What: India is the latest overseas market for department stores to consider but industry leaders are divided on whether Galeries Lafayette’s expansion into India (through a partnership with local group Aditya Birla Fashion and Retail Limited (ABFRL)) will spur other luxury department stores to enter the market.

Why it is important: Early movers are encouraged by the growing footprint of Indian multi-brand retailers and the under-penetration of global brands’ mono-brand store networks. Still, there is no consensus about whether the market is ready for a wave of department store openings.

Is it the right time?

It seems several players are interested in the Indian market, but any move hinges on multiple factors, including an indication of adequate demand for their brand and business model, availability of high-quality retail environments, and possibly a reduction in import duties overall or through free trade agreements. India also needs to move significantly higher on the income scale, with a larger number of high-income consumers, even though the number of high-net-worth individuals is expected to increase 108% between 2022 and 2027 to 1.66 million people.

Also, the global luxury goods industry in India is expected to hit EUR 25 to EUR 30 billion (USD 26.8 to 32.2 billion) by 2030, up from less than EUR 8 billion, last year, according to Bain & Company.

India is just the latest stop in a long-running global expansion plan for Galeries Lafayette after outposts in Europe such as Germany and Luxembourg. It is also present in Dubai, Qatar, and Indonesia. After entering a new joint venture in China with Hopson Group, it announced ambitions to grow its current footprint from Beijing and Shanghai to ten cities across the mainland.

Many department stores faced challenges abroad. Printemps shuttered their Tokyo store in 2016. Also, ventures like Saks’s experience in the Middle East could make some contenders cautious about investing in a less developed market like India. Last year, Britain’s Harrods did not renew its contract with partners in Taiwan, Thailand and Singapore, leading to concessions closures in those markets. Instead, it has focused on opening small outposts in Shanghai and Beijing. One way for department stores to test the waters in India will be digital. Last year, American chain Macy’s got into a partnership with Indian fashion e-tailer Myntra to offer products from its private labels.

The brand and product offer

One focus will likely be to bring French and international designers that don’t yet have the resources to enter the market on their own. Another will be as a supplementary channel for those already present. ABFRL could also pitch to become the Indian partner for more overseas brands who want to open mono-brands or distribute across other channels.

Local brands will be crucial as traditional clothing is still the default choice for many Indian women. Both Galeries Lafayette stores will have a local curation that is a complementary play for big Indian designers, most of whom have large flagship stores in both cities. Selvane Mohandas Du Ménil, IADS Managing Director, seems confident that the company will find the right merchandise mix based on its offering elsewhere.

Other challenges exist

Human resources will be a key one for luxury retail in the country. The regulatory environment is also testing. Currently, India allows foreign direct investment (FDI) in multi-brand retail, capped at 51% ownership by a foreign company. Foreign companies must invest a minimum of USD 100 million in the country, with at least half of it put towards back-end infrastructure. There are other constraints, such as prior approval from state governments, the inability to operate stores outside of cities of a certain size, and a compulsory 30% purchase requirement from small suppliers and manufacturers.

But despite these and broader challenges in India, the gap that Galeries Lafayette identified in the local multi-brand market was clearly too attractive to ignore. India business is expected to contribute meaningfully to its topline in the near future. The share of revenue from its international business is expected to go up to about 20% by 2025-26, up from the current 13%.

Is India the next frontier for luxury department stores?