India has had a long tradition of luxury but is a very new market for luxury. They will take three-four-five years to get going and are not in a hurry because they are here for a long time. It is an extreme statement to make. You are too quick to judge based on short term. The chief of Asian operations was in China in the 1980s and was closely involved when Giorgio Armani started retailing from there in 1997. They had more extensive infrastructure, better quality malls and the great advantage of Hong Kong and yet it (luxury retail) took time to take off.
The Indian customer is the most discerning in the world unlike in China which has lost its luxury tradition. Certain individual cases (of retail in luxury) may have failed because of their own reasons but if you choose the right partner, there is no problem. They have franchisee partners all around the world.
That was part of their plan. When you have a franchisee, you are delegating, you are entrusting your brand to someone else. In India, there is no significant experience when it comes to luxury retail. There were only people who ran garment stores and the like. So they decided to have a direct involvement. The only way you can do this in India is through majority shareholding and direct management.
The products are a little more expensive depending on the category, about 10-15 per cent higher and even less than that on some of the more accessible categories like watches, jeans, sunglasses, knitwear. Even if it is a 15 per cent difference, how much is that? Most of these products are impulse buys and would you wait till the next time you went abroad to pick one up? China has customs duty but Hong Kong does not and Armani don’t find any difference in the stores at both the places. In fact, Chinese customers don’t even go to Hong Kong to pick something up.
The Company offers absolutely the same products. Even the stores are the same. The Giorgio Armani store here is the very latest equivalent to the one in Beijing or Milan.
It just doesn’t mean a drop in turnover but there are problems of relations and efficiency that we need to face. This is also the time for innovations. If we experiment with something now and that works, we really know that it works. Rents have also come down so it is time to look at other locations, to invest now.
Armani have already been looking at cost and price structure, at being able to provide more value for money. Some of this should be evident in spring/summer lines. Their main line, Giorgio Armani, will always remain made in Italy. But for things like jeans, they are looking at getting more work done abroad especially in Asia, where labor is less expensive and therefore they will be able to give a better quality price ratio.
The company’s best bet can be to outsource some Indian oriented garments and work like bottling or packing of some perfumes and ladies’ outside wearing accessories. This can bring down their iver all weighted average cost for high end luxury items that must be made in Italy and exported into India. Already they have a cost advantage in manpower and shelf space costs. With franchising, some overheads burden can be shared by franchisee.
The trend of buying luxury goods particularly international brands with reputation is going north in India whether recession or not.