- Associated Press - Thursday, September 23, 2010

MUMBAI | Walking through the first Indian showroom of the iconic Italian design house Poltrona Frau on the eve of its inauguration last week, it’s hard not to wonder: Is India a rich country or a poor country?

Designer Giulio Cappellini points out the 1915 Chesterfield sofa (700,000 rupees; $15,150) hand-stitched by a single artisan in Italy. There’s a vibrant Pucci print chair (160,000 rupees; $3,460) and Le Corbusier’s sleek 1929 pony-print chaise (150,000 rupees; $3,250).

It would take one of the 456 million Indians who live on less than $1.25 a day about 33 years to buy that Chesterfield - if, of course, he didn’t spend any money on things like food.

Thanks to its size and uneven economic growth, India is both rich and poor, and companies are scrambling to serve both ends of the country’s wildly divergent consumer market.

While innovators dream up ways to make superaffordable products for the 300 million Indians buying their first television sets and motorbikes, recent arrivals such as Conde Nast Traveler, Jaguar Land Rover and now Poltrona Frau hope to convince India’s 10 million serious spenders of the pleasures of hand-stitching and Louis XVI-style suites.

India’s luxury market is far from booming, and companies like Poltrona Frau seem less drawn by splendid sales than driven by troubles at home to make a long-term bet on India’s economic rise.

“It’s a game of anticipation and being there first,” said Nicola Obert, chief executive of Casa Decor, the Indian joint venture between Poltrona Frau and Tata Housing Co. Ltd.

Mr. Obert has his eye not just on India’s modern maharajas - the top 50 family dynasties - but the thousand or so other families quickly accumulating world-class wealth.

“The new rich are taking a firmer stand in front of the established, quasi-royalty of the past,” he said. “They want to make sure they are noticed. We bank on that.”

India’s luxury sales in 2009 were $612 million, compared with China’s $5 billion and Japan’s $14.2 billion, according to Bain & Co., a global business-consulting firm.

Until the arrival of swish new malls like New Delhi’s Emporio, most high-end retailers in India were confined to the lobbies of five-star hotels, and many Indians still prefer to hop over to Dubai to shop - a habit born in the days of import restrictions and fueled by punishing tariffs.

“Dubai is still cheaper than India,” said Saloni Nangia, senior vice president at Technopak Advisors, a retail consultancy in New Delhi. “If you’re a serious shopper, plane tickets are a fraction of what you might spend.”

Ms. Nangia said just 1 million of the 10 million Indians who make more than $100,000 a year - a population she expects to double in five years - are active luxury shoppers.

“It’s a small business in India,” she said. “There are so many other opportunities, be it rural India or first-time consumers. There’s a bigger opportunity there.”

But some luxury companies don’t have much of a choice.

Poltrona Frau was hit hard by the financial crisis and in 2008 and 2009 accumulated losses of $13.1 million, according to public filings.

In the first half of 2010, the group’s after-tax loss deepened from $2 million to $2.5 million, in part because of foreign exchange. It is $89.7 million in debt.

The brightest spot? More than 30 percent growth in residential sales in Asia and Oceania.

Poltrona Frau’s chief executive, Dario Rinero, began a coordinated push into Asia soon after he took over in March 2009.

“More established markets in Europe were feeling the brunt of the crisis and U.S. markets were down the drain,” said Mr. Obert. “He started looking at Asia more coherently.”

This turn to new markets is a revolution for Italian companies like Poltrona Frau, which have long kept their focus close to home.

Mr. Cappellini’s father founded the family furniture business in 1946 with 10 employees in Brianza, a furniture making hub near Milan.

“When I entered, the company was selling just in Milan,” Mr. Cappellini said. “I thought the future really is in exports. I thought that we have to sell to Europe. They said, ‘No. You are crazy.’ “

Mr. Cappellini sold his family business to Poltrona Frau in 2004, after a longtime employee embezzled $15.3 million, he said.

Today, 40 percent of Poltrona Frau’s sales are in Italy, with the remaining 60 percent divided roughly in thirds among Europe, the Americas and Asia and the Middle East, he said.

Five years ago, the picture was radically different: Italy accounted for 50 percent of sales, other parts of Europe 30 percent, and the rest of the world 20 percent, he said.

The move into India has roots in the personal friendship of Ferrari Chairman Luca Cordero di Montezemolo - who has a controlling stake in Poltrona Frau - and billionaire Ratan Tata, who was best man for Mr. Montezemolo’s son at his wedding, Mr. Cappellini said.

The alliance with Mr. Tata has helped Casa Decor quickly ramp up its custom construction business.

Casa Decor renovated eight luxury suites in the heritage wing of the Taj Mahal hotel and won contracts at other Tata group hotels in New Delhi and Pune, a manufacturing hub near Mumbai.

Mr. Obert said he expects Indian revenues for the fiscal year ending in March to be about 320 million rupees ($6.9 million) and to break even by March 2012.

“It’s a strong signal we have to look out of Italy,” Mr. Cappellini said. “When I come back to Europe, everything is really boring.”

Mr. Cappellini, who has a reputation for cultivating new designers, says he hopes India will one day contribute creatively as well as economically.

He’s already tapped one Indian designer, Satyendra Pakhale, and recently took on two young Indians as interns.

“Today discovering a new talented young Italian designer is very difficult,” he said. “They live with this history, this strong story of Italian design of the ‘50s. In these uncontaminated countries, we can find fresh new ideas.”

However, he also knows the company has a long way to go to find its home in India.

A burly Italian man crouched nearby, blow-drying a rich blue leather “Archibald” chair (200,000 rupees; $4,330).

“The humidity,” he said, bemused.

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