Lack of quality spaces, high rental deter luxe labels’ India plans

The launch of several popular global fashion labels through online shopping portals like Myntra, Jabong is proof that they are keen to enter the lucrative India market. However, despite India allowing 100 percent FDI in single brand retail, many are not yet biting the bait of opening stores in India. The reason: high rentals and scarcity of good locations or high streets in the country.

For instance, niche luxury brands like Italian suit maker Kiton and British shoemaker John Lobb have begun offering their bespoke made-to-order services in India, but they are not showing any interest in opening stores immediately. Because the demand is comparatively low.

High rentals – a major road-block

Despite a growing base of well-off shoppers, the presence of the world’s top 100 retailers in Indian cities is sparse compared with other Asia-Pacific countries, says a report by Jones Lang LaSalle, a real estate consultancy. High rents and restrictive investment policies hinder profitable growth in India and deter global retailers’ from investing here says the report, titled ‘A Magnet for Retail’. The report ranked 30 cities in the Asia-Pacific based on the presence of world’s top 100 luxury and mid-tier brands, where cities like Delhi, Mumbai and Bangalore ranked 24, 25 and 27, respectively.

While rents for baseline retail properties in India are affordable, foreign labels are mostly interested in prime retail locations, where the rates are high compared to other cities in the Asia Pacific region. Therefore, bearing operational costs while paying high rents, these brands have to also wait for long to break even as consumer spending in India is improving only now.

Even Reliance Brands, which operates stores retailing top luxury brands like Zegna and Brooks Brothers, are facing challenges on that front. However, over the past few years, foreign labels such as Zara and Massimo Dutti, H&M, Forever 21, Benetton and Marks & Spencer and now The Children’s Place and GAP are banking upon upbeat consumer sentiment in the country.

High demand, low quality spaces

As per a ASSOCHAM-KPMG study, India’s luxury market grew at a healthy 30 per cent to reach 8.5 billion dollars (over Rs 51,000 crores) in 2013 and is likely to continue growing at about 20 per cent to reach 14 billion dollars (over Rs 84,000 crores) by 2016 owing to rising number of wealthy people, growing middle class, affluent young consumers and other related factors.

Though, India enjoys just 1-2 per cent share in the global luxury market it is the fifth most attractive market for international retailers. No wonder several high-end foreign brands are planning to enter the country, either on their own, or through joint ventures and ecommerce. With consumers waking up to luxe brands, and established labels like Hermes, Louis Vuitton and Gucci et al they have created a niche in the market.

India lacks hi-street destinations like New York's Fifth Avenue and Madison Avenue or London’s Bond Street, so they have to go the extra mile to look for a retail place that would attract footfalls. What adds to the problem is few number of high-end malls and low sales potential coupled with limited space at five-star hotels. Other hurdles like regulatory FDI norms, are issues being faced by them. Experts say luxury brands find it difficult to meet the 30 per cent mandatory souring norm under FDI policy because most brands’ USP revolves around the competitive advantage of its country of origin.