Emerging markets and the lack of high streets

With growth in luxury markets moving to emerging economies, a common problem experienced by luxury retailers is that high streets are mostly not up to the mark or in some markets like India are completely absent. Location of a store is of prime importance in the success of luxury goods and an unsuitable one can be suicidal especially if consumers in these countries who are quite well travelled can afford to pick up their luxury fixes in a much more appealing environment in the traditional high streets of Europe or USA.

The options so far for most purveyors of luxury in these markets were limited stores in five star hotels. This is not only a very expensive option but restricts the target customer to visitors and foreigners which defeats the very purpose of having a local presence for local customers. With these economies growing, some more options are coming up – mainly high end malls and gentrified streets where a group of high end stores huddle up and create an oasis of luxury. Costs of the options indicate why the move to a gentrified street might make sense:

Location	Approximate costs in Mumbai, India	Cost per month for 3000sq.ft store (280 sq.meters)
Five Star Luxury Hotel	Rs.1000 per sq.ft  per month (Euro 15 or USD 22)	Rs.3mn (Euro 45000, USD 66000)
High End Mall	Rs. 400 per sq.ft per month (Euro 6 or USD 9)	Rs.1.2mn (Euro 18000, USD 27000)
Gentrified Street	Rs.200 per sq.ft per month (Euro 3 or USD 4.50)	Rs.600k (Euro 9000, USD 13500)

 The changing market dynamics have contributed to luxury retailers creating and moving into high streets in these markets:



·    The rise of the well travelled domestic consumer – purchasers of these products are not   only foreigners but mainly local High Networth Individuals

·    The high cost of rentals in luxury hotels and limited visibility

·    The growth of high end malls with the right ambiance and exclusivity in these markets

·    The possibility of huddling together in cheaper “gentrified” streets and creating a high street

Hermes, Mumbai - India

Cheaper rents also mean substantial investments can be made on the store and in developing the shopping street or estate in cooperation with local city authorities (mainly in design and maintenance sponsorships). Hermes always the leader of the pack in innovating the retail end of its supply chain has already moved out of its luxury hotel location in Mumbai and set up space on Ballard Estate – a gentrified street with other high end local boutiques. Will the others be following suit?

 

Hermes Dry Fruit Stores - also Mumbai - India



Much will depend on the ability of these pioneers to create a high end piece of real estate providing the same level of desirability and convenience to local consumers as their regular haunts abroad - and at the same time protecting the brand and its image!

Supply factors and its influence on Demand-Supply Strategy in SCMluxe

Managing supply and meeting (or not meeting) demand assumes a different dimension in SCMluxe.  For instance for most mass produced goods, the only aim would be to increase supply, meet increased demand and maintain margins. However for luxury goods, not meeting demand might simply be a brand strategy – maintaining exclusiveness and desirability (besides artificially keeping prices high). Thus the supply strategy should dovetail into the overall plan for the luxury product.  Let us look at some factors that influence supply and how they need to be incorporated into the overall demand-supply plan

Supply Factors	Demand-Supply Planning
Supply limited by natural circumstances – Eg: Non availability of raw materials or rarity of occurrence: gems, platinum, ermine, art	Adjust Price to level demand to supply (Volumes)
Supply controlled by innovation – Eg: patents for features in products, non-reproducible features	Protect innovation by copyrights/patents. Plan demand-price-supply based on timeline of innovation protection available (patent period etc)
Supply restricted by production – Eg: bespoke suits, monogrammed silverware, custom built cars	Plan supply based on production capacity. And on need to retain brand exclusivity if required
Supply based on exclusivity – Eg: Private clubs, limited edition merchandise	Plan supply around brand positioning around level of exclusivity desired

Interesting we see almost all products having several supply factors influence them in varying degrees – say innovative products where supply can be increased to meet increased demand as required, but its brand positioning might stress on exclusivity which will need supply to be restricted.  The Vertu phone limited by the availability of its gold casing as well as its copyrighted name or “Art” limited both by natural circumstances and restricted production. A mix and match planning methodology would work but a common rule of thumb would be to simply follow the brand positioning strategy – after all brand management as everyone knows is the be all and end all of the luxury goods industry