Financial Times

Flanked by a swiss Swarovski store and a Ruby Tuesday restaurant, India's first Versace boutique opened in an upmarket Mumbai mall, its bright displays and steel-and-white interiors drawing several shoppers.

The Italian luxury brand, which plans to expand quickly in China and India, is the latest to enter India on the heels of others such as Hugo Boss, Burberry, Cartier, Chanel, Louis Vuitton and Tommy Hilfiger.

Their numbers have swelled since foreign chains selling single brands were allowed in January to take up to 51 percent in Indian joint ventures. Others waiting to launch include Gucci and Giorgio Armani, which will open four stores in Mumbai and New Delhi within 18 months.

“India is really the last frontier,” said Darshan Mehta, president of Arvind Brands, a unit of textile and apparel maker Arvind Mills Ltd., and licensee for VF Corp., which owns brands such as Nautica and Tommy Hilfiger.

“Those who came in have been surprised by the response to even high-priced items in a market that's just beginning to open up, and we get calls from others that want to come,” he said.

Bags at Versace start at 18,500 rupees ($402), more than half of India's annual per-capita income of about 31,000 rupees.

But India's market for luxury goods and services, already estimated at 15-20 billion rupees ($326-$435 million), could grow by 15-20 percent annually over the next five years as the economy expands and the number of high-income households grows.

Most brands are reluctant to divulge investment plans, but LVMH recently sought government approval to invest $13 million for its units Louis Vuitton Malletier and Fendi to buy 51 percent of their local distributors, and said it plans to invest more.

Analysts estimate there will be 6 million rich households by 2006/07, doubling from five years earlier. Other households with earnings up to $22,000 a year could rise to 91 million by the end of this year, with another 90 million waiting in the wings.That is a far cry from the time when luxury was the exclusive preserve of maharajas and rich industrialists.

More than half of India's billion-plus population is below the age of 25 years, and youngsters are eagerly snapping up everything from snazzy mobile phones to designer suits.

“In the past few years, salaries have grown tremendously, so the salaried class and upper middle class can now buy luxury products,” said Shantanu Mukerji, Christian Dior's brand manager.

“There is also easy availability of credit (and) the philosophy of living for today is gaining,” he said. LVMH has a Dior boutique in New Delhi, and plans to launch more brands.

Luxury retailers are also drawn to India because it does not have as big a problem with counterfeit luxury goods as places such as China.

Analysts expect restrictions on foreign investment in retail to be eased further within two years, with limits on luxury retail going even earlier as the government does not face as much opposition to foreign involvement there as it does in food and grocery, which make up more than two-thirds of the retail market.

But there are wrinkles: retail space is scarce and pricey, with brands being forced into luxury hotels in the absence of a High Street and upmarket malls and department stores. Also, steep import duties push prices higher than in Dubai or Singapore.“The taxes adversely affect our margins,” said Mukerji. “We are focusing on top line growth in the hope that India's tax and duty structure will be rationalised soon.”

Arvind's Mehta estimates rentals are about $180 per square foot a year -- high even by international standards -- compared with sales of about $400-$450 per sq ft a year.

“Real estate is completely out of whack,” he said.

Indians may also simply lack interest in luxury brands.

“Even those who have the money may not be aware of luxury brands, or lack the inclination to buy,” said Raghav Gupta at retail consultancy KSA-Technopak.

Luxury brands are betting that to begin with their clients would comprise businessmen and Bollywood stars, many of whom are being roped in to endorse the brands locally and internationally.

Aishwarya Rai, voted among the world's most beautiful women, is seen in global ads for Longines and L'Oreal Paris. Rai last month ditched Indian designers in favour of Armani and Roberto Cavalli for her outings at the Cannes film festival.

Luxury brands have found eager business partners in the wives of wealthy businessmen. One such wife is bringing in Valentino, while the son of an erstwhile maharaja is an adviser to LVMH.

But it may take more than a pretty face to convince Indians.

“You really don't have enough choice,” said 25-year-old Rami Desai. “I still find it easier to tell somebody what I want, and ask them to send it over.”
($1=45.9 rupees)