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Digital stores will never replace physical stores in the luxury segment: Francois Arpels

The founder and managing director of private equity fund Brands and Beyond on India's contribution to the luxury industry

François Arpels at The Lodhi hotel in New Delhi. Photo: Priyanka Parashar/Mint
François Arpels at The Lodhi hotel in New Delhi. Photo: Priyanka Parashar/Mint

François Arpels, 51, comes from the third generation of the family that founded the jewellery house Van Cleef & Arpels in 1906. After a short stint at Christie’s in New York, he trained in making jewellery and cutting diamonds. His father’s death in 1980 prompted him to join the family business sooner than he had expected.

In 2000, Van Cleef & Arpels—where he was a member of the board—was sold to the Richemont Group. François Arpels has since been advising lifestyle and luxury brands. He has been involved with India for more than 15 years and now lives in New Delhi.

Arpels is also the founder and managing director of Brands and Beyond, an India-based private equity (PE) fund which is looking to invest in home-grown luxury and lifestyle brands. He was one of the speakers at The Timeless Legacy of Indian Jewels, a conference on Indian jewels hosted by Saffronart in October in Mumbai. He spoke to Lounge about the luxury market in India and the business of luxury. Edited excerpts:

There must be multiple kinds of pressure on old, family-owned businesses, pressures of being competitive and reinventing themselves...

I don’t think pressure is the right word. The business had been part of my raising. The entire family was involved and the knowledge, the know-how and the reins were passed from one generation to the other, seamlessly.

Having said that, the only way for brands to sustain and grow is through innovation in all aspects: design, marketing, expansion, personnel training and client services.

Van Cleef & Arpels has always been innovative. Some of the techniques my family invented are there even today. The invisible setting, a technique in which the prongs on which gemstones are mounted are invisible (also known as Mystery Set, and patented in 1933 by Van Cleef & Arpels), remains in very high demand today. We were the first jeweller to set up a boutique in Japan in 1974.

In the late 1950s, my family understood that luxury, as it was perceived in those days, was evolving. It was the time of the hippie movement in Europe and people were looking for more easy-to-wear apparel and jewellery. Van Cleef & Arpels came up with the La Boutique collection, which was initially intended to offer a younger and more accessible line of jewellery to a broader range of clientele, such as the Alhambra that remains one of the brand’s best-sellers today. It was much before Cartier came out with the Must (Les Must de Cartier) jewellery range in the 1970s.

In 1976, Van Cleef & Arpels became the first jeweller to launch a fragrance.

It demonstrates the agility of the brand in being a front-runner in understanding the consumer’s preferences and adapt to them.

What do people need to understand about the business of luxury?

Let’s first differentiate between luxury and lifestyle—lifestyle is more mainstream and luxury is more exclusive.

For luxury, legitimacy of the product is key; what’s behind the product, who has made it, does the brand control and improve the craft of the product, these are extremely important factors.

It is very important for a luxury brand to be able to rely on a know-how that is communicated to the clients. So it is important for the brands to own or control that aspect. Then the communication, the storytelling, must be coherent with the brand’s history and values. And the service part; salespeople have to be informed and trained particularly well to be able to speak with consumers as knowledgeable ambassadors of the brand.

The brand must be protected from all directions; it takes a long time to build a luxury brand, although today communication tools can shorten that time, so consistency and reliability are key.

The stores are essential too. For a consumer, beyond the product, the experience matters.

So there is no alternative to the brick and mortar store?

Digital stores will never replace physical stores when it comes to the luxury segment. Social media, e-commerce complement the physical stores. They might help customers learn more about a brand and its offering, and facilitate the brand to interact with them, but most of the time, some hands-on experience with the products is essential.

If you are buying a limited-edition watch, for example, you would want to see how it looks and feels on your wrist—that is impossible to replace.

What are the future plans for Brands and Beyond?

Brands and Beyond is a PE firm which brings strategic guidance and will help brands in value addition. Our goal is to invest in made in India, non-ethnic lifestyle to luxury brands, and guide them to scale internationally where there is the largest potential for growth and strongest interest for emerging disruptive brands, while consolidating them selectively, locally. We are targeting beauty, apparel, jewellery, accessories, gourmet foods and hospitality verticals among others.

Our business model is to help our portfolio companies improve their value cycle, put in place the best processes, and work with them in devising and implementing a successful international rollout strategy.

It has been three years since my partners and I have started working on the project that was codenamed IndEU Capital and one year since we have been marketing Brands and Beyond. We will be making our first two investments in the next weeks.

Our objective is to invest in about 12 businesses for a medium term, say about five years per investment, contributing $1-4 million (around Rs6.4-25.7 crore) per transaction in one or multiple tranches, in companies generating from $1-5 million in revenue.

Why an India-dedicated fund?

As far as I am concerned, India has always been a part of the global lifestyle and luxury story in many different ways. From centuries ago, with trading—of the rarest fabrics, gold, diamonds and other precious stones, spices, a lot of these fine materials would come from India. And if they didn’t, they passed through India at some point during the trade.

In the 20th century, India inspired a lot of international brands; from jewellery to perfume makers to fashion designers. Look at Cartier and Van Cleef & Arpels, for example: their creations have largely been influenced by India in terms of styles, designs, colours, techniques, etc. Also the likes of Chanel and Hermès, they were all inspired by India. Almost every international brand would have an India-inspired product in a collection.

Also, brands have been relying on India for its many crafts, such as embroidery, gold application, and its know-how. Now is the right time for Indian brands to go international capitalizing on its history.

People in India are slowly understanding India’s value in global brands’ histories. Saffronart recently organized a conference in Mumbai on The Timeless Legacy of Indian Jewels and it is time more such events are promoted in India to put the country back on the luxury world map.

It seems like India always had the potential, both as a market and as an incubator for luxury brands. Why hasn’t the country lived up to expectations then?

From where I stand, the reasons are relatively straightforward. India doesn’t offer the right environment for the development of international brands and the addressable market remains narrow. Taxes are extremely high, resulting in Indians travelling outside the country and buying luxury products at more competitive prices. They might also find a larger variety to choose from and a much better overall shopping experience outside the country.

Infrastructure in India is still not at an international level. Where does a brand open a store here? And even if they do, where do they go beyond a second store? The education system doesn’t offer any real curriculum for the management of luxury yet, with the exception of rare instances such as crafting luxury and lifestyle businesses (course) at IIM (Indian Institute of Management), Ahmedabad. The local ecosystem is still rather unprofessional. So luxury brands don’t come to India and have only a couple of stores here.

As far as Indian brands going international is concerned, it is a bit different. I’d say there has been a lack of conviction and confidence from Indian designers, creators and promoters that they are capable of going international, and they have been relatively sheltered in the local market to worry about globalization. It is not easy to build a brand and even more difficult to maintain that brand name. Groups like LVMH, Richemont and Kering have been so successful because they have implemented, similar to any other industry, the best processes and have access to a large pool of skills and professional talent—managerial and creative. This has been lacking in Indian brands.

This said, brands from emerging markets Brazil, India, Lebanon, Bali, Singapore, China, Australia have been paving the way. Look at Elie Saab, Carlos Miele, John Hardy, Rahul Mishra, Royal Enfield, Skin Inc., Nappa Dori, Pashma, Amrut, Shiatzy Chen, Aesop, etc., they are either currently rolling out or already highly successful internationally. So things are happening and soon you will see a wave of brands from emerging countries establishing themselves on the international stage.

How has the luxury industry changed over the years?

Well, some things have happened during the last four decades. Countries like Japan and, more recently, China have contributed to the development of the industry. For luxury brands, that has translated into double-digit growth. The rise in the number and diversity of brands, the circulation of information thanks to the internet and social media, and the development of travel have resulted in more knowledgeable, sophisticated and volatile consumers. Moreover, the new and younger generation doesn’t purchase for status but for experience and emotion. As a result, demand for brands that carry legitimacy based on customization, artisan and craftsmanship, and uniqueness is growing. As the market expands, smaller and innovative brands from emerging countries have the potential to be a disruptive and attractive proposition in the market beyond the global brands.

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