India: Demystifying the Luxury Mantra


Abhay Gupta | January 29, 2013

Abhay Gupta, founder & CEO of Luxury Connect, wonders if - despite attractive growth opportunities - India is ready to receive western luxury brands

Abhay Gupta, founder & CEO of Luxury Connect, wonders if – despite attractive growth opportunities – India is ready to receive western luxury brands

The mysticism of India has always enchanted the west. Many westerners could not resist succumbing to her hypnotic culture and have since made India their permanent home. Historically, Indo-French business relations go back centuries.

During 1759 to 1954, the French East India Company established the territories of Pondicherry, Male on the Malabar Coast and Chandernagore in Bengal. Dr Francois Bernier was the personal physician to the mogul Emperor Aurangzeb, and more recently Francis Wacziarg – a resident of India since 1969 – created the Neemrana luxury hotel chain.

Luxury goods and brands across industry sectors, too are found to feel the need to enchant Indians with their wares and are humming the “Luxury Mantra”. But, is India new to Luxury? Not really. Consider the statistics:

• Diamonds were first mined in India over 3000 years ago
• The Taj Mahal, the luxury epitaph of love, was built in 1648
• In the last century the richest of all maharajas and rajas in India was the Nizam of Hyderabad, who ranked 5th on Forbes’ “All Time Wealthiest” with a net-worth of $210.8 billion
• Forbes 2012 list confirms that today India has quite a few in the top fifty billionaire’s club.
• Its 250,000 HNI households are slated to more than double in the next three years, substantiating the projection that the Luxury industry will easily hit the $ 15 billion mark by 2015 .

“ Diamonds were first mined in India over 3000 years ago. The Taj Mahal was built in 1648 ”

India has caught the fancy of the best luxury brands in the world from fashion, lifestyle and automobiles, to aviation, yachts, wines, homes and real estate. Currently considered as the fastest growing market for luxury goods, an average of over 20% growth has been maintained consistently over the last 5 years. India is now being considered as the new Mecca of Luxury.

But is India ready to receive all the high-end brands as yet? More specifically, is it at the same level as the west or China, the Republic, which accounts for approximately one-quarter of world’s luxury buys? (HSBC). Ironically, the very same data from HSBC suggests that India has been steadily growing and is becoming the main hub for the luxury brands. This is where they need to be – the time is now.

The world is beginning to understand the diversity of Indian culture within its boundaries. From north to south and east to west, tastes and patterns may vary. But the aspirations of a strong and multifaceted society are fuelling the desire to own the very best.

“ But is India ready to receive all the high-end brands as yet? Is it at the same level as the west or China? ”

Unfortunately, India spent part of the last few hundred years in subjugation which took away the wants and the desires of people who were used to their luxury “silks and spices” and “gold and jewellery”. However, in the 65 years of independence, we see a new dynamism as it marches on to becoming a global economic power.

In order to understand further lets take a look at the journey of luxury with an emphasis on the Southeast Asian countries – the stages of the luxury evolution. (By Radha Chadha & Paul Husband)

In China luxury has already moved from the start of the money to the third stage – the show off stage. In Japan, luxury is already a way of life – research has suggested that 95% of the women in Japan already own a Louis Vuitton bag. On the other hand, India is just emerging and moving through the first stage into the second i.e. ‘Start of money’ phase and is galloping to catch up with China very fast.

Another report recently provided by AT Kearney shows us how fast the pace of growth in India is. 50 luxury outlets were added during 2012, not just confined to the major cities, but also extending to reach second tier cities.

The annual consumption of the emerging markets is expected to climb up to $30 trillion from $12 trillion by 2025, which accounts for 70% of global economic growth (McKinsey). The countries that one can recall as an emerging market are India, Brazil and China to name a few.

The number of High Net Worth Individuals in India rose 35% to 240,000 between 2008-12 and is expected to ascend 80% further to 450,000 by 2015 (Euromonitor). This increase is expected to drive the growth of the Indian luxury market at 22% every year until 2015, whereas China is expected to grow at 15% per year.

One of the toughest market to do business, Brazil expects its luxury goods industry to grow more than $12 billion this year with the great number of ‘new money’ millionaires surfacing and chasing the luxury dream .

“ Challenges relate to lack of luxury real estate, lack of trained talent, high import duties & regulatory issues ”

We also see a situation in India, where a portion of its HNW population spends over $500 million every year shopping in overseas Luxury markets (Altagamma). This spends will ideally be directed back to India and could serve as an enormous growth catalyst if executed well.

Where we see growth, there are always challenges that hinder progression. In India the major challenges are related to lack of luxury real estate; lack of trained talent; regulatory issues like high import duties and FDI. The FDI (foreign direct investment) norms have been now relaxed and the government is extending its green branch to many of the brands that have been waiting to come.

Although no sizeable new luxury malls were added in 2012, there are many projects scheduled in Delhi, Mumbai and Pune, as also newer properties to accommodate luxury brands are also being created in the two tier cities and will be functional over the next 3 years .

One of the critical factors as pointed out by the above graph is the lack of talent (skilled manpower for the Luxury segment. This is a serious issue and many of brands are facing this problem. As per a national report, by 2022, the Indian luxury sector is estimated to require approximately 1.76 million trained people.

A survey carried out by Luxury Connect highlighted the fact that the current Indian luxury personnel lack skills in ‘Luxury Brand Management’ as well as ‘Luxury Customer Experience Management’. In order to meet these challenges, Luxury Connect associated itself with SDA Bocconi to develop a local brand management program.

Our research also revealed that the French conglomerate LVMH is perceived to offer the best customer experience worldwide. Luxury Connect Business School, India has then dug deeper to tie up and partner with Mr. Jean Claude Roustant, the ex training director of LVMH to bring the same service culture training to India.

Understanding the market psyche in India is very important. India has diverse tastes and many tiers of culture. European and American brands that have understood this are having resounding success. There have been failures too , but this has generally come from selecting the wrong partner . The pyramid below gives direction as to how the market needs to be approached .

The key to success is to be able to position the brand in correct strata of the pyramid – starting at the everyday or affordable luxury to the highest level of bespoke luxury. Most essentially, each position will require a specific type of partner. The combination of this formula could guide you towards the winning Mantra to entry. As long as brands consider the following four dimensions:

With the boom in the Indian luxury market that is expected, there are various opportunities, challenges and prospects. Essentially, luxury brands need to focus finding the correct partner, as well as the correct location.

To further investigate the Indian luxury market on Luxury Society, we invite your to explore the related materials as follows:

- In Conversation with Deepa Harris, Taj Hotels & Resorts
- Luxury Opportunities Abound in India, But How To Manage Challenges?
- Indian Luxury Brands Go Beyond Borders