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RETAIL: High-end luxury brands are beginning to recognise the untapped potential in India. Import duties, however, are playing spoilsport.

Step out of your home and smell the smoke. No, it's not a cigarette, but that is the smell a Davidoff cigar. The click of the heels in the hotel lobby are coming from a pair of Salvatore Ferragamo shoes and the lovely tie worn by the executive-next-door is a Hermes... all from India by the way.

This may not be India now but this is what the country is preparing to look like within the next few months. High-end luxury brands are beginning to recognise the huge untapped potential that is India and are looking to either launch themselves in the country or scale up their existing presence. However, luxury comes with huge liabilities and costs as they are now discovering with their search for appropriate retail space and trained manpower and tussle with exorbitant import duties.

Most high-end luxury brands in India are still confined to the luxurious lobbies of five-star hotels, which translates into limited customer traffic owing to the dearth of luxury shopping malls that cater to the requirement of the brands and provides the customer with shopping pleasure, at the same time attracting only those who have a taste for luxury.

No wonder then that in the race between India and China, availability of retail space is where India falters and China makes the winning grab. Yet, with brands like Hermes, Christian Louboutin and Gucci planning inroads into the Indian market between the end of this year and the beginning of next year, their optimism towards the market potential India hides within is evident.

Reto Cina, president and CEO, Davidoff Group, that is launching cigars in India through Godfrey Phillips, says, "We sell more than two million cigars annually and though the Indian market is not yet ripe enough, we decided to enter this market so we could make inroads in one of the fastest growing tobacco markets."

It is this potential that is encouraging brands to enter the Indian market even though it might mean financial returns that are better left hidden. Nonetheless, a step in the right direction is headed straight towards luxury malls like MBD Zephyr, Gitanjali Group's Luxury Malls and Emporium Malls that are promising floors of luxury goods all over the country.

This might call for celebration for not the brands alone but even the consumers who might soon not have to pay for the high rentals these brands incur at hotel shopping arcades.

Yet, while one foot gets comfortable for luxury the other is still being bitten by heavy import duties and taxes making India one of the highest priced luxury goods market.

Diego Rossetti, chairman, Fratelli Rossetti, explains, "Importing our products to India is a major problem because the tariffs make the products lose their value for money. Eventually either the customer ends up overpaying for the product or we have to balance out the cost by cutting our margin."

Rossetti believes that India is a futuristic market for the luxury brands since profits may take a few years to begin rolling in. "We are trying to invest more in the Indian market than in China because Indians truly understand luxury but the imports frustrate our strategy," he adds.

Porcelain figurine designer Lladro, foreseeing the FDI and retail opportunities arising in the country, are planning three more stores in the country besides the existing six stores. They hope to open one store in the planned Emporium Mall. For Lladro too, import tariffs are a major problem area.

Alain Viot, CEO and managing director, commercial, Lladro says, "The price difference between India and other countries because of import tariffs is a big issue. We have to have some return on our investment and we need to have a healthy margin."

Despite these issues, India is being hailed as the market to watch out for by luxury brands. The growing brand conscious population is fast beginning to perceive luxury as an investment and not just a fashion statement.

So, from organising promotional campaigns or even witnessing a sellout before the shipment reaches Indian shores "" the first batch of the limited edition of Lladro's Veena Ganesha figurines this year were sold out before reaching the stores "" to promotions that might include tasting sessions and cigar clubs as being planned by Godfrey Phillips, India is no longer just a testing ground for these brands "" most of them have faith in India's luxury sense and sensibilities.