Road of new rich littered with potholes


By Joe Leahy in Mumbai.

To see signs of the increasing spending power of India’s affluent classes, a visitor need only drive along the main western road into Mumbai.

After passing the “Auto Hangar” selling Mercedes cars, the visitor will see the Rolls- Royce dealership and then, further on, a showroom that is still under construction but above which the word “Porsche” is already clearly visible.

The sudden emergence in India of Porsche, the ultimate symbol of brazen consumption, is raising eyebrows in a country in which, not so long ago, the elite drove the indigenous Hindustan Ambassador.

“People have had the money for a very long time but it is only now that they are starting to feel more comfortable spending it locally rather than abroad,” says Ashish Chordia, chief executive of Porsche Centre India.

The showroom, part of a push by Porsche into India’s four biggest cities, is one example of the invasion of the country by high-end carmakers and luxury retailers.

Leather goods maker Louis Vuitton and a variety of other LVMH brands are already present in India and a flood of others, such as elite Italian suit maker Brioni, are setting up shop in the country.

Capgemini and Merrill Lynch estimated in their annual World Wealth Report that the number of people with net assets of $1m or more in India reached 100,000 last year, up 20.5 per cent from a year earlier. It was the second-fastest rate of growth in the world, after Singapore’s 21.5 per cent.

As long as India’s economy grows at rates of more than 9 per cent a year, the country is expected to continue generating wealth on this scale, analysts say.

Alex Kuruvilla, managing director of Condé Nast India, which is launching a domestic edition of its flagship magazine Vogue in September, says that during market research, the magazine discovered two types of luxury consumer.

There is the “old money”, the people who for decades have shopped and holidayed overseas. They tend to be as discerning as their counterparts anywhere.

Then there are the nouveau riche – the new industrialists, professionals, entrepreneurs and others – who are not as familiar with luxury goods but have the cash to experiment.
Describing the average, nouveau riche consumer, Mr Kuruvilla says: “She’s got the money. She can come into Delhi and pick up half a dozen of those $2,000 bags and that makes her a very important person as far as the market’s concerned.”

He envisages introducing more niche magazines as the market develops, such as Brides. India’s wedding market is worth $1 0bn and is growing at a rate of 25 per cent a year.

The industry faces a number of challenges, however. Duties on luxury products, such as watches, can be as high as 60 per cent plus state taxes and value-added tax, making them uncompetitive against overseas prices, according to research by retail advisory firm Savigny Partners.

There is also a paucity of quality retail space outside the luxury hotels. Ermenegildo Zegna, the luxury menswear retailer, discovered this when it opened its first store in India in 2000 in one of Mumbai’s leading malls.

It was later forced to close because of the “deteriorating brand environment”, which included a McDonald’s opening next door, according to Savigny. It reopened this year in Mumbai’s Taj Mahal Hotel.

New luxury developments are on the way. DLF, India’s largest property developer, is building the Emporio luxury shopping mall in New Delhi. Meanwhile, the Wadia Group is planning to create a 25-acre development in Mumbai aimed at high-end retailing.

But life for the conspicuous consumer remains challenging in India. Mumbai, for instance, lacks the necessary infrastructure for sports cars.

While Mr Chordia says the company’s sales have increased from about 40 units a year after it opened in 2004 to nearly 200 today, about 60 per cent of these are of the Cayenne sports utility vehicle.

Selling for up to Rs11m ($275,000), this is more practical than the Porsche sports cars, which cost up to Rs14m and are more vulnerable to abuse on Mumbai’s potholed streets, where traffic often moves at walking pace and cars bump each other jostling for space.

In addition, the lack of parking often forces car owners to have their driver follow behind in a back-up vehicle to take care of the Porsche when it is not being driven. “There is always the worry a valet will not handle the car properly,” says Mr Chordia.