Why India Will Not Be The Next China for Luxury

0:04Hi, this is Imran Ahmed, founder and CEO of the Business of Fashion. Welcome to the BOF podcast. It's Friday, February 7th. Will India be the next China? That's a question that's circulated throughout the fashion industry for years. Even as its population and economy are surging, India's cultural tapestry and fragmented retail landscape set it apart from its Asian neighbor. This week, I'm pleased to share a talk by Ravi Thakran from BOF Voices 2024. Over coffee last year, Ravi captivated me with stories of pioneering luxury growth for Swatch, in 1990s China, and how that shaped his leadership of LVMH in Asia, giving him really unique insights on the many differences between the world's two most populous countries, and why European luxury brands have not yet managed to really crack the Indian market.

0:57India is now across China and growing faster. But when it comes to luxury market, talk of any brand, be it Mercedes-Benz or BMW, W or Taco Louis Vuitton or Cartier or Patek or whatever, India is less than 1%. India, stupendous growth is right in front of us, but bulk of that growth is led by a very young population with a very low per capita income. So if you are in aspirational play, go to India today. This will be your biggest play going forward. In luxury, you still have to work. In his talk, Ravi unpacks the dynamics of economic growth in India, explains why its path won't mirror China's, and shares insights on how to succeed in one of the world's most complex yet promising markets.

1:41Here's Ravi Thakran on the BOF podcast.

1:52Friends, today we'll talk a little bit about the Asian macro, then about China as a benchmark, because often people ask, will India be next China? and then try to demystify India, which is almost impossible. In fact, there is a magic in India staying as a mystery, and maybe there is some good answers for the world in that mystery as such. So let me first clarify. All of us who look at the data of the last 40 years of development of Asia often have grown one major issue in all of the data. In the 80s and 90s, most of the data presented as Japan and Asia ex-Japan. In the last 20 years, it's China and Asia ex-China.

2:31and often Middle East is combined with EMEA. A lot of us do not realize that Middle East as a name was a mistake made by an American in 1854. We all carried it. It's neither in the East nor in the middle of that East. It is West Asia. And if you combine that figure, today Asia is the largest factory of the world and also largest market of the world. So just look at some of these figures for garments. 77 % of the world production is in Asia. Full watches are the components. 82 % of them are made in Asia and accessories, 83%. And not only Asia has become the factory of the world, when you talk about the consumption as well, Asia now is the largest market of the world and across all these categories, more than 50%.

3:16One big question, however, is that is the factory of the world. It is also the largest market in the world. How come its share of value in these categories is so low? Only 21 % in garments, 7 % in watches, and 17 % of value. Because that value resides in brands. And where do these brands live? The brands are today for these categories are still in Europe and USA for the first category. A little bit of Japan, but otherwise Switzerland and USA for watches and fashion exercise is still there. And, you know, we Asians work very hard. We open our stores from early morning to late evening, 363 days of the year.

3:55We close either for Diwali or Chinese New Year two days only. We take much less holidays, work much longer hours, while Europeans enjoy 45 days of holidays. I can tell you that Europe is a notice. Within a decade, this would change. This would change because we Asians are now starting to learn how to build brands as well. Now, of course, we don't still have experts like Bob Shard from Fresh Britain. But again, we're trying to adopt some of those. But it is already happening. if you have not noticed some of the categories, like airlines. The top three airlines in the world are Singapore Airlines, Emirates, and Qatar.

4:30All three Asian. Top hotels in the world. Look at Mandarin Oriental, Six Senses, Rosewood, Amman, all born in Asia. And we are creating a new brand called Jaya now, which will be combination of Amman with culture of Soho House. All this innovation is coming from Asia. So if it has happened in those two great categories, it will happen in this as well. So Europe has to watch out. Now, talking about the story about India and China, India-China story basically started because of a very serendipitous moment that happened exactly 46 years ago on this very day, 13th November of 1978. Deng Xiaoping was invited by France as a state guest.

5:13And China didn't even have a plane that could go directly to Paris. it had to refuel. On the way to France, it refueled in Bangladesh. On the way back, it refueled in Singapore. And he met Lee Kuan Yew. On that day of 30 November, he asked Lee Kuan Yew, how did you guys develop this country into such an incredibly developed place? And he told him, we did only one thing. We opened up the country to the world. We invited the world to come and trade here. You guys in Beijing are much more intelligent, big mandarins and titans. If you open up, you could win the world too. He literally, from that 30 November meeting, went, took a holiday in Li Chiang, wrote this famous paper and presented next month in the 11th plenary session of the National Congress.

5:57And that paper was called Reform and Opening Up. And that influence of Li Kuan Yew led to China opening up in 1979. 1980 was actually the first year a first private enterprise license was given in China to a woman who was making buttons called Chang Huame. and then started the whole enterprise and look at in 80s and 90s, 20 years, it goes on to become factory of the world. First started in the Perrava Delta, those three states, and eventually across all of China. Now, of course, these two nations have almost same population. India is now across China and growing faster. But when it comes to luxury market, talk of any brand, be it Mercedes these Benz or BMW or talk of Louis Vuitton or Cartier or Patek or whatever, India is less than 1%.

6:45China is about 40%. How did this happen? Could this happen in India going forward as well? That's the big question. But if you look at China, in 1990, China was where India is today, about 1 % of the market. It's exactly similar. There were about five malls in China, and the rest of the brand had to go to five-star hotels to open stores. That's how first big Vito store was in China World Hotel. India is exactly about that. In the 10 years, it didn't develop much. In 2000, China's economy was still smaller than New York City's economy. New York City's economy was 2.7 trillion. China was still 2.3 trillion.

7:21The real takeoff happened in 2002 when China joined WTO. And as Americans call, things went off the charts, be it in consumption or exports, all of that. And by 2010, it was clear China was the next big thing. And then came the largest economic expansion ever in the history of this planet in that decade of 10 to 20. And 10 % become 33%. If you go to World Bank in Washington, D.C., they have the motto to get the world rid of poverty. Entire World Bank effort across the world from 1950 brought only 380 million people out of poverty. China alone, credit to them, took out more than double of that out of poverty in that period.

8:01It's the largest economic expansion ever in the history of the planet. And that leads to this. So it's almost always linked to the basic economy. Yes, number of people, same. But if you look at people who earn more than$12 a day, who you can call broadly as consumers, the number in China is exactly similar to the number of people who are not consumers, who are poor and vulnerable earning less than$12 a day. So the starting point is very, very similar to their 1990. 90. Now, if you look at this other data, per capita income, 2 ,700 to 13 ,000, about 4.8x, let's say 5x. If you look at upper middle class, middle class looks big, but it comes to upper middle class, it's only 30 to 35 million, which is like a Germany middle class, whereas China is 120 to 150.

8:51That's another about 4 to 4.2x. So if you take 5x and 4x, that's your 20x multiple right there. But where is the other 2x multiple lies in the fact that like Japan or Korea, China also adopted a lot of Western culture. The men would wear suits with tie, like in Japan or Korea, whereas in India, it's still very, very Indian. And that's one of the major things about India. India across the segment, be it for men or women, is very Indian and will remain so for a long period of time. And there is a lesson in that. This is another aspect we're just talking earlier about China starting to get old and India is still a very young country.

9:31But there are two lessons here. China's demographic dividend, which I define as the year when number of people working became more than number of people dependent. In China, that started in 1998. 98 was the first year after 250 years, there were more people working than dependent in China. Unfortunately, that lasted only till 2018 because of single child policy. Once again, the number of dependent are more than number of people working. So they lost that. India, in fact, the demographic dividend, exactly of the same figure, started in 2018, same year when China ends that, is likely to stay for 41 years.

10:10Now, India, therefore, has great raw material of youth that is now getting into workforce, and provided India can really employ them well. That is India's challenge. India is today has a very large number of people unemployed or partially employed. On the other hand, the other lesson here is China getting old, not necessarily bad. The older generation, having less money to spend on kids, having less money to spend on new homes for new kids, could spend much more on themselves. Not only that, China's real problem today is not consumption. China's bigger problem today is the property market. Ever since China became, from 1980 onwards, the home ownership didn't exist in the country.

10:5673 % of the household investment, 73 % went into property in the last 40 years. This is the highest in the history of the humankind anywhere in the world. And that market overbuilt. And today you have an issue that 33 % of the economy, which is property market, is moribund. Seven of the top 10 property makers are likely to go bankrupt. And Chinese government have decided not to bail them out, but let the pain be absorbed by the economy. So, yes, it will be two or three years or probably four years of pain that China will have to go through. The second issue is China is facing geopolitical challenges across the West, particularly Trump's election.

11:35Clearly signify that there will be bigger challenges for China. So, therefore, anybody who's involved in export-led economy is likely to face headwinds going forward. But yet China is growing. How is China growing? By the way, China was smaller than New York economy in 2000, but now it's$18.3 trillion economy and is growing at a slow rate, 4%. But still, that is higher than the rest of Asia's growth overall. So what is growing in China still is the consumption. People are richer. People are consuming better. Yes, it has stalled for the time being and it's less consumption and luxury because you need good mood, which doesn't exist today.

12:14I think two, three years from now, China will go through this cycle and come back better. So do not count the dragon out. Dragon will remain important. And therefore, in all your strategies, do not start taking that out. India. Now, all of you saw a few months ago, the big Ambani wedding. That Ambani wedding did a big service to India, but also disservice. Big service, I put India on the map, put Indian luxury on a show. Yeah, from Kim Kardashian to Mark Zuckerberg, all adorned in Indian attire, showing up there was great. The disservice was the aspect that they live in a two billion home, four people living in 400 ,000 square feet of space right next to the most densely populated, largest slum in the world.

12:55I hope Mr. Ambani will take on the mantle of another gentleman who lived in the same city in three bedroom apartment, Mr. Ratan Tata. He managed the equally large empire and he gave away in his lifetime,$102 billion to charity, more than Bill Gates and Warren Buffett together. I really hope he takes on that mantle going forward. India needs that service. Now, beside India being different, within India, India is very different. And here I'm just describing four major arenas of India, but within each of those, it's also very different. So north of India is all about pump and show, living for the day, overspend.

13:34Because India was attacked 64 times, of which 38 times the conqueror was successful in capturing some part of India or entire India as such. So these people are always facing wars. Who knows about tomorrow, live for the day today. So the south, on the other hand, was very protected. And people in the south live very different life. But there live very, very subtle luxury. Western people are perhaps the most connected to the Western world. So today, if you are in Mumbai, saying that I bought this particular bag in Palladium Mall or in Taj Hotel, it's really losing the magic. You want to say that I was in Haritz with so-and-so, or I was in Rue Saint-Honoré and I bought it there.

14:15That's what they want to do. East, on the other end, is the true intellectual capital of the country. Almost all major philosophers, all major scientists, mathematicians, musicians came from there. Those guys do not want to indulge in so-called luxury. If you want to sell a piano or send a violin, yeah, you go to Calcutta. These guys are intellectual to a fault, so much so that they elected a communist party to govern them for seven times in a row in a multi-party system that was the continuously longest serving communist government in the world. Intellectual to a fault, but true genius capital of the country even today.

14:53The other issue in India is, as in many economies, Africa and Asia, the parallel economy is very large. A very large part of that parallel economy goes into one asset class, that is land or buying apartments. Because India has severe rules to send money abroad, but for a few thousand people, they don't have Swiss accounts or Singapore accounts. And they typically put that corrupt money into land. As a result, land is very expensive. Land is so expensive that to build a mall and make it profitable is very, very difficult. As a result, there are only five malls. Unless, like in China, if government subsidizes or gives free land to build malls, it's likely to remain the biggest constraint.

15:34The other issue, some of you who have dealt with India realize India also has the big issue of incredibly complex customs, very high duties, and also a very difficult process. India's got his act put together to really open up on infrastructure and also open up his regime. The other question is, it's not only for general fashion, but isn't it ready for luxury? You know, once Bernard Arno told me that you cracked China, but being Indian, how come you didn't ever crack your own market? And I told him that LVMH is not luxury enough for India. And he said, yeah, right. And I said, no, Mr. Arno, I'm actually serious.

16:10And then he goes, why do you say so? So there was a time when India is a great market for luxury. There was a time when Louis Vuitton sold almost a quarter of his sale to India. Kati has sold about one third of his sale to India. But if you go to Kati's headquarter, there's Maharaja of Patiala's picture on the screen with a tutti-frutti necklace. It was Indianized jewelry. Maharaja of Kapurthala was the largest collector of Louis Vuitton trunks. Almost every trunk was made for some particular Indian practice. and that indianization was a very, very important piece of that. Even from UK, Rolls-Royce sold the largest number, first air-conditioned car, first Phantom, were all delivered to India and those were all indianized in the look.

16:54When Birmingham was the biggest center for luxury, a lot of people would not believe that England was ever a center of... It was and there was a company, a Baccarat equivalent of the time called Osla for making crystal chandeliers and all, Nawab of Hyderabad and Maharaja of Udaipur, they will send something made in wood to Birmingham from India so they could copy the same design in crystal and sand. So that has always been a big element. Indian luxury will always remain very Indian unless you Indianize unlikely to crack that market. And you saw in a money wedding that aspect. So across the spectrum, be it youth, be it, and you see that not just in Bollywood, every aspect of Indian life.

17:35And that is why if Kim Kardashian wore a Western dress, it would have looked like a sore thumb. Same for Mark Zuckerberg. So that is India for you. The other aspect of India, I would say, as McKinsey report clearly said, that India, given it has got a large youth population, now they're getting into workforce a large way and they're becoming a big consumer. But bulk of that is value for money consumer. So if you are a value for money player, you certainly, Lui Al Zara or Nike or H &M, that's a big market for you. Of course, the constraint of mall still remains. If that can get cracked, that's a big play.

18:10The other part is Western luxury, particularly accessories, can still do. So we might make a great costume, but don't make good shoes, so you then buy Baluti to go with Indian. And the same thing is true for women with their bags and all. But when it comes to jewelry or garments, it's very, very difficult for a question of brand, unless they're in there. Hermes made a sari collection. Dior made a sari collection. It was sold within a week, within a week. I wonder why they didn't do another collection after that, because that was more done for the launch, but not followed up on that one. That's clearly the lesson.

18:45Customized to Indian way of life, so it's not only basically the look. India, you take Dior Homme. Maybe there are 5 ,000 Indians who can fit into that. Ergonomics of our bodies are very different. There is only one company that has done the study very well, which is Marks & Spencer. Marks & Spencer has M &S standards. They're the only ones who study the ergonomics of bodies across Asia, not just India. So those who are into manufacturing try to adopt those standards. They have the best information. And finally, manufacturing locally, there are brands like U.S. Polar Association at, again, value for money level, or a better value like La Martina, which is a phenomenal brand for Argentina.

19:23They are now making it in India, and India is now the fastest growing market for them. So many of these elements you have to keep in your strategy to do that. And again, other aspect of value for money is often, like in China, by the way, 1990 onwards, for Dior, beauty was the first segment to enter with, where you could indulge in luxury at a very low price point. And that's how India could also be started in those segments first, beauty, accessories, and onwards. So overall, India has got its act together to put going forward. But brands also have got their whole agenda in front of them, what to do.

19:58one, to Indianize, second, to customize. Both are essential advice, not likely to win in India. Second part, if, for example, if you are Omega watches, you will sell more Constellation, which you can see from a distance to north, but you sell Deville to the guy in south. If you are Patekphala, you sell Nautilus to the guy in north, and you will sell simple strap watches in the south. And again, they mentioned, if you're Stanway and Sons, you would go nowhere but go to Calcutta. So this adaptation is very, very important as well. part of India. And India, stupendous growth is right in front of us.

20:32But bulk of that growth is led by very young population, yet with a very low per capita income. And therefore, bulk of the play is an aspirational. So if you are an aspirational play, go to India today, this will be your biggest play going forward. In luxury, you still have to work. So Slumdog could become very much a millionaire, and all of you could have a great play in it. But there is one last thing I would leave with. India has to make sure, particularly Mr. Modi has to make sure, they do not make the geopolitical darling into a pariah if they make the democracy into illiberal democracy. As Tina Brown yesterday said, India is going in the wrong direction on that front.

21:10You may lose their status. The second message to all of us, while we are trying to make India adapt the West, I think there is a message for the West to adopt from India. Two most famous Indians ever have still very relevant lesson for us today. Buddha, who said, all your unhappiness comes from your desires. Less desires, more happiness. And second, Gandhi, he gave up his several wardrobe and Northampton shoes. When he died, he had one attached case with three dhotis made with self-spun cotton dhotis, two pair of shoes, one pair of eyeglasses. But he still made it to Time magazine's cover as man of the century.

21:47So we can adopt a little bit more of Gandhian simple living high thinking. Thank you.

21:56The BOF podcast is edited and produced by Olivia Davies and Eric Bria.