New Delhi, March 25 (IANS)
luxury brand owners who have set up shop in India
to tap the growing affluent class seem to have
gone wrong in estimating the break-even point,
says the man who brought labels such as Gucci
to the country. India's rapidly growing high-end
retail market is expected to increase from the
around $3.5 billion in 2008 to $30 billion by
"Luxury brand owners
went wrong in their estimate of returns. For example,
brand owners estimated they would clock $1,000
worth of sales per store square feet, while in
reality, they could only manage about $500,"
Murjani group chairman Mohan Murjani, who brought
a host of top fashion houses to India, said here
Murjani, in an address at
a conclave on the luxury sector, said "franchisors"
(brand owners) had pegged gross margins at about
$500 per square feet, while it was found later
that margins were half of that. "Brand owners
kept $100 as markdown (discounts) while they had
to shell out as much as $125, this brought down
the net margin from an estimated $400 to $125,"
The head of the Murjani group,
which has helped develop the Tommy Hilfiger label
and has exclusive distribution agreements with
the likes of Gucci, Jimmy Choo, Calvin Klein and
FCUK, said luxury brands entering India expected
profits from day-one while their Indian partners
invested but totted up losses. "There was
an imbalance in partnerships between franchisors
and franchisees. Agreements should be equally
beneficial or at the least fairly beneficial,"
Maintaining that many investments
were ill-timed, he said a lot of brands came when
rentals were sky high. "That coupled with
low sales drove down margins. Rentals have started
coming down but one needs to have patience in
India," he added.
Murjani also chided foreign
fashion and luxury brands for charging more in
India because of the high duties on luxury items.
"Luxury product buyers travel across the
world. There is no reason he will buy a product
at 20-25% higher price than abroad."