Emerging Luxury Markets: India's Ripe Retail Market


Abhay Gupta | April 12, 2016

In the second of a three-part series, Abhay Gupta, Founder & CEO of Luxury Connect and Luxury Connect Business School, delivers a detailed overview of India's lucrative retail market and digital aspirations.

Market Overview

According to a research report by Euromonitor, India merely contributes 1-2% to the global luxury trade. However, despite this insignificant percentage, the market is growing at a compounded annual growth rate (CAGR) of about 25%. Indian luxury market is expected to cross $18.3 billion by 2016 from the current $14.7 billion.

As per a study by Assocham , in 2015, luxury jewellery, electronics, SUV cars and fine dining have grown immensely. Apparel, accessories, wines and spirits are growing as strongly as in the past. Consumption of branded wine is also likely to register a over 30% increase in the metro cities.

“ Significant brands that performed well in 2015 included GUCCI, Christian Dior, Louis Vuitton… ”

Significant brands across various verticals that performed well in 2015 included – GUCCI, Christian Dior, Louis Vuitton, Canali India, LVMH India, Judith Leiber, The SPA Group, Starwood Asia Pacific Hotels & Resorts, and Reliance Brands. Increasing brand awareness and growing purchasing power of the upper class in tier II and III cities is fuelling further growth.

Service areas such as fine dining, electronics, luxury travel, luxury personal care and jewellery saw increasing revenues and are expected to grow by 30-35% over the next three years. Spending on luxury cars continue to rise growing upwards at 18-20% over the next three years. As the purchasing power of women is rising in India, the luxury beauty products market is witnessing a fast paced growth.

Interestingly, 3 Indian companies have entered the Top 50 luxury brands of the world. Ranked at 31, 42 and 44 respectively, these are Titan Company Ltd, Gitanjali Gems Ltd, and PC Jeweller Ltd. PC Jeweller Ltd. is also one of the world’s 20 fastest growing luxury goods companies.

“ In 2015, luxury retail space in India increased to 1.44% of the overall retail space, from 1% ”

There is a growing need for individuality and exclusivity as people get richer. The size of the HNI’s continue to get bigger and they spend over 40% of their monthly income on some of the world’s largest luxury brands whereas the middle income group (MIG) consumers spend 8-10 per cent of income on luxury products.

According to Cushman & Wakefield report, in 2015, luxury retail space in India increased to 1.44% of the overall retail space as compared to 1% in the past,

Digital Luxury Space In India

India is a highly digitally inclined nation. Digital influence and online purchase is projected to rise exponentially. It is estimated that by 2020, approx 350Mn people are likely to digitally influence as compared to 150Mn now. This will account for $240-250 Bn i.e. 20-25% of the total retail spending. It is also estimated that by 2020, 200-250 Mn Indians will shop online, as compared just 90 Mn currently. ( $=65INR)

Given the wide reach of the digital medium and the very low entry barriers, luxury brands are beginning to expand their presence through the online space.

In the recent past, several portals have come up. Names like RockNshop ; Luxury station;; Luxepolis; Darveys etc offer luxury goods sourced from various boutiques. Pre-owned luxury is another fast growing phenomena adding to servicing the aspirations of small town luxury seekers.

There is money in the smaller towns & markets, but there is no access to luxury brands. As Indians acquire global tastes thanks to affordable foreign vacations, influence of Hollywood and Bollywood, and the Indian diaspora, they are looking to own foreign luxury brands.

“ The key spending on luxury products is pre-dominant in the metro cities ”

En-cashing on this sentiment, online fashion retailer Myntra sells premium brands such as Desigual, New Look, Furla, Superdry, Emporio Armani, L’occitane etc in its portfolio. Most recent addition is fashion house DKNY and The North Face. Owing to the response of premium international brands, Myntra has revised its revenue target from international brands to 15% of its revenues in the next 12-18 months, from current 5%.

Indian Luxury Retail Trends – Tier 1 Cities

The key spending on luxury products is pre-dominant in the metro cities. In 2015, Delhi ranked first in spending most on luxury brands followed by Mumbai (2nd), Ahemadabad (3rd) Pune (4th) and Bangalore (5th). However, spending on luxury goods has spread much beyond and across tier I, II and III cities.

Ranking of India’s Leading Luxury Retail Cities

Delhi NCR – Has the most enriching retail legacy among the Indian cities, therefore the city tops all real estate drivers. Delhi, especially the National Capital Region, remain one of the strongest markets in terms of sale volumes for the manufacturers

Mumbai – Mumbai has the highest retail demand potential. However, a lack of availability of land parcels leading to high rents in prime areas act as a dampener that causes Mumbai to lag behind Delhi

Pune – Pune provides the most affordable rents in prime areas among the Tier I, Tier II cities

Bangalore - Affordable rents in the city—compared to other Tier I & some Tier II cities, have helped the retail to flourish here. However, the city has lesser household expenditure even when compared to Kolkata and Chennai

“ Chennai-ites are mature shoppers. They are well-travelled and not afraid to pay for quality ”

Ahmedabad – A cash rich city, increased spending on premium high-end offerings from global auto makers. For Italian super-luxury sports car maker Lamborghini, cities like Ahmedabad have put up sales figures of six units in the last six months. These figures are significant because the Volkswagen-owned brand sold 16 units in 2014 as against 22 in 2013

Chennai – "Chennai-ites are mature shoppers. They are well-travelled and not afraid to pay for quality,” says Ajay Agarwal, Managing Director, Bergamo. Chennai embraced the concept of department stores much before the other metros did. Demand for office space continues to grow for the third straight year/

Hyderabad - Hyderabad offers attractiveness in terms of affordable rents, which is higher only to Pune among the Tier II cities. However, lesser household income and household expenditure has ranked it lower.

Indian Luxury Retail Trends-– Emerging Tier 2 & 3 cities

44% of these wealthy Indians reside in tier-two and tier-three cities. In the tier 2 and 3 cities, the highest demand is for luxury automobiles, followed by apparel for women and accessories for both sexes. 600 cities from Tier 2, 3 and 4 categories would be 4.5X times the current size (Source: BCG)

Indian Luxury Retail Trends – Performance Drivers

1. Value Conscious Consumer: India is essentially a value conscious consumer base. New trends in this direction are :

a. Pre-owned luxury : Pre-owned luxury is a fast catching trend. BMW, Mercedes and Audi have showrooms for sale of Pre-owned cars. A rapidly growing market owing to high depreciation of up to 30% in first 6 months, this is a highly attractive proposition. Besides, it is quickly moving out of the initial category of automobiles. The second-hand market for luxury Leather goods and clothing segment is growing faster than the luxury industry overall. Online Platforms like Luxepolis, Luxury station etc are relying on the fact that a considerable amount of merchandise lies unused in the closets of women. This made available at a good resale price, is fuelling young generation’s growing aspiration of owning premium and luxury brands

b. Rent a experience: There are sites that offer ‘rent a luxury’ product / services. The consumer wants to lap it up since works completely well with their changing mindset as well as pockets. A big portion of the demand of car rentals industry is for luxury cars as the aspiring consumer with increased disposable income wants to feel like a star for a special date or on anniversary.

2. Customization: With the increase in consumer desire for exclusive products, luxury brands such as Zegna, Tom Ford, Corenliani are adopting bespoke services, as an ultimate expression of luxury for the UHNI’s. This has also given rise to limited editions or special series to generate artificial desire and demand. Customization and strong supply side are imperative steps for boosting the luxury market growth. In addition, past offerings by International brands (Sari by Hermes; Nawab jacket by Canali) have set the tone for future directions for brands to adopt India specific range.

Mumbai, India

3. Increasing digital influence – Digi-lux, the new mantra: Luxury brand were vary of making their products available online as it erodes the ‘exclusive’ element from the luxury product but they are realizing the importance of online platform not just for commercial viability but also to connect better with their consumers. Suddenly jewellery to cars to real estate to services – all being sought on the net. A combination of physical stores, digital experiences and social media engagement is the new mantra.

4. Competitive landscape – Collaborate not compete: Although, there are multiple brands in every segment within the Luxury domain, the key to expansion and continued development of Indian Luxury Industry is collaboration, not competition. it is imperative to keep growing by synergizing our knowledge of craft with contemporary needs. Bringing together the expertise while not diluting the brand equity is the key in a market with highly fragmented consumer base. A recent collaboration of an Indian designer brand, Sabhyasachi Mukherjee with an international designer brand Christian Louboutin set a new trend of collaborative approach of non competing brands, that showcased the best amalgamation of craft , culture and design sensibilities of two great creative geniuses.

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