The Tan That’s Always In Fashion

One leather jacket solved the coat problem for years...” Albert Einstein, who went for a minimalistic need of  materialistic things, is believed to have said. Einstein’s reasons for wearing the same jacket (it fetched a whopping £110,500 at a Christie’s auction in 2016) was for practical reasons, so he didn’t have to pick new jackets to wear everyday. And thus the Germany-born physicist depended on his good old Levi’s leather jacket all the time. Well, for Indians, too, leather has had an appeal like no other. In an environmentally conscious fashion world, where fur is a big no-no, leather seems to be thriving.

In fact, local manufacturers and sellers of high-end luxury leather handbags are happy post the roll out of the goods and services tax (GST). But for those importing and selling products including luxury handbags, there is an increased burden of at least 12-15 per cent, which is beginning to adversely impact online sales across certain dedicated e-platforms. However, local manufacturers and the premium and luxury leather handbag makers are a happy lot these days. “The rates of bags have gone up post-GST, whereas, the rates of shoes are overall down after input tax is calculated. We felt the crunch initially, but with the input credit factored in, the profit margins got affected by a mere 3 to 4 per cent. Overall, we are happy with GST as it simplifies the process,” says Dilip Kapur, founder-president of Hidesign, an international brand.

Echoing the sentiments is Pushpa Bector, the EVP and the head of DLF Premium Malls at DLF Utilities. Bector says Indian luxury leather goods brand Da Milano is doing extremely well in terms of its sales and constantly asking for more space in the mall.

“Consumption has not dropped for premium leather products in our malls post-GST,” says Bector. “From September, things have started picking up again,” she says. There was a slight dip in sales around July-end and August, admits Bector.  

Online platforms offering pre-owned luxury goods such as Confidential Couture, Luxurystation.com, Luxepolis, etc., have recently gained popularity among Indian luxury product buyers. Luxepolis founder Vijay K.G. explains: “Fortunately, there is no GST on pre-owned goods if sold at a less price than the purchase price. In fact, in the last three months, our sales have picked up tremendously. There will be an overall impact of 10-15 per cent on handbags as this category is included under the 28 per cent GST slab.”

Luxepolis, who is also the largest reseller of Louis Vuitton, Chanel, Rolex, Omega, Gucci and Hermès, estimates the pre-owned market for luxury and premium goods to be around $2.9 billion.

While fixing up the GST rate for handbags, jewellery boxes, wallets and vanity bags among others, the GST council has researched well into the various permutation and combinations. For example: handbags, whether or not with shoulder strap, including those without a handle; Handbags for ladies, with outer surface of leather or of composition leather or of patent leather; Vanity bags, with outer surface of leather or of composition leather or of patent leather; or wallets and purses, of leather are all being taxed at the rate of 28 per cent.

New Challenges

Leather, which plays a pivotal role in the luxury segment in the form of handbags, footwear or apparel, has been taxed at 28 per cent under the new tax structure. Overall, this has led to an increase of 10-15 per cent in the price of luxury handbags, pegged at an annual sales of over Rs 6,400 crore.  Consequently, there has also been an increase in the prices of leather shoes by 5-7 per cent, which is a $8-billion industry annually, says consultants Technopak. The tax rates have increased to about 10 per cent from the earlier taxation rate of 18 per cent, it adds.  

Designer Rashmi Modi, who runs an online fashion portal on her name, says her customers are paying really high taxes now, which was not the case before GST. “Luxury consumers have always preferred to shop internationally due to heavy taxes implied on luxury products in India. GST aggravates this tendency more and thus decreases the consumption of luxury goods in India,” she adds.

Ankur Bisen, Senior VP, Retail and Consumers, Technopak, says, “Even the customers of luxury goods like handbags, etc., are price sensitive. While they do go abroad and buy products, the desire to shop high-end brands locally remains high.”

Kapur says it is a mistake to put Chinese-made synthetic bags under the GST tax-slab of 18 per cent while putting leather-bags under the 28 per cent slab. “Leather bags are one of the few categories where India has a natural advantage over China as we have the largest livestock base in the world. It is also the most labour-intensive industry in the country. By levying 28 per cent on it and a mere 18 per cent on the synthetics, the government has dealt a major blow.”