Society

Western Brands Eye India's $3.0 Billion Luxury Goods Market

Luxury brands are eager to take advantage of India’s new wealth. But the road to success is strewn with political and cultural obstacles.

Indians prefer jewellry over luxury brands
Julien Bouissou

NEW DELHI - Advertising campaigns for luxury brands in India usually feature Bollywood actors or fashion models. Mahatma Gandhi, the embodiment of monastic life, barefooted and draped in white cloth, was for a longtime off limits. But in 2009, the German company Montblanc engraved the silhouette of India's most famous political and spiritual leader onto the nib of a limited edition pen. It retailed at $25,000.

After years of austerity, has India finally converted to luxury? The country now has some 126,000 millionaires, and this number increases each year. But very little is known about them. Their habits and consumption patterns were at the heart of a conference on luxury at the end of March in Mumbai, organized by Mint newspaper in partnership with a group of Italian brands.

The local market, estimated to be worth three billion dollars, could become the fifth biggest in the world by 2025, says Laxman Narasimhim, director of the McKinsey consulting group in India. The forecast is an optimistic one, because while Indians are turning to luxury, the presence of big brands in India remains limited.

Louis Vuitton has 35 stores in China, against only three in India. Just recently, a LVMH manager visiting the country noted, in despair, that potential customers living in northern Mumbai would be better off flying to Dubai rather than spending three hours in the traffic jams to buy a bag in the Louis Vuitton store in south of the city.

In India, the development of the luxury sector is stymied by the lack of infrastructure. There is no equivalent of Rue de la Paix in Paris or Fifth Avenue in New York. Luxury brands have no choice but to open stores inside famous hotels or shopping centers protected by security guards. The products sold there are more expensive than elsewhere because of tariffs and tax.

The Internet might save the day

"Contrary to what happened in Western countries, the luxury industry in India could best develop on the Internet," suggests Amit Dutta, director of the Luxury Hues consulting firm. India's large cities do not have the monopoly over the market: it is the small town of Jalandhar in northwestern state of Punjab where the highest number of Rolls-Royce per inhabitant is sold.

In India, the brands have not yet cannibalized the luxury market. The jewelry market accounts for 30 percent of spending, in comparison with nine percent on average for the rest of the world. Half of the jewelry is purchased for weddings.

"The luxury industry here is only just beginning," says Dutta. "Rich Indians didn't want to flaunt their wealth for fear of tax adjustments, for example. But little by little customers, and especially the newly rich, aren't scared of ostentation and have started to use luxury as a symbol of social success."

The only question is whether luxury brands are recognized as a symbol of success by the more affluent. "This is not yet the case," says Santosh Desai, director of the Future Brands marketing firm. "India has many other social markers beyond consumption." A Ferrari or a Mercedes is thus considered a far safer bet than a discrete luxury item.

Thanks to the media, brand awareness has lately been improving. More and more magazine supplements dedicated to luxury have been published, and explained in a very didactic way how to appreciate a good whiskey or cigar. Vogue magazine even organizes workshops on how to dress.

But foreign luxury companies are holding back from launching into the Indian market, put off by the fact they are not allowed to own their retail outlets 100 percent. The maximum limit for foreign ownership is currently 51 percent. Indian partners are known to prefer concentrating on driving up sales rather than investing in a brand that could be one day out of their reach.

Vogue tried some years ago to popularize the concept of luxury throughout the country – and in the process make its readers feel less guilty- by publishing pictures of toothless villagers wearing luxury clothes. The images sparked a scandal, just like the sale of Montblanc pens bearing the image of Gandhi. India may be getting richer by the day, but its spirit remains closer to that of the modern Mahatma than to its legendary maharajah kings.

Read the original article in French

Photo - Eric Vernier

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Economy

Merkel's Legacy: The Rise And Stall Of The German Economy

How have 16 years of Chancellor Angela Merkel changed Germany? The Chancellor accompanied the country's rise to near economic superpower status — and then progress stalled. On technology and beyond, Germany needs real reforms under Merkel's successor.

Chancellor Angela Merkel looks at the presentation of the current 2 Euro commemorative coin ''Brandenburg''

Daniel Eckert

BERLIN — Germans are doing better than ever. By many standards, the economy broke records during the reign of outgoing Chancellor Angela Merkel: private households' financial assets have climbed to a peak; the number of jobs recorded a historic high before the pandemic hit at the beginning of 2020; the GDP — the sum of all goods and services produced in a period — also reached an all-time high.

And still, while the economic balance sheet of Merkel's 16 years is outstanding if taken at face value, on closer inspection one thing catches the eye: against the backdrop of globalization, Europe's largest economy no longer has the clout it had at the beginning of the century. Germany has fallen behind in key sectors that will shape the future of the world, and even the competitiveness of its manufacturing industries shows unmistakable signs of fatigue.

In 2004, a year before Merkel was first elected Chancellor, the British magazine The Economist branded Germany the "sick man of Europe." Ironically, the previous government, a coalition of center-left and green parties, had already laid the foundations for recovery with some reforms. Facing the threat of high unemployment, unions had held back on wage demands.

"Up until the Covid-19 crisis, Germany had achieved strong economic growth with both high and low unemployment," says Michael Holstein, chief economist at DZ Bank. However, it never made important decisions for its future.

Another economist, Jens Südekum of Heinrich Heine University in Düsseldorf, offers a different perspective: "Angela Merkel profited greatly from the preparatory work of her predecessor. This is particularly true regarding the extreme wage restraint practiced in Germany in the early 2000s."

Above all, Germany was helped in the first half of the Merkel era by global economic upheaval. Between the turn of the millennium and the 2011-2012 debt crisis, emerging countries, led by China, experienced unprecedented growth. With many German companies specializing in manufacturing industrial machines and systems, the rise of rapidly industrializing countries was a boon for the country's economy.

Germany dismissed Google as an over-hyped tech company.

Digital competitiveness, on the other hand, was not a big problem in 2005 when Merkel became chancellor. Google went public the year before, but was dismissed as an over-hyped tech company in Germany. Apple's iPhone was not due to hit the market until 2007, then quickly achieved cult status and ushered in a new phase of the global economy.

Germany struggled with the digital economy, partly because of the slow expansion of internet infrastructure in the country. Regulation, lengthy start-up processes and in some cases high taxation contributed to how the former economic wonderland became marginalized in some of the most innovative sectors of the 21st century.

Volkswagen's press plant in Zwickau, Germany — Photo: Jan Woitas/dpa/ZUMA

"When it comes to digitization today, Germany has a lot of catching up to do with the relevant infrastructure, such as the expansion of fiber optics, but also with digital administration," says Stefan Kooths, Director of the Economic and Growth Research Center at the Kiel Institute for the World Economy (IfW Kiel).

For a long time now, the country has made no adjustments to its pension system to ward off the imminent demographic problems caused by an increasingly aging population. "The social security system is not future-proof," says Kooths. The most recent changes have come at the expense of future generations and taxpayers, the economist says.

Low euro exchange rates favored German exports

Nevertheless, things seemed to go well for the German economy at the start of the Merkel era. In part, this can be explained by the economic downturn caused by the euro debt crisis of 2011-2012. Unlike in the previous decade, the low euro exchange rate favored German exports and made money flow into German coffers. And since then-European Central Bank president Mario Draghi's decision to save the euro "whatever it takes" in 2012, this money has become cheaper and cheaper.

In the long run, these factors inflated the prices of real estate and other sectors but failed to contribute to the future viability of the country. "With the financial crisis and the national debt crisis that followed, economic policy got into crisis mode, and it never emerged from it again," says DZ chief economist Holstein. Policy, he explains, was geared towards countering crises and maintaining the status quo. "The goal of remaining competitive fell to the background, as did issues concerning the future."

In the traditional field of manufacturing, the situation deteriorated significantly. The Institut der Deutschen Wirtschaft (IW), which regularly measures and compares the competitiveness of industries in different countries, recently concluded that German companies have lost many of the advantages they had gained. The high level of productivity, which used to be one of the country's strengths, faltered in the years before the pandemic.

Kooths, of IfW Kiel, points out that private investment in the German economy has declined in recent years, while the "government quota" in the economy, which describes the amount of government expenditure against the GDP, grew significantly during Merkel's tenure, from 43.5% in 2005 to 46.5% in 2019. Kooths concludes that: "Overall, the state's influence on economic activity has increased significantly."

Another very crucial aspect of competitiveness, at least from the point of view of skilled workers and companies, has been neglected by German politics for years: taxes and social contributions. The country has among the highest taxes on income in Europe, and corporate taxes are also hardly as high as in Germany anywhere in the industrialized world. "In the long run, high tax rates always come at the expense of economic dynamism and can even prevent new companies from being set up," warns Kooths.

Startups can renew an economy and lay the foundation for future prosperity. Between the year 2000 and the Covid-19 crisis, fewer and fewer new companies were created every year. Economists from left to right are unanimous: Angela Merkel is leaving behind a country with considerable need for reform.

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