It is no secret that luxury goods companies in India are struggling. These companies came with the premise that Indians have lots of money which they are willing to spend freely on consumer items. The second premise that most hold is that the Indian consumer wants value for money. And based on these two ideas, luxury goods companies came flying into India, assuming that the consumer was just waiting to buy anything they chose to sell us.
However, the reality about the Indian consumer has been that he will first buy a house and a big luxury car and then plan for his children’s weddings, and only then will he spend on goods that cost an arm and a leg. This has resulted in luxury car companies doing extremely well even during the downturn. The reason behind the success of these companies is much more than just consumer preference. Audi, BMW and Mercedes, the three big luxury car makers who are selling the most right now, have also invested in India.
All three have set up corporate offices here, with senior management teams in place. This has helped these companies to understand the consumer faster and better. When senior management is on the spot, instead of far away in some European country, it’s easier to dump wrong assumptions and adjust to the realities of a new market faster. Mistakes don’t become fatal and can be corrected before permanent damage is inflicted on the brand. The cost of hiring senior people and running an office is offset by healthy profits and quicker assimilation and acceptance of the brand. The luxury car companies have understood this well, and their balance sheets are reflecting that.
Luxury goods companies, on the other hand, are still far from understanding this. Several brands have come in with Indian partners who are just ladies-who-lunch and, predictably, they haven’t been able to do much with even iconic names. In the absence of the parent company in India, these partners have ended up doing more harm than good. Some big luxury conglomerates are now re-looking at their Indian partners and are hopeful that once they are able to untangle themselves from the current mess, they will be able to crack the market here.
Others, like Hermès, are in the process of setting up their India office. This should help increase the French company’s profile. The next battle that luxury goods companies need to win is in hiring good people for their corporate offices instead of just filling them up with expatriates who may or may not understand what India has become. Honestly, these days it’s sometimes tough even for an Indian to understand what this country has become, such has been the rapid economical and sociological change India has gone through in the last five years or so.
Many of the luxury goods companies are on shaky financial ground in their home countries. The investment it takes to succeed in a new and complex market is huge. But with many Europeans looking to work and live in Asia, it’s no secret that India is the market of the future for these companies. And that is why, instead of supporting big offices in Europe, it’s time to divert those resources to countries like India and China and reap the rewards five, 10, 20 years later.
