What do you do if you are an Indian who fancies a Gucci bag or eyes those red Jimmy Choo shoes? A trip abroad is not necessary when all these luxury brands are now accessible in India. Now that luxury spending in China and Japan is slowing down, big brands are eyeing the Indian luxury market, which continued to grow at 30 per cent in 2013 to reach USD8.5 billion. It is expected to hit USD14 billion by 2016. Is this just a fad or will India’s luxury sector continue to power ahead?
The demand for luxury goods in India has cultural roots. It is tied to the traditional Indian custom of personal adornment, which fuels demand for luxury accessories, jewellery, timepieces as well as designer clothing and footwear. Moreover, luxury goods in India are also perceived as an investment and a hedge against possible future economic, banking or currency instability. Add to that a youthful demographic and burgeoning middle-class, and you have the perfect recipe for growth.
Where do the opportunities lie?
The growth of the Indian luxury market is at a nascent stage but is driven by an increasing base of customers from high-net worth households (HNHs). With an expected compound annual growth rate (CAGR) of 27% per cent throughout 2017 to 2018, what sectors promise to deliver?
Challenges for India
While India’s luxury market seems promising, it is necessary to assess the risks as well.
India – The next hub for luxury?
India accounts for close to one per cent of the global luxury market.
India’s luxury market is far from insignificant. According to one report, it was worth USD7.6 billion in 2012 . This contrasts with a figure of USD 18.7 billion for China (from a different source), and a global market of USD 1.1 trillion for luxury goods and services. India accounts for close to one per cent of the global luxury market.
Luxury sales are currently seeing a slow-down in China and Japan. In China, a slowing rate of economic growth (which is now close to 7 percent a year, from 10 per cent previously) and President Xi Jinping’s crackdown on official corruption and excess are weighing heavily on the luxe market. In Japan, after a burst of sales activity prior to the hike in the GST rate in 2014, luxury sales slowed. This has drawn more attention to India’s luxury market potential.
Luxury in India has traditionally been associated with the royal dynasties of the Maharajas. Whether it was the Nizams of Hyderabad or the Rajputs of Rajasthan, luxury was exclusive to the elite. The lavish lifestyles of these aristocrats were exclusive to the privileged class – who not only inherited wealth but had an inclination towards luxury.
Luxury goods in India are also perceived as an investment and a hedge against possible future economic, banking or currency instability.
The demand for luxury goods in India has cultural roots. It is tied to the traditional Indian custom of personal adornment, which fuels demand for luxury accessories, jewellery, timepieces as well as designer clothing and footwear. Moreover, luxury goods in India are also perceived as an investment and a hedge against possible future economic, banking or currency instability. Add to that a youthful demographic and burgeoning middle-class, and you have the perfect recipe for growth.
What India has to offer
Among luxury brands present in India, anecdotal evidence suggests that Fendi, Burberry, Bottega Veneta, Paul Smith, Jimmy Choo, Louis Vuitton and Roberto Cavalli are increasingly popular among the upper-middle class and people with fast-growing disposable incomes. Luxury consumers in India have now become more open to new luxury brands and products to enhance personal value.
Needless to say, India has been warming up to global luxury brands for quite some time now. Several factors explain this.
- A growing potential customer base
India boasts of being the second-fastest growing large economy in the world after China. It has a growing number of billionaire‘s – 55 in the Forbes Billionaires List 2013, contributing a total of USD194 billion to global billionaires’ wealth. This has been boosted by a new class of wealthy consumers termed as ‘closet customers’ – those who are cost conscious and seek value – who have joined the traditionally rich to contribute to higher luxe sales. The backdrop to all of this, of course, is rising income levels and aspirations.
- Internet retailing as another sales channel
- Availability of luxury services
- Shoppers prefer India rather than going abroad
- An up-and-coming luxury manufacturing hub
The growth of the Indian luxury market is at a nascent stage but is driven by an increasing base of customers from high-net worth households (HNHs). With an expected compound annual growth rate (CAGR) of 27% per cent throughout 2017 to 2018, what sectors promise to deliver?
- Apparel and accessories
The Indian Government’s foreign direct investment (FDI) policy, launched in August 2012, welcomed many foreign multi-brand retailers in India. This permitted 49 per cent of FDI in supermarkets and department stores as well as 100 per cent FDI in single-brand retailing. It remains to be seen if this will be liberalized further under the new government of Prime Minister Modi.
For instance, American luxury retailer Saks Fifth Avenue entered the Indian market in 2014 after the change in government policy for FDI. Other players competing in the Indian market include Galeries Lafayette of France, London-based Harvey Nichols and US-based luxury retailer – Bergdorf Goodman.
- Perfumes
- Fine dining
- Automotive
- Real-estate
While India’s luxury market seems promising, it is necessary to assess the risks as well.
- Lack of infrastructure
- Restricted to major cities
- Taxes
High import duties (20-150 per cent) form another impediment for luxury retailers. Although the Indian Government launched a 100 per cent FDI policy for single-brand retailing in August 2012, high taxes on luxury goods remain. In fact, luxury goods in India still cost 20 to 25 per cent more than in Brazil, China, or London, as at 2012.
- Counterfeit goods
- Lack of trained staff
What lies ahead?
India’s luxury market is poised for growth. As the economy grows and as the middle-class becomes increasingly well-travelled and sophisticated, luxury goods will be more sought-after. Add to this the Indian tendency to invest in precious goods rather than simply piling up savings in the bank, a habit which has driven sales of gold for centuries, and you have the fundamentals for healthy growth.
Global luxury brands have invested in various industries which offer growth potential in India: apparel and accessories, perfumes, fine dining, automotive as well as real estate.
Many may view the luxury industry as somehow immoral due to its intrinsically inegalitarian nature. There is more than a grain of truth here.
But it should also be recognized that the luxe industry is a consequence of inequality, not its cause. Moreover, luxury goods and services create an avenue whereby the rich can channel their money into job creation and beneficial economic multipliers. Jobs in the luxury industry are well-paying and enable the transmission of good skills. The high margins of luxe brands also enable them to adopt more environmentally sustainable and fair-trade practices as opposed to large-format, mass-market retailers competing on price.
It is difficult to resist the conclusion that the Indian economy would stand to gain if shoppers spent their luxury goods dollars within India rather than going to London, Paris, New York, Hong Kong or Singapore to do so.
India’s industry and governmental stake-holders would do well to unlock these economic benefits by helping luxe retailers to overcome the current constraints of space, taxation, skilled employees and competition from counterfeits.
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