The much awaited change in FDI legislation (Foreign Direct Investment) to allow foreign companies in retail to fully own and operate their local mono-brand stores was turned into a political bate by the governing party for the opposition, an image exercise which resulted in what most regarded as an embarassing position of the Indian Government, which, during the course of less than 10 days in November last year, confirmed in a surprise statement the change in FDI, to then reverse it, apparently giving in to pressure by the opposition.
Foreign major FMCG retailers such as WalMart, Carrefour and Tesco have condemned the decision of the government. To make matters even worse, in its reserve of the approved changes, the Government added a new twist, companies needed to outsource 30% of their products from the local market, a measure which is absurd in the case of international luxury brands. 2011 ended in a complete chaos regarding FDI, leaving major international retailers ponder the risk they would face once entering India, given the political and legislative instability.
Despite the FDI controversy, luxury fashion and accessories retail still presents exceptional opportunities especially for the major luxury retailers. Brands already present in India have probably, once again, ”learned their lesson”, becoming even more convinced, for most of them, operating directly in India would be a mission impossible. Several major international luxury brands, not yet present in India, have by now postponed by at least two years their entry, preferring to rather enter in discussions for a franchising / exclusive wholesale distribution. Dolce Gabbana, Roberto Cavalli or Max Mara are among the international luxury brands we might see entering India through franchising by the end of this year.
As for the luxury watches and cars, the two most flourishing luxury sectors in India, the opportunity of opening mono-brand stores remains the biggest opportunity in the short and medium term. Richemont Group has already announced the direct entry of some of its watch brands, with the aim of opening mono-brand locations. As opposed to the existing multi-brand distribution. Luxury brand have to understand that India’s sophsticated wealthy are seeking a similar shopping experience locally as to when they travel abroad. Like in the case of fashion, consumers expect to find locally, not only the store concept and brand environment, but also a good representation of the collections of the respctive brand, which is usually much smaller in multi brand distribution. Mono-brand watch stores also convey consumers more trust, in a market inundated with counterfeits.
Luxury hospitality and jewellery are probably India’s most challenging luxury sectors, considering India’s long tradition in both sectors. International luxury hotel chains present in India have yet to reach the reputation, quality of services and locations of leading Indian hotel chains such as Taj and Oberoi. In the case of jewellery, international luxury brands must understand that India is not China or Russia! India’s jewellery craftsmanship and quality of raw materials such as precious stones and gold, are almost impossible to compete with, from the point of view of awareness and price. A top quality jewellery high end piece by a local designer would always be cheaper than an identical piece made by a foreign jewellery house. No wonder Bvlgari has had to close its operations in India and is currently absent from the market while other brands such as Cartier produce modest results in comparison with similar sized markets.
However, the jewellery sector in India presents great opportunities for mid range and premium jewellery makers such as Tiffany and Pomellato, which would be considered as ”fashion jewellery” by the local consumers. In the case of such brands, they could become extremely profitable targetting the upper middle class in India positioning themselfves as the ideal gift ideas.
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