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Luxury Goods Industry In India

According to ASSOCHAM, the Indian luxury market accounts 10% of total retail and is estimated to be worth USD 18 billion by 2017 from the current level of USD 14 billion.

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Definition / Scope

  • Goods that are not necessary for living but are perceived as highly-desired within culture or society.
  • Also known as ‘Positional Goods’ as they show that a person has achieved a certain position or status within society to be able to afford them.
  • The luxury market in India can be divided into following sectors:
    • Products: Apparel and Accessories, Jewelry, Cosmetics, Watches, Wines and Spirits
    • Services: Concierge Service, Travel and Tourism, Hotels and Restaurants, Spas
    • Assets: Vintage Car, Yacht, Private Jet, Fine Art

Market Overview

  • According to ASSOCHAM, the Indian luxury market accounts 10% of total retail and is estimated to be worth USD 18 billion by 2017 from the current level of USD 14 billion.
  • The Luxury market is predicted to grow by 86% in constant value terms between 2013 and 2018.
  • In terms of brand presence, of 500 leading international luxury brands, 30% are present in India.
  • The luxury car market in India is one of the strongest performing categories, accounting for about 1/3rd of total luxury spend and luxury fashion is the second largest category of the luxury product accounting for about 1/4th of the total market.
  • According to World Wealth Report 2015, India has been ranked 11th in the list of countries with highest number of HNWI (High Net-worth Individual) population. The total number of HNWI population in India is 198,000.

Key Metrics

Metrics Value Explanation
Base Year 2017 Researched through internet


Market Risks

Diversified Consumer:

  • Indian HNI consumers are highly diversified and thus, are not easy to reach.
  • Luxury brands need to strategically and innovatively design their growth plans to tap demand of three categories of HNIs namely – the inhibitors; the professional elite; business giants or entrepreneurs.

Lacking of Policy Support:

  • Import duties (20 – 150%) are relatively higher in India and this is considered as key apprehension factor among the international players. It’s often cheaper for Indians to buy abroad.
  • The government allowed 100% FDI for both single and multi-brand retailers but making it mandatory that 30% of local sourcing i.e., value of goods be sourced from India.

Counterfeit Products:

  • The size of counterfeit luxury goods in India is 5% to the overall market size of the country’s luxury industry which is USD 14 billion.
  • The counterfeit market are growing at a rate almost double to that of genuine products. Most of these belongs to segment such as apparel, perfumes and accessories which are usually lower ticket items.
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Lack of Skilled Talent:

  • Shortage of skilled people for the luxury industry is a major cause of concern as it difficult to make the workforce understand the legacy and value of the brand.
  • It is estimated that by 2022, Indian luxury market will be requiring manpower approx. 1.76 million.

Quality Infrastructure:

  • Availability of high quality real estate continues to be the key concern for growth.
  • With five star hotels losing their sheen as preferred luxury destinations and players are jostling for space in premium malls, high streets emerge as an alternative destinations.

Top Market Opportunities

The Bridge to Luxury:

  • The strategy focuses on supplying introductory range products to the market at the affordable prices. This allow consumers to satisfy their brand demands while also meeting their limited budget. The strategy act as a bridge between premium products and luxury.
  • Introductory range models make up the majority of sales and provide ‘the bridge to luxury’ to newly affluent consumers.
  • ‘The bridge to luxury’ aims to first attract the consumer and then making a sufficient margin to remain profitable. Its aims to achieve in securing a key market segment that will grow into mature and higher margin consumption patterns.

Domestic Production:

  • Domestic production help bring down entry prices and make luxury products more affordable and accessible to larger percentage of the population.
  • Government policies, rules and regulation are also likely to be much less stringent.
  • This concept is effectively utilized by the luxury car makers.

Internet and E-commerce:

  • Internet and social media are playing a much larger role in luxury consumption with advertising the products and make products known to consumers.
  • With deals or discounts, cash-on-delivery, EMI schemes and easy return policies, online shopping has offered luxury brands a new platform to engage and entice customers.
  • Luxury goods makers are moving towards online to sell their products. Luxury brands are also launching their own sites for the Indian market.
  • The major online luxury shopping sites such as elitify.com, darveys.com etc. These sites are selling almost all luxury brands in India through online by offering discounts and EMI schemes and capturing interest of consumers.

SME Consumers:

  • Amongst all the target consumer segments, this segment needs the greatest attention and offers the great returns on investment.
  • This segment comprises owners of small and medium sized businesses, who have enough cash for spending but largely unaware of luxury products and brands.

Market Drivers

  • India was by far the most dynamic luxury market over the period 2008-2013 and is forecast to grow by a further 86% in constant value terms over the five years to 2018.
  • Indian luxury markets account 1 to 2 % of the global luxury market. However with the significant in the HNIs population places India among the leading global destinations for luxury brands.
  • Though the luxury consumers are fragmented in India, but luxury retail is concentrated mainly to Tier 1 cities.
  • The presence of luxury brands in India is primarily restricted to mall and main streets. Limited luxury malls in India are DLF Emporio in New Delhi, UB City in Bangalore, and Palladium in Mumbai.
  • Popular luxury brands like Gucci, Louis Vuitton, Rolex watches and Prada dresses are sold widely in India. Many popular brands are also counterfeited and sold widely in India.
  • Sectors such as five star hotels, luxury personal care and jewelry, electronic gadget performed well in 2013 and are expected to grow by 30-35% over the next three years.
  • Media, newspaper, magazines and TV become the new way to promote luxury brands.
  • India’s luxury car market has grown eight times since 2007 from 4,000 units in 2007 to 33,000 in 2014. The number is expected to reach 100,000 units by 2020. The luxury car brands in India are Audi, BMW and Mercedes.

Luxury Brands Have Arrived in India:

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Size of Indian Luxury Market:

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Presence of Luxury Brands:

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Key Luxury Destinations in India:

1. Delhi NCR

Delhi NCR tops most of parameters of retail attractiveness quotient such as Real estate drivers, Demographics, Propensity to consume and Retail consciousness etc. As a result, Delhi NCR stood first in rank and we can deduce that it has the most enriching luxury legacy among the Indian cities.

2. Mumbai

Mumbai has the highest luxury demand potential. However, a lack of availability of land leading to high rents in prime areas causes Mumbai to lag behind Delhi in term of retail stock. The high propensity to consume create an inherent shopping culture.

3. Bangalore

Bangalore ranks high in retail consciousness, existing and upcoming supply and affordable rents in the city compared to Tier – I and some Tier – II cities. However, the city has lesser household expenditure.

4. Chennai

Chennai with its affordable rents and good high street stock has received the fourth rank. In addition, the large number of high and upper-mid residential units situated in the last few years. However, many from Chennai migrate to other IT destinations such as Bangalore, Hyderabad and Pune.

5. Kolkata

The best that Kolkata can offer to retailers is the attractive household expenditure spectacular high streets retailing. However, rent in prime areas are not affordable and the retail stock is low.

6. Hyderabad

Hyderabad offers attractiveness in terms of affordable rents and higher existing and upcoming supply. However lesser household income and household expenditure has ranked it low among other Tier – I cities.

7. Pune

Pune provides the most affordable rents in prime areas among the Tier – I and Tier – II cities and high migration rates. However, low household income and expenditure has ranked it low.

Market Outlook

  • The main mantra of luxury economics in 2015 or in coming years will be driving new valuable clients to online and offline channels.
  • In the coming year, look for more brands to begin building deeper relationship with large percentage of online and multi-channels customers.
  • Luxury retail has grown significantly and is growing at a rate of almost about 20%.
  • Social media can serve a useful purpose. Sites and apps like Pinterest and Instagram are more practical and have a better chance of success for the luxury brands.
  • Demands of luxury cars, apparels, jewelry, footwear and accessories are continue to grow significantly in the coming years.
  • The ‘Make in India’ campaign is also expected to give rise to the India luxury creators.
  • The already present global brands such as Louis Vuitton are also expanding their stores by investing more money and some companies like Armani are changing their joint ventures partnerships to increase their presence.
  • With the rising disposable income, change in spending pattern of the youth and globalised lifestyle culture, the consumption patter is moving towards more sophisticated and refined taste for good things in life.

References


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