Luxe Retailers find India an Upscale Excursion
At the corporate headquarters of a 520-Cr Publisher in a two-tier region, two luxury automobiles park in the wee hours of every Friday morning: Ferrari California and Maserati Grancabrio. These low-slung supercars, as claimed by the owner-Publisher, make their way out on Saturday (around midnight, when driving them is easier) for late-night club room parties at popular hotspots in the city.
Ratnakar Dev Singh, who runs a designing-solutions company in a tier-three city that rakes in hundreds and thousands of dollars picking book-designing projects from the UK and Germany, ‘invested’ in a Mango-sized shiny-and-chrome clutch for his wife on her birthday costing $4000. “The string of the purse alone costs $1500, but my wife likes shiny and chrome as it restores in her a certain confidence when we go to parties,” he said, noting that he probably overspent for that size.
India Is Responsible Only For 1-2 Per Cent of The Global Luxury Market
India’s contribution to the luxury industry is less than a tenth of that of China whereas Russia is about 50 per cent that of China. Import duties (ranging from 20–150 per cent), which are considered as a key dampener among the international players, are relatively higher in India. The higher duties may resist the players to frame aggressive growth plans for India.
The sale of luxury products in India grew by 25 per cent in 2015, according to research firm Euromonitor. While 25 per cent puts India ahead of China’s luxury-goods sale last year, the sales are expected to more than double in the next five years. The Research also revealed the percentage increase in spending (from 2013) in various categories; while premium beauty and personal care products account for the highest 31 per cent growth, a steep rise was noticed in categories such as champagne, accessories including bags, jewellery and watches.
The Indian Luxury Consumer: Small but Bountiful
The luxury consumer is fragmented in India, but luxury retail is concentrated mainly to Tier 1 cities. The top three aspects Indian consumers value in luxury products currently are quality, luxuriousness and fashion quotient.
There is easy acceptance to luxury however and it also goes beyond megacities. “Today, luxury has not grown as phenomenally as one would have expected, but the movement happening around these cities with the premium brands is nothing short of a surprise,” said Dinaz Madhukar, Senior Vice-president for DLF Luxury Retail and Hospitality.
Looking at it from the perspective of makers of luxury goods, India’s two-tier and three-tier cities is where the money and the spending power is, except that these places have unlikely infrastructure of housing brands like a Tommy Hilfiger or a H&M, let alone a Jimmy Choo or a Burberry. Citing the Kotak Wealth Management report – A 44 per cent of these wealthy Indians reside in tier-two and tier-three cities and spending in the Indian luxury market is expected to more than double to 236 billionrupees from 132 billion rupees. In the tier 2 and 3 cities surveyed, luxury automobiles have the highest penetration, followed by apparel for women and accessories for both sexes.
To reach their target group, Luxury Brands also follow the trunk-shop model in small fashion boutiques and rely mostly on references. It helps them reach their clientele, while the buyers maintain their discretion. These pop-up shop arrangements can now be seen everywhere, right from Chandigarh to Aurangabad, to Nagpur, Ahmedabad, Ludhiana and Bellary. At times, luxury brands also organise home shopping for some key clients upon request.
Luxury Goes Beyond Fashion
Luxury space has been India very aggressive. Beyond Fashion there has been eye for the growth in segements like cars, watches, fine dining, thematic weddings and elaborate wedding trousseaus and even luxury holidays.
The number of millionaire Indian homes worth $3.8 mn (250 million rupees) grew from 117,000 in 2014 to 137,100 in 2015, according to Kotak Wealth Management. The growth of 17 per cent is further pegged to triple with 348, 000 homes by 2020. . .with a combined net worth of 415 trillion rupees.
“For Abercrombie and Kent, the travel market in India is a very aggressive business to be in, both in the incoming space and outgoing space. But it is very professional as well. A lot of people outside of the megacities book upscale and luxurious excursions to the most expensive parts of the world. We are close to $800 million in top line, and India really contributes to about 5 per cent of that,” saidAbercrombie and Kent’s India Director, a company in the niche luxury space for travel market.
“Our smart watches are priced between INR 70K to 80K. Six pieces sold on the day of the soft launch itself, and Indian customers commented that they felt the prices would be 30 per cent higher,” said Arun Marc D’Silva, India Director, Frederique Constant watches, India.
The luxury car sales will also climb in the next five years, according to a report by credit agency ICRA. The luxury passenger vehicle segment would go on to triple by the year 2020, (33,000 a year to over 100,000 by 2020). “Maserati, the Italian auto brand has an ambitious global growth target of 75,000 units sold annually by 2018. India will have an important contribution to this target. We see a lot of potential in the market here and hence have brought our entire fleet and dedicated Maserati after sales service facilities for our Indian customers this time,” noted Bojan Jankulovski, Head of Operations for Maserati India.
Online Luxury Market May Touch $35 Million Mark By 2016
“A recent report by International payment transfer company, Paypal, indicated that Indians have shopped a whopping Rs.54,000 crore of goods on foreign websites. Out of this, 55 per cent was spent in purchasing high-end fashion goods. This highlights the latent demand for luxury and premium labels in India,” said Vijay KG, Founder, Luxepolis, an online platform for buying and selling the widest range of luxury and premium branded products.
Having said that only 1.2 per cent of the total buyers have bought luxury products online. The need to buy in store is driven by the need to ‘touch and feel’ the high-end products and play safe of counterfeits and fakes, which have plagued the online marketplace in particular. A recent report suggested that India will have fake luxury products account for nearly 10 per cent of the market share, whereas the global average is around 8 per cent. The unfortunate issue is that the fake product vendors have developed very sophisticated means of digital marketing and are using eCommerce to reach out across India.
Worldwide, going by the analysis of various reports, luxury as a category is a cautious acceptor of the digital and online medium. Brands, however, cannot ignore it anymore and are therefore working on creating web-based interactive platforms to broadcast information about their products, their designs and their inspirations.
The Spate over Luxury Space
According to Cushman & Wakefield report, the luxury retail space in India has been 1.44 per cent in 2015 as compared to 1 per cent in the past. At present, luxury brands are present in the top seven cities of India. Thirty-eight per cent brands are present in NCR, followed by Mumbai at 21 per cent and then Bengaluru at 17 per cent.
The obvious choices for luxury retailers are either luxury malls (DLF Emporio, Palladium, UB City, Quest Mall etc.) or preferably in luxury Hotels. Luxe retailers, both national and international are racing to expand their footprint in India. “Nearly 20 brands are waiting for space in Emporio”, says Dinaz Madhukar, Senior VP, DLF Emporio Mall, New Delhi. DLF’s new project in Delhi, Chanakyapuri mall will be completed by Autumn-Winter of 2016, said Madhukar. She also noted that the bridge-to-luxury brands would be the latest DLF property’s focus. The supply of retail space for luxury brands will double by 2019, according to CBRE.
Getting the Right Business Model
Of the 500 leading international luxury brands, only 30 per cent are present in India and that too have had their share of problems with getting the right business model and partnership. Mostly luxury brands have followed have come through marketing, franchise and distribution arrangements or as joint ventures, said Gaurav Marya, Chairman, Franchise India.
Ferrari and Maserati entered India in 2011 thorugh importer and dealer—Shreyans Group. However, owing to mounting complaints of alleged negligence in after-sales service, both the companies severed ties with Shreyans in 2014 and had no presence in the country since then.Ferrari has now re-entered India with two dealers: Navnit Motors in Mumbai and Select Cars in Delhi. Maserati, too, has robust expansion plans. Its first showroom in India is operational in Delhi and is managed by AMP Supercars.
Fashion brands Like Hugo Boss, ST Dupont and Brioni, are in talks with new partners. More recently, LVMH Brand Tag Heuer too is looking for distributor. Operational challenges too continue to plague the luxury players. By the year 2022, Indian Luxury Products & Services will be requiring work force to the count of 1.76 million.
"When a brand has to enter India there are potential suitors, but overtime they realise that the arrangement is not as good as on paper and that may lead them to scale back expansion and close down stores,” said Gaurav Marya, Chairman, Franchise India.
Let’s chalk out what luxe retailers noticed in 2015 and what is yet to come.
- Thirty-five per cent of the sales of luxury brands in India are coming from non-metro cities;
- The key Indian cities which contribute to the rising luxury and premium goods consumption are Ahmedabad, Pune, Nagpur, Hyderabad and Ludhiana, which account for 16 per cent of total luxury sales;
- Consumers valued quality the most in luxury products at 75 per cent, followed by the luxurious aspect (69 per cent), style (64 per cent), modernity (63 per cent) and reliability (61 per cent);
- On account of rising disposable incomes and modern retail popularity, and offers such as EMI schemes, return policies, cash-on-delivery and discounts, the online luxury market – pegged at a mere $8 billion in 2012 – is set to touch $35 bn mark by 2016, according to Assocham;
- Growing at a compound annual growth rate of about 25 per cent, luxury products sold online include apparels, stylish accessories, watches and high end electronics.