High rentals in India leave luxe brands sweating

High rentals and lack of proper infrastructure for luxury retailing are forcing brands including Christian Dior, Louis Vuitton and Omega to restrict the number of outlets in India. The rent component in retailing cost stands at 40 percent and is much higher than

the global average of 15 percent, show estimates by leading retail consultancy Luxury Connect.

For example, Christian Dior, which currently has two outlets in India, is hunting for appropriate locations across India to expand its retail presence, but is yet to firm up its plans. The growth of luxury brands such as Jimmy Choo, Paul Smith, Giorgio Armani, Canali, Dior and others is limited to metros due to the lack of appropriate infrastructure outside. Besides a few up-market and known destinations such as DLF Emporio in New Delhi, Taj Colaba in Mumbai and UB City in Bangalore, there are no other options for luxury brands to increase their retail footprints.

Louis Vuitton, which recently indicated it would go slow on its global expansion plans, is looking to open stores in Chennai, Kolkata and Chandigarh. And though it wants to open stores in smaller towns, infrastructure in these areas has been seen as a major problem.

As per CII-AT Kearney report on luxury, in 2011, the local luxury market saw a robust 20 percent growth to touch 5.8 billion dollars (over Rs 31,500 crores). India was to overtake China as the world’s fastest growing market for luxury goods in 2012, driven by an explosion in the number of rich people, said an October report by researcher Euromonitor. It was also expected to grow at 22 percent a year in the next five years. The Indian luxury market will touch 7 billion dollars (over Rs 38,000 crores) in value by 2017, while China will grow 15 percent over the same time, the report said. Though these reports are boasting about the future of India’s luxury market, global brands are finding it difficult to find the right retail locations since India lacks good high-street locations and there are very few luxury malls. Moreover high rentals are also putting pressure amidst slow economy and low buying sentiment.

Perhaps it’s time, realty developers in cities such as Mumbai, Delhi, Chennai, Kolkata and Hyderabad get aggressive in creating luxury retail spaces to cater to the growing interest of foreign brands.