Conservative Chennai ready to splurge on luxury brands

Indulekha Aravind finds out what is driving the change in Chennai.

"After years abroad... I came 'home' to a metropolis in 1968-69 but found it essentially unchanged. True, the town I had known had grown bigger, become more populous and acquired an industrial base. But at heart it had remained the charming overgrown village of the '30s and '40s and '50s; a leisurely, gracious town with quaint, old-world values..."

That was S Muthiah, journalist and historian, writing about Chennai, then Madras, in the preface to Madras Rediscovered in December 1981.

But any long-time resident of the city will tell you that even as recently as the mid-2000s, Chennai was still more large town than glitzy metropolis, known more for its sprawling silk sari showrooms than designer brands.

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While malls mushroomed in neighbouring Bangalore, crowned by UB City which opened in January 2008 housing brands like Jimmy Choo and Louis Vuitton, Chennai had to be content with local designer labels, the odd high-street brand and Spencer Plaza mall that was once one of the biggest in the country but is no luxury shopping destination. But this might finally be changing.

On quiet, tree-lined Khader Nawaz Khan Road stands Bergamo, a white, three-storey building modelled on Renaissance Italian architecture and the city's first mall dedicated to luxury brands.

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Bergamo is where Louis Vuitton opened its fifth store in the country last month, after two in Mumbai and one each in Delhi and Bangalore.

Shatrujit Singh, chief representative of Louis Vuitton in India, says Chennai was an obvious choice for the next store.

"It's a very big market, and one that's growing... it represents a huge opportunity," he says. Quite a few luxury brands are setting up shop in the city, he points out and "everyone's done their homework".

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The only reason Louis Vuitton did not come to the city sooner, says Singh, is lack of suitable retail space and not because of any apprehensions of the market's potential.

"This is just the beginning of our romance with Chennai," Singh adds with a flourish.

Ajay Agarwal, partner at RK Industries, the firm that set up Bergamo, agrees that the absence of luxury retail premises had been the chief complaint of high-end brands when he tried to persuade them to come to the city.

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This is what led him to build the mall, which opened earlier this year.

The luxury brands, he feels, will not suffer from lack of demand. When his company was researching the city's retail market, Agarwal says, they found that T-Nagar in Chennai had the highest sales per square foot in Asia.

T-Nagar is far from a posh market but the statistic is not surprising, considering the numerous sari and jewellery showrooms in the bustling quarter, a sign that there is money.

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"Chennai has a lot of spending power... The customers buying Louis Vuitton here are those who already had the brand, it's just that they would have bought it elsewhere," says Agarwal, who has lived in the city all his life.

Louis Vuitton might be the only store in the 30,000 square foot Bergamo now but Jimmy Choo, Canali and Bottega Veneta will soon be giving it company.

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Genesis Colors, which is bringing in these brands, brought Canali, Paul Smith, Etro and Tumi to the city last year at Chennai's first international multi-brand luxury boutique, Luxxe Box.

"We have got an encouraging response to Luxxe Box and are very keen to explore the market's potential through mono brand stores too," says Sanjay Kapoor, the company's managing director.

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Mumbai-based developer Phoenix will also be opening its 2.4 million square foot Market City property (expected to include a five-star hotel and IT park) in the city later this year, where one section will be dedicated to luxury brands, along the lines of its Palladium in Mumbai which retails Gucci and Ermenegildo Zegna, among others.

While the international brands are optimistic about their foray, domestic players who had entered the market earlier are keen to expand.

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Kimaya, which retails many of the country's top fashion designers including Tarun Tahiliani, JJ Valaya and Rohit Bal, opened its first outlet in Chennai in 2009, and is planning to open four more in the next two years.

"We are very confident of the city's luxury market. Our store here has seen year-on-year growth of 22-23 per cent," says Kimaya Fashions Chairman Pradeep Hirani.

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But what about the perception that the well-heeled in Chennai might be a little less willing to splurge on luxury goods than their counterparts in Delhi or even Bangalore?

Louis Vuitton's Singh pooh-poohs the suggestion and says luxury customers are the same the world over and do not bother about price tags.

Hirani, on the other hand, says the city's luxury consumer can be divided into two segments - the first, tough nuts to crack, are the wealthy but conservative, and the second, the wealthy and aspirational, "the segment that we are focusing on".  

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Chennai's rich agree that the city is opening up to luxury, in terms of brands and customers.

"I have seen this change in the last four to five years - there is definitely a growing tendency to buy luxury brands," agrees Rahul Mammen Mappillai, the 34-year-old director of Chennai-headquartered tyre manufacturer MRF.

A 28-year-old regular in Chennai's party circles, who asked not to be named, concurs. "I know girls who want to save money from their first job to buy an LV bag," says the young socialite, a resident of the city for the last 10 years.

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Apparel is far from the only luxury segment enthusiastic about the new market.

The city's businessmen were once known to shy away from flaunting their status by cruising around in super luxury cars - TVS chairman Venu Srinivasan, for instance, told the media recently that he used to drive around in a Hyundai Santro seven years ago.

But not anymore. Jaguar Land Rover, which opened its showroom in Chennai one-and-a-half years ago, sells around 10 to 12 cars a month in the city, and has sold 170 cars so far. Porsche, which opened its showroom there in 2009, was selling 8 to 9 units a month before Volkswagen terminated the agreement with the Indian importer.

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Rolls Royce and Bentley do not have dealerships in Chennai but sell directly to customers there and company spokespersons say sales have been steady. And iconic bike brand Harley-Davidson which opened its first showroom in the city four months ago, is already seeing sales in double digits.

"The spending power in the city is amazing... Around 80 per cent of my business here is cash and carry," says M P Vikram, who has the dealership for Harley in Chennai. The city's luxury market is "a sleeping monster", he says.

Small wonder, then, that the in-house research of a premium carmaker revealed that Chennai is now the country's third-biggest market for super luxury cars.

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The biggest buzz, though, is being generated by the unprecedented expansion of five-star hotels.

Leading the chatter is ITC's Grand Chola that opened last month, an opulent, 600-room hotel with 10 restaurants, the likes of which the city has not seen.

ITC has invested Rs 1,200 crore (Rs 12 billion) in the 1.6 million square foot property modelled on the palaces of the Chola empire, the third largest five-star hotel in the country by room keys.

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Asked why the conglomerate chose to open its most luxurious property in the country in Chennai, and Philippe Charraudeau, vice-president and general manager, says the decision was partly a tribute to the city where ITC started its hotels division 35 years ago.

But the company is also confident of the city's growth in the long term.

"Chennai offers a lot of advantages - business here is booming, there's a new airport opening, it has the country's second-largest port and a growing expat community," says Charraudeau. ITC is also eyeing conventions to drive growth, setting aside 100,000 square feet in the hotel for conferences and exhibitions.

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Not too far from Grand Chola is the 201-room Park Hyatt, another five-star property which opened this month, while the 326-room sea-facing Leela Palace is expected to open in November, adding over 1,000 rooms to the city's five-star room inventory.

JW Marriott, another five-star property, is also expected to open later this year.

The old guard, meanwhile, is not sitting back twiddling their thumbs. "The increase in business is allowing hotels to reinvest in upgrading facilities," says Prakash Nataraj, general manager of Taj Coromandel in Chennai, which opened in 1974.

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The oldest five-star in the city now has a new lobby, luxury rooms and renovated F&B outlets while its grand ballroom will reopen in November with 50 per cent more capacity and bespoke services, says Nataraj.

Rather than creating a glut, the increase, he says, will only bring more events such as larger conventions to the city that will feed all hotels.

The only segment of luxury that seems to be lagging is real estate, which is curiously positioned.

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"The high-end property segment in Chennai is very different. Here, location is the only luxury," says Badal Yagnik, managing director-Chennai of real estate consultancy Jones Lang La Salle.

The costliest apartments in the city thus don't cost more than Rs 15 crore, with location and not amenities like designer kitchens driving up the price.

The most coveted addresses are in the vicinity of Boat Club in Kotturpuram and Poes Garden (where you would have Chief Minister J Jayalalithaa as your neighbour) - apartments here, typically four to five storeys because of the small land parcels, would sell for Rs 25,000-Rs 30,000 per square foot. But the trend of providing only basic features is gradually changing, says Yagnik.

"In the next one year, there will be several launches of luxury properties," he says.

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Local developer Akshaya Properties, for instance, has just launched a property near the IT corridor on Old Mahabalipuram Road in which each of the 31 apartments occupies an entire floor and has its own pool.

The question that arises here, of course, is why luxury brands are marking their presence in the city, and why Chennai consumers might be ready to shed their tag of being discreet spenders.

Wealth managers attribute the change to different factors, the most important being the economic boom in Chennai, led by the automobile and ancillary sectors.

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Between May 2011 and January 2012 alone, the state received investment proposals worth Rs 59,907 crore while growth touched 9.39 per cent in 2011-12.

"The trend to spend more on luxury goods is driven primarily by rapid wealth creation and growth in disposable income, supported by a gradual change in mindset," feels Atul Singh, managing director and head, wealth management at Merrill Lynch Wealth Management.

A senior banker, who asked not to be named, estimates that there are at least 1 lakh individuals in Chennai with assets of over Rs 5 crore. Analysts declined to go on record about the number of high net worth individuals in the city but they all agree that their numbers have increased in the last five years.

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Others attribute the shift to the city's becoming more cosmopolitan with increasing employment opportunities attracting more people from different parts of the country and the world.

A senior sales executive at Jaguar Land Rover says many of his customers are beneficiaries of rising real estate prices in the city's IT corridor, who are eager to spend their newly-earned wealth.

It's not only about increasing demand, though. "For high-end brands, it's not just about profitability but also about having a presence in growth markets. They are all positioning themselves for long-term growth," says Rajesh Iyer, head-products and research, Kotak Wealth Management Services.

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Muthiah, the long-time chronicler of the city, puts it a little differently.

"Chennai has always been a happy blend where you could wind up at a discotheque one night and the temple the next morning. The change you see is in what the youngsters are spending on, whether it's in malls or on clothes. Spending has progressed from needs to wants."

That should be music to the ears of the many brands beating a path to the city.

Old Money

An estimated 1 lakh people in Chennai have assets over Rs 5 crore

The city is the third largest market in India for luxury cars. Jaguar Land Rover sells around 10-12 cars a month

Close to 1,000 five-star rooms have been added in this financial year. This includes ITC's showpiece Grand Chola

Two luxury malls already, and another coming up soon