Recession? Not in New Delhi's Luxury Stores

In a spotless boutique in a quiet corner of New Delhi's elegant Oberoi Hotel, the store manager wants to show me a saddle. Not just any saddle, he reverently explains, but the iconic saddle crafted by French hands that Hermès has been making for more than a century. It costs about $6,400, and I assume it's just a showpiece. Oh no, the manager assures me, someone recently ordered an entire custom-made kit for his beloved horse. The rest of the world might be absorbed by a global financial crisis, but you wouldn't know it here among the caramel-colored leather, hand-printed silk scarves and blue Birkin bags.

Hermès is having a busy year in India. All of its stores feature a special design motif for the year, "Indian Fantasy"; it opened its flagship New Delhi boutique in May; and it threw an official launch party for the Indian market a week before the Hindu New Year celebration, Diwali, flying in executives from Paris for the event. Diwali, which fell on Oct. 28 this year, is the culmination of the busiest retail season on the Indian calendar, and the city's wealthy élites, who traditionally fly to London, New York City or Singapore to do their holiday shopping, now have more choices at home. Hermès joins Cartier, Christian Dior, Louis Vuitton, Armani, Dolce & Gabbana and Versace, among other luxury retailers, who have all come to chase India's growing class of the super-rich. The number of Indians with more than $1 million in assets has grown since last year by 22%, to 167,000, more than in any other Asian country, according to the 2008 CapGemini Merrill Lynch Asia Pacific Wealth Report.

And while Mumbai may be more cosmopolitan and Bangalore more dynamic, all of those luxury brands have chosen New Delhi as their Indian beachhead. That's because the capital — and the prosperous farming and manufacturing belt surrounding it — is where the moneyed classes spend most lavishly. Analysts expect that New Delhi's luxury sector will be more resilient during this global slowdown than its equivalents in the U.S. and Europe. "It's not like in New York, where a large part of their base comes from Wall Street," says Praveen Sinha, a developer of upscale shopping malls in several Indian cities. "Delhi is not dependent on the financial-services sector."

So where does all that wealth come from? Rather than banking or software, which built Mumbai and Bangalore, New Delhi's wealth belongs to industrialists and entrepreneurs, rich farmers and political middlemen. Their fortunes depend on the domestic Indian economy — which is expected to grow 7% this year despite the slowdown — rather than the stock market, which has lost more than half its value this year. Alam Srinivas, author of The Indian Consumer: One Billion Myths, One Billion Realities, says it would not be unusual for a farmer with large landholdings in neighboring Punjab or the owner of a successful family-run trading business to earn as much as $4 million a year — all of it in cash. "A 10%-20% drop in earnings is not going to affect their personal spending," he says.

More important, perhaps, to the resilience of New Delhi's wealth, is the fact that so much of it is generated in cash, making the credit crunch a nonissue for the rich. The manager of one high-end boutique in the capital says all of the store's transactions are done in cash, and nothing in her store sells for less than $2,000. Estimates of India's parallel economy — legitimate business conducted in cash to avoid taxation at either end — vary widely, with some economists speculating that the "black money" economy is as large as India's official one. "The parallel economy has always driven the luxury market, and it is relatively immune to downturns," says Santosh Desai, a retail analyst and expert on consumer behavior. "So much of that money is liquid, but there's not much you can do with it. If anything, you'd want to spend it quickly rather than waiting, when your money's losing value."

Of course, luxury retailers aren't unaffected by the slowing economy. The "aspirational" rich — those upper-middle-class salaried executives who won't be getting fat Diwali bonuses — are definitely cutting back. "This recession has hit us during the peak season of festivities in India, when people extend themselves beyond their income, having saved for those few indulgences," says Kalyani Chawla, a vice president at Christian Dior, India. However, says Desai, that retreat will only make luxury brands even more potent as status symbols. "The conspicuousness of consumption has to be more appealing when everyone else is pulling back," he says. Those who can spend will — for themselves and their horses.