-star hotels. There was virtually no other option. India's major cities lack high streets, which elsewhere provide symbiotic clusters of posh retailers. While India is in the midst of a mall-building boom, there are very few upscale shopping centers in which companies can showcase their luxury products alongside those of similarly chic retail neighbors. India even has a shortage of major department stores. The country's leading domestic chain, Pantaloon, has fewer than 100 outlets. Given such conditions, "our marketing plan for Hangzhou or Dalian [two mid-sized Chinese cities] is bigger than for all of India put together," says