India’s bootleg luxury industry may be growing twice as fast as its real one

January 22, 2014 Leave a comment

India’s bootleg luxury industry may be growing twice as fast as its real one

By Lily Kuo @lilkuo

January 21, 2014

India’s promise as the world’s next big luxury market has disappointed many a peddler of couture. In 2011, Hermès only managed to sell six of its much-hyped 28 limited-edition saris in the country. Today, the country accounts for just a fraction of the global market’s luxury sales.Authentic luxury may not sell in India, but fake luxury is another matter. A report earlier this month by the Associated Chambers of Commerce and Industry of India (Assocham) claims that India’s counterfeit luxury industry is growing by as much as 45% a year, or twice as fast as that of authentic luxury brands sold in the country. (India’s luxury sector grew an estimated 30% in 2013.) While some doubt Assocham’s estimates for this market for “Guchi” sneakers or ”Caiwen Kelai” boxers—as the Financial Times points out (paywall)—the report does highlight how India’s underwhelming organized luxury retail sector is.

Industry observers have long said that the potential of India’s luxury market has been compromised by the country’s widespread “gray market” of fake or illegally imported luxury goods sales that evade taxes. Moreover, India’s wealthiest like to buy their luxury brands while traveling abroad. Those who do the bulk of their shopping within the country tend to be those who are more likely to pay around 1,200 rupees (about $20) for a Gucci knock-off.

That may be one reason why India only accounts for between 1% and 2% (pdf, p. 1) of the global luxury market. High tariffs, a web of restrictions on foreign retailers, and lack of retail space have also stymied growth. Assocham argues that the counterfeit market cuts into profits for sellers in the organized sector and discourages international brands from entering the market. Another issue may be that many new members of India’s expanding middle class still aren’t used to spending so much on high-end clothing or jewelry. Neha Bothra, a researcher from the University of Delhi calls this group “closet consumers“—high-end shoppers who are still inhibited by price.

Still, a slew of retailers like luxury goods group Richemont are applying to open stores in India now that officials have loosened restrictions on single-brand foreign investment in the country. They’ll be hoping that sumptuous wares can start coaxing customers out of the closet, or at least away from knock offs.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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