Boost for luxury mkt? Richemont wants to enter India's retail sector

Luxury goods group Richemont, whose stable of brands includes jewellers Cartier and Van Cleef & Arpels, has applied to open shops in India, joining other global retailers who entered the market since New Delhi relaxed investment rules.

The entry could be a boost for the country’s luxury retail sector, which represents a tiny fraction of global luxury brands’ sales but has a fast-rising number of wealthy people.

The sector has been hampered by high tariffs, complex legislation and lack of retail space, prompting brands to trade mainly in luxury hotels in Asia’s third-largest economy.

[caption id=“attachment_1344911” align=“alignleft” width=“580”]  Richemont has applied to enter in the ‘single brand’ retail space, where stores sell only one brand, for an initial investment of $5 million, Reuters[/caption]

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Richemont has applied to enter in the ‘single brand’ retail space, where stores sell only one brand, for an initial investment of $5 million, a senior Indian government official said on Thursday.

The official, who directly deals with foreign investment proposals at the ministry of commerce and industry, declined to be named as he was not authorised to speak to the media. He also declined to give any indication when a decision might be made on the proposal.

In the single brand sector, India allows 100 percent foreign direct investment on condition that a third of materials used in products is sourced locally.

“We see India as a market with long-term growth potential for Richemont’s Maisons (brands),” a spokesman for Richemont said in an email sent to Reuters on Thursday.

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“There is a growing market of affluent young consumers and the property market is also changing.”

Out of the 217-billion-euro global luxury goods market estimated in 2013, just over 1 billion euros were generated in India, consultancy Bain & Co said.

Should India create a more favourable environment for luxury brands, the market could be worth at least ten times more, some analysts say.

Richemont said it planned to meet India’s 30 percent sourcing requirement through the purchase of polished diamonds for the group as a whole using its India-based entity.

NO RULE CHANGE

India’s first standalone luxury retail store opened in 2011 in Mumbai, a 3,000 square-foot store for France’s Hermes that has an art gallery on the second floor and a glass elevator to travel the two floors.

Single-brand retailers such as Britain’s Marks & Spencer have a major presence, riding soaring demand for branded products among the fast-growing urban young population.

But multi-brand retailers such as supermarkets, which face more restrictions on foreign investment, have been less quick to invest. Earlier this week, the local government of Delhi stopped foreign supermarkets from entering.

Despite the world economic crisis, Geneva-based Richemont has had a good run of growth in the last two years, boosted by its expanding retail operation at a time when its wholesale business has seen a more modest rise in sales.

Richemont’s proposal will now be examined by the department of industry, and if approved, would then be submitted to India’s Foreign Investment Promotion Board for final approval.

New Delhi will not relax sourcing conditions for the luxury brand, even if it finds it difficult to procure 30 percent of merchandise from local suppliers, the official said.

“They might have thought about these conditions before applying. There is no question of relaxing outsourcing conditions,” the official said.

Reuters