IND-MFFne-081119-LuFerr-P1

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Luca Ferro, Managing Partner,

Value Partners India

Milan, 25th November 2008

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!
Luxury market in India Expected CAGR
(2008-13)
2007
100% = Euro 3.5 bn
Luxury Retail Growth
Luxury Services
(Spas, Luxury hotels,...) Billion Euro
30% 25%
21% 2.4
33%
Luxury
Retail
17%
25% 0.8
Luxury 0.6
Assets (Cars, 62%
luxury homes,
Yatchs)
18% 2007 2008E 2013E

• The luxury market in India is dominated by assets with retail commanding a

small chunk of the total market

• However, Luxury retail is showing a strong growth momentum despite

the financial crisis compared to the slowdown in developed markets
Source: ALTAGAMMA, Market reports, Value Partners Analysis
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#
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Population by Income class; Millions of people CAGR 2007-12

•Primary consumers
of luxury goods
1,203 1.3%
•Exposed and aware
of the world-class
3.7 13% living
1,117
1,115
Luxuriented 2.0
( > USD 100K) 1.8 21.5 15% •Current focus on
9.3 10.7 luxury assets and…
Future Potential
(USD > 50K) •…aspirational
brands (Guess,
Tommy Hilfiger)
Others 1,178 1%
1,104 1,104 •Moving towards
(< USD 50K)
‘Bridge Segment’ in
luxury retail

2007 2008E 2013E

Source: EIU, NCAER, Market reports, News clippings, Value Partners Estimates
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NOT EXHAUSTIVE

Apparel and accessories brands only

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17**

8*

Luxury brands New brands Luxury brands

present in India entering in present in India
(end 2005) 2006-08 (2008)

Brands present ONLY Brands present MOSTLY

through franchising through
agreements joint ventures
(NO FDI allowed) (51% FDI permitted)
*Includes LV, Boss, Salvatore Ferragamo, Zegna,Moschino, …
**Includes Giorgio Armani, Hermes, Brioni, Versace, Gucci, Armani Jeans, Bottega Veneta…
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$ $ "
""
Fashion Weeks
• Two big fashionista gatherings
- Wills Lifestyle India Fashion Week
- Lakme India Fashion Week

• Aim to make India a global fashion destination

Indian Designers
• Increasing visibility in the global fashion arena
- Rina Dhaka’s creations appeared in Marie Claire
and Vanity Fair
- Anamika Khanna,Manish Arora showcase their
work at the Paris Fashion Week
Sabyasachi Manish Arora Tarun Tahiliani Rina Dhaka
Mukherjee

Fashion Magazines
• Play an important role in generating awareness
of luxury products from a global perspective

• Face association: ‘Bollywood Celebrity

endorsments’ to create hype

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Consumer • Increasingly becoming brand conscious

attitude • Indian consumer is always a value seeker (discounts ! )

Attitude • “Old money” consumers with inherited wealth are already luxuriented and
are increasingly showing a “European attitude” towards luxury
towards
- Subtle / ‘Brand Invisibility’ : luxury is about “knowing, not showing”
luxury goods - Exclusive designs and brands; afficionados of Prêt-à-Porter brands

• “Newly Affluent” consumers are quickly orienting to the world of luxe,

and are looking to showcase their arrival
- Flamboyant / ‘Brand Visibility’ : “Have it , flaunt it !” attitude
- Progressing from aspirational to luxury brands but mostly in the bridge
and diffusion segments

• Indian luxury consumer is very demanding and likes to be pampered

(house visits, personal calls, ...)

Product • Menswear in India is already westernised and therefore apparel is the

primary luxury product choice among them
choice - Within apparel executive wear dominates casual wear

• However in Womenswear, traditional outfits like ‘sarees’ still dominate and

Accessories (shoes, handbags,perfumes) & Hard Luxury (watches,
jewellery,pens) are in high demand
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$ #$ % &
' "
""
Protected areas Shopping areas New urban areas

s
tor

all
ts

gM
en
t
ee

pin
rtm
r
ts

-st

op
pa
or
s

gh

Sh
tel

rp

De
Hi
Ho

Ai

Getting off Breaking of

the walls architectural barriers

• No FDI allowed acting as a deterrent

• Currently non-existent but
could be a future potential
with better infrastructure
• New / modernised airports
have dedicated retail areas
for foreign players
• Domestic players are evaluating the
opportunity
• Accessories (perfumes, watches..)
are retailed in mainstream dept stores

• Primary luxury retail
destination in India: 80-90%
of luxury retail POS
• Restrictive environment
with limited footfalls and
visual impact
• Do not offer the ambience • Recent phenomenon with
and exclusivity desired by malls opening in Delhi
the luxury customer (Emporio) and Bangalore (UB
• Some multi-brand stores City)
(Thanks, Kimaya, …) present • New malls planned in
in Mumbai and Delhi Mumbai and Delhi

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EXAMPLES IN
! $ $ #
! MUMBAI

Grand Hyatt Trident Taj Mahal

Brands Brands Brands

• 6 monobrand stores • 7 monobrand stores • 7 monobrand stores

• 10,000 sq mt dedicated to retail • 2,000 sq mt dedicated to retail • 3,000 sq mt dedicated to retail
• Rentals of € 50-80 per sq mt • Rentals of € 250-300 per sq mt • Rentals of € 200-300 per sq mt

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!
( $ !
Promiment “Luxury streets” globally Prominent High streets in India
5th Avenue, Colaba
New York Causeway,
Mumbai

Monte Napoleone, Connaught Place,

Milan New Delhi

• Destination for luxury customers: modern • Uninviting for the luxury customer: cluttered,
ambience and atmosphere, good climate, “mixing overcrowded, “mixing with commoners”,
with elite” unsuitable climate conditions (hot and humid !)

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! $ $ $ $
& ) '
UB City, Bangalore DLF Emporio, Delhi
‘Collection Mall’ Boss store in
Exterior DLF Emporio

Louis Vuitton Tods store in

store at UB City DLF Emporio

• 23 luxury international monobrand stores • 80 international luxury monobrand stores

• 12,500 sq mt dedicated to retail • 32,000 sq mt dedicated to retail
• Rentals of € 80-100 per sq mt per month • Rentals of € 120-150 per sq mt per month

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( MONO BRAND
STORES IN
! MUMBAI HOTELS
Euros, % of revenues

Europe India

• Low footfalls (10-15 per day) but a high

Revenue
15,000 – 54,000 5,000 – 14,000 conversion rate (50-70%)
per sq mt
• Strong growth : 25-40% annually

• High import duty which is absorbed by some

COGS 35 – 40% 45 – 60%
retailers

Rent 10 – 20% 20 – 35% • Comparable to Europe but coming down and

(per sq mt) (1,500 – 4,000) (1,000 – 3,000) revenue share model increasing

Personnel 15 – 25% 8 – 12% • Lower salaries of sales personnel

Margin • High cost of setting up stores (~ € 3000/sq.m!)

25 – 40% (-20) – 12%
at store level • Store margin much lower than in Europe

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! $
$ $ & '
Delhi Cities Luxury ready cities
Luxury ready by 2010-11
•80-100 mono-brand stores
Luxury ready by 2015-20

•‘Political Capital’ of India

•Luxury consumers: politicians, Chandigarh

beauraucrats, businessmen &
senior executives
• Currently only 2
Mumbai luxury ready
Jaipur cities compared
•35-40 mono-brand stores Ahmedabad to 15 in China
Kolkata
•‘Commercial Capital’ and home
of the movie industry Bollywood Surat • Opportunities in
emerging cities
Pune - 7 more in 2/3
•Luxury consumers: Filmstars,
CEO’s and executives, socialites
Hyderabad
years
- Another 4 in
Bangalore 7/10 years
Chennai
•25 – 30 mono-brand stores
•Currently untapped has huge
•‘IT Capital’ of India with an elite potential with high income
group of CEO’s and executives… Coimbatore and spending of consumers
Kochi

•…but, Luxury retail has not made •Luxury consumers: filmstars,

an impact due to “prudent” politicians, businessmen
spending attitude of consumers
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) #
$ $ $
Key Success Factors Description

• Treat the market as a long term opportunity and not as “the flavour
of the month”
Have a long term - - Be prepared to bear losses in the short-run and continue
Commitment / investing
investment view
• Strong organizational commitment by assigning a senior manager
to work with established local team

• Partner with a reputed player that has a strong competence in

- Retail
- Consumer Understanding
Find the right
- Real estate
partner
• Track record of the partner in JVs with international players and a
shared vision for the JV is critical

• Customise the merchandising mix according to local flavor, body

structure, climate, customer behavior,…
Get the
- “Single Season” collections in most cities
merchandising right
- More bright colours for womens apparel compared to Europe
(customisation !) - More accessories for women
- More executive wear rather casual wear for mens apparel
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*
www.valuepartners.com Luca.ferro @valuepartners.com

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