The slowdown in the economy and archaic rules on real estate may have affected the mainstream retail industry, but there is a flurry of activity on the high-end retail segment, as existing players actively explore business structures to tie up with global high-end retail majors.
Mandates with consulting firms, including those from the Big Four, show that players such as Reliance Retail, Aditya Birla Retail, Shoppers Stop and others are keen on evaluating business structures with high-end firms such as Marks & Spencer or Armani or a Moschino to tap demand from the growing number of HNIs (high-networth individuals).
According to sources, growth in demand for luxury items is pitched against a slowdown in mainstream retail as high inflation pushes back purchase decisions. The main driver is an increase in the number of individuals in
Business structures being considered include a franchisee model to start with, which could later be converted into a joint venture if the two partners consider it worthwhile.
Firms such as KPMG, PricewaterhouseCoopers and Ernst & Young are working on such structures and also advising on possible tax-efficient structures, as there are grey areas in levying value-added tax (VAT) on items such as a diamond-studded watch or a high-end leather jacket. For a diamond-studded watch, if the item is categorised as a watch then VAT levy is a high 12.5% compared to that on a gold or a item where VAT could be just 1% or less.
Speaking on the robust interest in high-end retail, KPMG manager strategic services C Ravishankar said: “The market for high-end luxury items in
Although the pace is slower than the mainstream retail, which had been growing at the rate of 30% to 40%, the value of the luxury market is much higher.
According to KH Vishwanathan of Astute Consulting, firms are currently involved in doing a concept study to highlight the compliance part and tax efficiency of a proposed business structure.
Nielsen Company director (retail consulting division) Asitava Sen says the move to prepare the business structures between Indian retailers and high-end global players is vital when there are strong brands. “Most foreign players are very protective about their brands and won’t allow their Indian partners access to these brands,” he said.
The business model that such ventures would work on is in allowing the foreign company to own the back end in a retail venture while leaving the front end to the Indian company. In such a structure, the foreign company would have complete control over the price and packaging.
Source: The Economic Times