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‘The market is over-regulated’

india Updated: Mar 26, 2011 01:23 IST
Gouri Shah
Gouri Shah
Hindustan Times
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A self-confessed India enthusiast, Armando Branchini, executive director of Fondazione Altagamma, a trade body of 74 Italian luxury brands such as Gucci, Bulgari, Fendiand Valentino among others, having collective sales of €45-50 billion (Rs 2.83 lakh crore-Rs 3.15 lakh crore), is convinced that India has the potential to be a big market for luxury goods. Branchini was one of the speakers at the Mint Luxury conference in Mumbai on March 25. In an interview, Branchini elaborated on some of the key challenges in the market, and what luxury brands can do to woo the Indian consumer.

What are the challenges for Italian luxury brands in this market?
The first Italian brands to come here were Ermenegildo Zegna and Gucci at the end of the 1990s. The time was terrible due to lack of proper retail infrastructure and spaces. Before that, customs duties were higher than now, and non-tariff barriers were still higher. In particular, FDI (foreign direct investment) in luxury brand retail was introduced by the government, permitting the famous 51-49% scheme. I devoted a lot of energy to the development of the Indian market but, unfortunately, on a larger scale it is still a long-term prospect.

There is a conservative approach in this country and the common culture is to keep this market as protected. Should the government reduce the duty from 37% to 17%, which is what it is in China, I am sure Altagamma brands would invest more in India. Of course, a number of obstacles (such as FDI, infrastructure, customs duty) would have to be reduced, but once they are removed, 50-60 stores would be opened directly by brands (with 100% ownership, not with partners) and you would have to consider an investment of $3 million (Rs 13.50 crore) for each store, and consider at least 10-12 units of new employment per store.

What categories will drive growth in the luxury market?
In the last 30 years worldwide, women’s bags have been a sort of metaphor for luxury. But at the same time, we had a terrific growth of luxury cars, boats, sailboats and watches, which are men’s jewels, especially in Asia. It depends on the local culture. (Consumption of luxury goods in) India will be driven by a cocktail of products, from luxury cars, yachts, watches, women’s bags, women’s shoes to men’s suits and accessories. Indians tend to veer towards accessories such as bags and shoes, rather than clothes.

This is a price-sensitive market. A fair share of Indian consumers tend to buy their luxury goods abroad. Is that changing?
The government seems to be doing everything it can to keep the prices much higher than they actually are. Who is stupid enough to buy something at a 35% premium here when they can buy it cheaper in Singapore? It is true that people tend to buy a lot abroad. I can say that for certain products such as watches, the percentage can be as high as 95%. Everything will happen if the government creates conditions for change. This market is over-regulated.