MUMBAI/DELHI: Niche luxury brands like Italian suit maker Kiton and British shoemaker John Lobb have started bespoke made-to-order services in India, but they are in no hurry to open swanky stores in the country. Reason: inability to find a place on the right location at reasonable rates.

“Rentals in India are as high as international markets, but the demand is not as much,” said Pratik Dalmia, founder of Mumbai-based Regalia Luxury, which has the rights to market and sell Kiton and John Lobb brands in India.

Steep rentals and lack of quality retail real estate at strategic locations near high-income neighbourhoods are making it hard for luxury brands to expand their business in the country in a viable manner, forcing many players to tweak their business plans and go slow.

Indian metros emerged among the lowest in a recent study on luxury retail penetration in top Asia Pacific cities. Delhi, Mumbai and Bangalore rank at 25, 25 and 27, respectively, according to property consultant JLL’s recent report which tracked the presence and expansion patterns of 100 top international luxury and mid-tier retailers in 30 major Asia Pacific cities.

“Though rents for baseline retail properties in India are generally affordable, prime retail assets command premium rentals across Indian cities when compared to other cities in the Asia Pacific region,” said Ashutosh Limaye, research and real estate intelligence service head at JLL India. “Given that the size of consumer spending in Indian cities is still on the threshold of growth when seen in the Asia Pacific context, the breakeven period for retailers here is discouragingly high,” he added.

Even established players like Reliance Brands, which operates a large number of stores for a clutch of big luxury brands such as Zegna and Brooks Brothers, find it challenging to justify investments. “Irrespective of the financial strength of a company, profitability is the focus. And rentals in India affect profits,” Darshan Mehta, CEO at Reliance Brands, said.

He said the handful of malls charge anywhere between Rs 300 and Rs 1,000 per square feet per month and on top of that around .`50 per square feet for maintenance. Then, there is 12% service tax, Mehta pointed out. Mall operators defend their pricing, saying they are currently investing in building the right ecosystem for luxury business to flourish in an emerging market like India.

“We have to constantly invest in building a destination for luxury consumption and drive footfall for the brands. And that requires money,” says Dinaz Madhukar, president of DLF Emporio luxury mall in Delhi. While retailers wait for the scenario to change in their favour, they have figured out alternatives. Mehta of Reliance Brands said he has launched at least four international fashion brands online by exclusively tying up with portals like Flipkart and Jabong.

As of now, a total of 70.7 million sq ft of retail space is ready and operational in top seven cities of the country. Out of this 25 million sq ft is grade A and it is completely taken up with zero vacancy, while the vacancy level for total retail real estate space is 12%. Although no sharp reduction in rentals is expected, the price gap between prime and affordable assets may reduce as 3.9 million square feet of retail space is getting added by the end of 2014 and 8.4 million sq ft by 2015 end.

Of this total space, around 50% is going to be of grade A, according to Limaye of JLL. “More malls have started positioning and reserving space for luxury retailers,” he said. He also expressed optimism that the new central government’s push for infrastructure development will create new locations with improvement in mobility and this will result in a steady reduction in the rentals going forward.

Source: ET

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