Category — Retail

European luxury company LVMH (owners of Louis Vitton)  holds a 20% stake in Puducherry, India based Hidesign, whose sales were $22 million in the year-ended in 2010. The handbag market grows at 15% annually in India. Not surprisingly there is new competition expected: Luggage maker VIP Industries has announced that is considering introducing a line of women’s handbags.  VIP has 60 percent of India’s luggage market. Number 2 player, Samsonite India’s Chief Operating Officer Subrata Dutta  says he plans to introduce a mid-priced line called “Red” which will include handbags for women and for men.

Hidesign manufactures luxury leather goods such as bags, shoes, jackets, wallets, belts, toiletry bags and computer bags, as well as thigh hugging trousers. Besides India, its market includes Australia, Austria, Belgium, China, Germany, Ireland, Norway, Russia, South Africa, Sri Lanka, United Kingdom, United States, and Vietnam. Elegant and eco-friendly are some of the qualifiers of Hidesign’s line of products.

President and founder, Dilip Kapur, set up the company in 1978 as a two-person artisan workshop in the terrace of his home at Auroville, Pondicherry. The company’s current factory designed by Ray Meeker was established in 1990 in Puducherry, (the new name of the former French colony of Pondicherry) in south India. The 8-acre plot on which it is located presents a rustic setting dotted with trees, ponds, and waterfalls. The factory now employs 1,200 workers, mostly women.

Hidesign products are individually handcrafted and not corrected to hide blemishes. Some products use leather that is tanned with natural vegetable pigments in the company’s own tanneries. Buckles and fittings are made from solid brass – each is sand cast and hand polished.  A multi-cultural design team including former Armani designer Alberto Ciaschini work to keep designs fresh and current.

With India  sales now accounting for 50% of revenues in 2009, Hidesign partnered with Future Group, India’s largest retailer (and owner of the Pantaloons chain), and introduced a new line of bags called Holii with bright colors, fancy trimmings, and somewhat lower  pricing, as an “affordable luxury” that would attract young Indian professionals.

American companies in consumer industries would do well to look at Kapur’s success and approach.

Retailer Carrefour of France will open its first “cash-and-carry” wholesale store in India later this year.  Real estate company, Parsvnath Developers, announced that the store will be located at one of its malls located in the National Capital Region of New Delhi.

American retailer Walmart already has a small number of such wholesale stores in the northern state of Punjab.  Foreign companies are currently restricted from owning “multi-brand” retail stores in India. India’s domestic  retail chains enjoyed serious growth in 2010 and there is an increasing belief that the government will slowly open up the market for foreign companies as well.

If you are Ikea or Starbucks and you wish to open stores in India, the government currently requires you to find a a local investment partner who would own 49 percent of the India business. Companies ranging from Reebok to McDonalds have entered the India retail market under these terms but many others have held back. This quarter there is news that India is seriously considering permitting 100 per cent foreign direct investment in single-brand retail.

India’s Commerce minister Anand Sharma said that IKEA had asked the government to hike FDI limit in single-brand retail. “IKEA sources almost 30 per cent of its products from India. It will create jobs in India. The government is considering it.”

Note that this does not affect “multi-brand retail” such as Wal-mart, Tesco or Best Buy. It is also unclear if the change considered in a one-time exception for Ikea, if anyone sourcing from India will be granted the same terms or if there is a general rollback to permit 100 percent foreign investment in all single-brand retail.

Francisco Sanchez, US Under-secretary of Commerce for international trade, said that Washington wants a removal of India’s ban on foreign investment in multi-brand retailers, which prevents Wal-mart and other international retailers from opening stores for Indian consumers.  He asserted that permitting greater foreign entry into the retail sector would improve supply chain and logistics networks, such as roads and warehouses.

Francisco Sanchez UnderSecretary of Commerce for International Trade

On hist first official visit to India, Sanchez mentioned that the US exports to India doubled between 2005 and 2009 and have increased 20 percent in the first seven months of 2010. ‘Growth will accelerate in emerging metropolitan sectors like Pune and Nagpur and new markets will form for the US and Indian businesses,’ Sanchez said, speaking in Mumbai as part of a three-day trip in advance of President Obama’s visit to India in November.  The India Expert believes that US Exports to India will accelerate in the next five to ten years, see my article in Business Week on the subject.

Ikea, the Swedish retailer which has expanded in China in a big way, plans to double the amount of goods it buys from India, including textiles, in the next three to four years, to $1.3 billion according to its CEO Mikael Ohlsson quoted in the New York Times.

Ikea said it was investing about $163 million, in social programs to help women and children in India and South Asia. These investments make Ikea the largest corporate partner in the world to aid agencies including Unicef and Save the Children, representatives of those organizations said Monday.

At my company, Amritt, we have seen a huge increase in sourcing inquiries from Western companies who are looking beyond China to buy products and materials for their customers’ needs. Labor issues in China and the rising yuan are leading companies such as Ikea to look further at India and other locations to balance their sourcing plans for 2011 and beyond.