As China continues to lose its luster, many brands are back to the drawing board to identify the new hotspot for luxury – and India is a strong contender. Abhay Gupta explores its merits in the first of this three-part series.
Despite economic slowdowns across the world, size of the global luxury market is estimated to be around 2 trillion USD.
The BRICS region, more specifically China and India, have been in the spot light for the past few years. However, last year, the luxury industry in China faced many challenges related to luxury consumption, regulatory issues, tariff structures, currency reasons and a severe clamp down on the ‘gifting culture’. Stores opened in a hurry by brands across categories began to shut shop and the entire global luxury industry was severely affected.
As a result, many brands are once again back to recreating a fresh strategy canvas for future growth – and India could be a strong contender for the next luxury hotspot. Here’s why.
“ India is expected to emerge as the world’s fastest growing major economy ”
If one does a quick analysis across the BRICS nations, one finds that :
- In Brazil, the Economy is in recession. There is no clear revival visible as of now.
- Russia is the worst affected of the lot due the commodities slump & drop in currency
- China is battling a growth slowdown.
- In South Africa, the Economic growth has decelerated steadily over the last few years. Industry analysts see limited growth potential
- India is expected to emerge as the world’s fastest growing major economy
India’s economy is much stronger now. The indicators are all favourable. The fiscal deficit, the inflation index, the current account deficit and the forex reserves are all healthier & growth driven.
The percentage annual growth rates projections stand best in the BRICS region at 7.5% in India as against 6.3% in China; 2.1% in South Africa & almost negligible in Brazil and Russia.
Besides, India has been voted as the 7th most valued ’nation brand’. With an increase in 32% in its brand value to $2.1bn, India has moved up one position in the most valued nation brands list. Not only that, this surge of 32% is the highest among all the top-20 countries on the list.
The nation brand valuation is based on five year forecasts of sales of all brands in each nation and follows a complex process. The Gross domestic product (GDP) is used as a proxy for total revenues. Among BRICS nations, India is the only country to have witnessed an increase in its brand value with all others — Brazil, Russia, China and South Africa — seeing a dip in their respective brand valuations.
In addition, India is the second most valued among these emerging economies after China, followed by Brazil, Russia and South Africa.
The Indian consumer has been divided into five different classifications. While the top most of the pyramid or the Elite Class is just 4% of the overall population, the absolute numbers are far too attractive for any luxury brand to ignore. These numbers are expected to grow from current 10 m to 26m households by 2025.
In addition, by 2025, the overall average house hold income is expected to multiply by 1.7 times. This in itself is an attractive proposition for any global retail brand.
According to Credit Suisse’s 2015 Global Wealth Report, India has ranked up in the list of Top 20 countries as the number of ultra-high-net-worth (UHNW) individuals rose by 100 since mid 2014 to now stand at 2100. In addition, India is home to the fourth largest population of millionaires in the Asia Pacific region.
Besides, it is estimated that India will witness a three-fold increase in HNI wealth over the decade — it is expected to touch $2.3 trillion in 2020 from $949 billion in 2010. By 2020 the wealth of high net worth individuals (HNIs) in India will rise by 94% as opposed to China’s, which will grow at 74%, providing attractive opportunities to luxury retailers.
Delhi and Mumbai will remain as India’s richest cities in terms of millionaires’ wealth concentration.
The contribution to GDP by retail sector’s revenues in India is amongst the highest in the world. For most developed markets retail sector revenues are 15-20% of the GDP, while for India it is around 25%. It is estimated that by 2022, the size of the retail market will exceed $ 1.2 trillion.