Indian Prada

Walking through the first India showroom of iconic Italian design house Poltrona Frau, it’s hard not to wonder: Is India is a rich country or a poor country?

Designer Giulio Cappellini points out the 1915 Chesterfield sofa (Rs. 700,000; $15,150), hand-stitched by a single artisan in Italy. There’s a vibrant Pucci print chair (Rs. 160,000; $3,460) and Le Corbusier’s sleek 1929 pony print chaise (Rs.150,000; $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 super-affordable products for the 300 million Indians now buying their first television sets and motorbikes, recent arrivals like Conde Nast Traveller, 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.

Poltrona Frau showroom in Mumbai, India

Today, 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 India joint venture between Poltrona Frau and Tata Housing Co. Ltd.

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 $5.0 billion and Japan’s $14.2 billion, according to Bain & Co.

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.”

Nangia said that just one million of the 10 million Indians who make over $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 $2.0 million to 2.5 million, in part due to foreign exchange. It is $89.7 million in debt.

The brightest spot? Over thirty 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 Obert. “He started looking at Asia more coherently.”

Designer Giulio Cappellini at the Poltrona Frau showroom in Mumbai, India

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

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,” said Cappellini. “I thought the future really is in exports. I thought that we have to sell to Europe. They said, ‘No. You are crazy.”’

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 Montezemolo’s son at his wedding, Cappellini said.

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

Casa Decor renovated 8 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.

Obert said he expects India revenues for the fiscal year ending March to be about $6.9 million and to break even by March 2012.

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

Cappellini, who has a reputation for cultivating new designers, 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.”

But 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. — AP