As early as last week (November 25th 2011) , in a move which was not expected before mid-next year, the Indian government passed long awaited changes to legislation on FDI (Foreign Direct Investment) allowing foreign companies in retail to own 100% of local operations for mono-brand store operationa.
Then, after just 3 days, in the same unexpected manner, the Indian Government made a U turn, adding that this change implies that those foreign investors seeking 51% ownership of local operations are obliged to must source 30% of their inputs from domestic micro and small enterprises, backtracking from “anywhere in the world” announced last week under political pressure. On December 6th 2011, giving in to pressure from Unions and oppositi, the Indian Government reversed its decision to allow FDI related to multi-brand retail, impacting negatively plans of Wall Mart, Carrefour and Tesco who have been eyeing expansion in India for a long time.
To understand the impact of this legislation change, CPP-LUXURY.COM has interviewed several of the key luxury market players in the Indian market.
Mr Sanjay Kapoor, Managing Director, Genesis Luxury (part of Genesis Colors) shared exclusively with CPP-LUXURY.COM some of his expert insights. Genesis Luxury markets and distributes international luxury labels within the country. Other luxury brands in the portfolio of Genesis include Jimmy Choo, BottegaVeneta, Paul Smith, Just Cavalli and Etro).
What is your opinion on the recent change in legislation regarding FDI in India? How do you see its impact on India’s luxury market in the short term as well as mid term?
The easing of FDI norms in multi-brand retail as well as single brand retail would open doors for some iconic multi-brand and other mono-brand stores in luxury retail to gain entry into India. That would imply more choice for the consumer and greater awareness of international luxury brands, which is all very good for the market. Besides, supply chain improves and prices come down. Overall the industry gains from better overseas practices and global business processes which such partnerships bring with them.
Are there any negative aspects regarding the change in FDI legsilation? Any future challenges?
I do not think so at all. The easing of restrictions is very good for the industry overall as it will also help improve infrastructure and create better and trained manpower that helps the growth of the luxury industry in India and move in the direction of China, which had eased restrictions much earlier hence giving it an edge over other countries in the region.
Will the change in legislation regarding FDI have any impact on your existing business? Please include positive as well as negative impacts (if any)
I am very optimistic of the new legislation as it helps more brands enter the country, even those who want a majority stake can now look at this opportunity and seek Indian partners who have a wealth ofknowledge in the space to scale up their businesses.
Which are the top three international luxury brands you expect to enter India, following the change in FDI legislation? (brands which are not yet present in India)
I would hope this opens the gates for brands such as Ralph Lauren, Prada, Dolce and Gabbana to name a few.
One of the major challenges hindering development of the luxury market in India is the lack of luxury real estate. Do you see this latest legislation change have any impact on existing and confirmed (upcoming) luxury commercial real estate projects?
Absolutely. As I also indicated in an earlier answer, I do think this legislation will aid the development of the luxury industry in India hence encouraging more real estate players to come up with projects that can house luxury brands in their required environment. It is a essentially a matter of demand and supply – once more brands enter, more developments in luxury commercial real estate will come up.
Do you expect that once luxury brands will be able to operate directly in India, the quality of service will improve ? (i.e. luxury retail)
Yes, with the influx of more brands, some coming in directly, there will be better practices that the industry will get exposed to. This includes logistics management, brand management and mostimportantly service quality will improve. Right now, while we have over the past couple of years managed to surmount the challenge of getting the right manpower in place for luxury retail, the entry ofmore brands will result in more employment generation in the sector, hence also encouraging more business schools to offer luxury retail programs, which will cater to the industry as a whole.
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Mr Abhay Gupta, Executive Director of Blues Clothing Company also spoke exclusively to CPP-LUXURY.COM on the latest legislation changes on FDI in India. Blues Clothing Company franchises in India: Corneliani, Versace (ready to wear, home collections, furniture), Smedley, Cadini.
What is your opinion on the recent change in legislation regarding FDI in India? How do you see its impact on India’s luxury market in the short term as well as mid term?
Is difficult to see any immediate or short term impact. Brands which have been sitting on the fence would perhaps start work on their India entry plans – execution at all levels is another aspect altogether. There is also a strong possibility that some of the brands with 51% current equity will look at taking over more and further controls from Indian partners.With reversals of the 30% sourcing clause from SME’s anywhere in the world to only source from India, the Government has perhaps put an indirect barrier to mono-brand retail, especially for luxury brands. It is difficult to perceive what a luxury brand could source from an Indian SME, besides just maybe some embroidery or special prints.
Are there any negative aspects regarding the change in FDI legislation? Any future challenges?
In relation to luxury market perspective, this change can only help the growth of the market. Salaries would go up due to a further demand for already short supplied luxury capable man power.
Will the change in legislation regarding FDI have any impact on your existing business? Please include positive as well as negative impacts (if any)
Positively changed perspective by brand principals and promoters will be the direct result. Brands would feel more secure of being able to help growth of their stores being confident that they are in a legal position to help / take over stores when felt necessary. For now, I don’t see any immediate reactions since none of our brands are looking at investing directly.
Which are the top three international luxury brands you expect to enter India, following the change in FDI legislation? (brands which are not yet present in India)
Perhaps Polo Ralph Lauren ; Prada ; D&G
One of the major challenges hindering development of the luxury market in India is the lack of luxury real estate. Do you see this latest legislation change have any impact on existing and confirmed (upcoming) luxury commercial real estate projects?
There is likely to be an increased demand leading to increased rental kind of phenomenon. Projects which had slowed down will perhaps speed up again.
Do you expect that once luxury brands will be able to operate directly in India, the quality of service will improve ? (i.e.luxury retail)
Definitely yes !
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Oliver Petcu, Managing Director of CPP Luxury Industry Management Consultants Ltd, specialized luxury consultancy which covers several key international luxury markets, including India.
What is your opinion on the recent change in legislation regarding FDI in India? How do you see its impact on India’s luxury market in the short term as well as mid term?
In case the 30% local sourcing measure is kept, I see no mid term impact of any kind on the luxury market in India. I believe this additional measure is aimed at the major mass market retailers which have been seeking entry into India for some time (Carrefour, WalMart etc). While the measure is indeed applicable to these mass market large scale retailers, it cannot be applied to international luxury brands which can hardly source anything from the local Indian market and not for a reason related to quality or choice but the fact that the current successful major international luxury brands have been banking on their Made in Italy or Made in France (country of their origins) to sell, especially in emerging markets. Indian, Russian or Chinese are not prepared to buy luxury branded goods (international luxury brands) ”Made in India, Russia or China”.
Are there any negative aspects regarding the change in FDI legsilation? Any future challenges?
One of the major challenges facing international luxury brands, already present in India, which are seeking to operate directly, will be how to operate without a local Indian partner. And, I am hereby referring to bureaucracy, logistics etc.
Will the change in legislation regarding FDI have any impact on your existing business? Please include positive as well as negative impacts (if any)
I believe there will be a lot of positive aspects, especially related to know how, expertize in human resources (especially training) as well as marketing – which international luxury brands could implement once they operate directly. One of the most important positive aspects will be related to buying and the fact that, once international luxury brands will be able to operate directly, they will not only come with buying expertize (including consumer research) but also stores will have a better representation of the collections (more variety,more product types etc).
Which are the top three international luxury brands you expect to enter India, following the change in FDI legislation? (brands which are not yet present in India)
I believe Prada, Coach and Tiffany are the top theree international brands which will likely be entering India in the next two to three years.
One of the major challenges hindering development of the luxury market in India is the lack of luxury real estate. Do you see this latest legislation change have any impact on existing and confirmed (upcoming) luxury commercial real estate projects?
The negative impact will be mostly related to existing luxury retail centres, especially malls, which already have a monopoly position (there are less than 4 luxury malls in India). I have seen this in Russia too, where developers will tend to increase rents once they know they are dealing with a brand which operates directly.
As for developments, I believe these depend on the understanding of luxury by the real estate developers. Also, in my view, the fewer developers of luxury retail real estate with retailing ambitions (those who are both developers and retailers), the better. Otherwise, announced developments will not likely be operational before 2013.
Do you expect that once luxury brands will be able to operate directly in India, the quality of service will improve ? (i.e. luxury retail)
This will take time and it will very much depend on the dynamic of the Indian human resources market too. Currently, I believe luxury retail personnel, especially entry level positions, are under-paid and that is why, many of those with strong customer service skills can relatively find better paid positions abroad, especially in the Middle East. The challenge will be, through training but also financial motivation, to retain quality staff.
From other publications:
Luxury brands prefer to control every aspect of their operations and style of functioning, said Kalyani Saha Chawla, vice-president, marketing and communications, Christian Dior Couture, the French company owned by Christian Dior SA. In an interview to LiveMint.Com / WSJ
“The sector—being niche— requires tremendous discipline, so its brand philosophy can be replicated across countries, wherever the brand is present,” said Chawla.
Christian Dior Couture entered India in 2006 through Christian Dior Trading India Pvt. Ltd. Goel agreed that most luxury brands would want 100% ownership.
“In single-brand retail, the brand is supreme. They want to put the right face forward,” he said. “Whether brands will come on their own or with a partner will depend on how hungry the brand is. If it is very hungry, it will be 100% independent. If it is testing waters, it may partner somebody.”
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