Insight: Luxury retail not part of India's success story

Wed Aug 24, 2011 1:38am EDT
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By Jui Chakravorty

MUMBAI (Reuters) - When Nita Ambani went shopping for 25,000 pieces of high-end Japanese crockery, she did not go to the Noritake store in her posh neighborhood of southern Mumbai.

Instead, the wife of the richest man in India called a Noritake store in Sri Lanka, where the upscale dinnerware for her new $1 billion home would be far cheaper.

Ambani's decision illustrates why India's growing number of wealthy consumers has not translated into riches for luxury retailers such as LVMH or Prada despite what, on the face of it, looks like a no-brainer.

An economy growing at nearly 9 percent has spurred more than 200,000 millionaires, trailing only the United States and China.

The total net worth of "ultra" high net worth individuals -- defined by net worth of more than $5 million -- is $1 trillion and is expected to surpass $5 trillion by 2016.

Yet India accounts for only half a percent of the global luxury market at $846 million. Greater China, on the other hand, accounts for 10 percent of the global market at $17 billion.

Trying to sell expensive chic in India faces several challenges: steep import duties of up to 30 percent, inadequate luxury retail infrastructure, real estate regulations and a clientele that prefers to buy its luxury overseas for reasons of cash and cachet.

"India is a tough market, the system is laborious," Gayatri Ruia, Development Director of Palladium in Mumbai, a mall that houses several brands, including luxury and premium.   Continued...

<p>A saleswoman walks inside a Hermes showroom in Mumbai August 23, 2011. Despite India's rapidly growing wealth, international luxury retailers are struggling with business in Asia's third largest economy. The Indian luxury market is expected to grow at an average of 5 to 10 percent between now and 2013, compared with a robust 25 to 30 percent forecast for China, according to consulting and research firm Bain &amp; Co. REUTERS/Danish Siddiqui</p>