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Poor sales push luxury brands to discounts

Sapna Agarwal  |  Mumbai 

Offer 30 to 50% price-offs as buyers stay away.

Fearing a drop in sales with corporate India facing job insecurity and pay cuts, luxury brands like Gucci, Jimmy Choo, Bottega Venetta, Salvatore Ferragamo, Ermenegildo Zegna, Moschino and Charriol have started offering discounts of 30 to 50 per cent on Autumn/Winter 2008 collections.

Earlier this week, Salvatore Ferragamo began offering 30 per cent discounts. Menswear and accessories brand Ermenegildo Zegna, too, is offering 30 per cent off on clothes and 40 per cent off on belts and shoes plus gift vouchers worth Rs 10,000 if the bill exceeds Rs 100,000 after discounts.

Even Gucci, the iconic Italian fashion and leather goods label, has deviated from its no-discounts policy for the first time and is offering 50 per cent off on selected bags and shoes in one of the most important months for luxury sales. The starting price for Gucci’s products is Rs 30,000 and for limited editions, upwards of Rs 150,000.

Globally, luxury and premium retailers had advanced their sales by a month to October as developed economies headed into recession. Likewise in India, sales are being held in December instead of January.

"Business is low as footfalls and spending has reduced. To increase volumes we are having our sales early this season in December instead of January," said Mohan Murjani, chairman of the Murjani Group which has introduced brands like Gucci, shoe and bag brand Jimmy Choo and Bottega Venetta, a luxury leather goods maker, in India.

These sales, he added, will only help the company meet it sales targets but would mean a decrease in profitability.

"The aspiring class is holding back on buying luxury goods, so there is an inventory build-up," explains Abhay Gupta, executive director of Blues Clothing Company, Versace’s exclusive franchisee in India.

“During a slowdown, luxury is the first segment to take a hit,” said Rajiv Popley, director of Popley and Sons and purveyors of luxury brand watches like Tag Heuer, Omega and Vertu (the British luxury mobile phone). “As such, we expect our luxury brands to take a dip of 10 to 15 per cent."

The Indian luxury market is estimated to be worth $1 billion. The market, according to an AT Kearney report, is slated to touch $30 billion by 2015.

The spenders, noted the report, are industrialists or owners of small businesses (49 per cent) and professionals from the aspiring class -- the corporate sector (29 per cent), followed by IT/ BPO (8 per cent), and others like doctors, lawyers, media and finance professionals.

Luxury goods marketers are basing their numbers on the fact that are cutting back on compensation packages and bonuses. "About 40 per cent of Indian organisations this year are looking at very conservative bonus payouts. This will have an impact across the board," said Sandeep Chaudhary, business leader, consulting, for India, Middle East and SAARC, Hewitt Associates.

The is worse for senior-level executives in the Rs 1 crore compensation range. "Thirty-five to 50 per cent of senior executives’ compensation is variable pay and this will be impacted 20 to 25 per cent this year. Also, stock options, which account for 40 per cent of the annual pay of top-paid executives, are also down to 10 per cent," he added.

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First Published: Mon, December 22 2008. 00:00 IST