The tipping point of luxury retail in India: An indepth study

India’s luxury retail market is growing at a phenomenal pace. What will be its tipping point that will enable it overtake the Chinese market? Or will the numerous obstacles in its path fail the luxury retail industry in the country?
The world, it seems, is excited about India’s luxury market, notwithstanding its meagre contribution of 1-2 per cent to the global luxury trade. They are all here – Fendi, Louboutin, Hermes, Louis Vuitton, Gucci, Burberry, Chanel, Jimmy Choo and more. And for the long haul.
India’s exiguous contribution to the global luxury market de facto translates to a US $18.3 billion luxury market (strewed across many segments, from cars to watches, hospitality, apparel and accessories and other lifestyle products) in the country. And it is deemed to gallop to double that size in the next five years. The phenomenal growth of the Indian luxury market has earned the country the tag ‘Star of Asia’ leaving in its wake Russia and even Hong Kong, which are appraised as weak markets in comparison to India.
The Indian luxury market is growing at a compounded annual growth rate of about 25 per cent (ASSOCHAM 2016). It is not yet in the top 20 league globally, but pundits augur that it would breach that mark this year and march ahead of the vibrant luxury markets of Brazil and Netherlands.
Yet, the market has not reached a tipping point as in China. Will 2017 be the year of reckoning for the luxury market in India? If yes, what is going to be the tipping point?
Changing Consumer Attitudes
Luxury brands are thronging the Indian market due to the growing population of high net worth individuals in the country, which is expected to grow at 27 per cent in 2017-2018. According to reports, they spend 40 per cent of their income on luxury brands (source: luxurysociety.com). Brand like Louis Vuitton has successfully integrated itself into the Indian luxury market by offering luxury as an experience and a rarity to the nouveau rich.
“India has the youngest consuming population in the world today with large disposable income and high brand awareness levels. These are two major pluses (for the Indian luxury market),” says CEO, Genesis Group (which represents various luxury clothing and accessories brands) Nikhil Mehra.
A decade ago, when luxury brands opened shop in India, the infantile market was wavering. Back then, most Indian luxury buyers shopped overseas. “They had a perception that brands in India may not have the latest merchandise or that the price difference was huge. But a decade down the line, we have seen this perception changing,” says Mehra. “People have realised that the difference in price is only marginal and that they can also get the latest collections in India like anywhere else in the world. So, it makes sense to shop here in India. We find that people prefer to skip shopping trips while they are abroad. This is a significant shift in attitude that we see more. And it is good for the future of the luxury industry in India.”
Market Features
The luxury market in India caters to two kinds of customers – the traditionally rich and the nouveau rich, or old money and new money. “The old traditional buyers of luxury have completed the consumption curve and moved onto products that continue to provide lasting value and quality propositions and experiences, while the newer consumers are yet looking at brands that come with prominent logos and are influenced by what their peers are consuming,” says Nikhil Mehra.
Luxury buyers are further categorised into four groups: The Value Seekers, The Experience Seekers, The Balance Seekers and The Look At Me. While the former two groups are made up of customers from old money, the latter two are from new money. And it’s the new consumers who are disrupting the industry with their buying and consumption habits.
Today, the market is flooded with most international luxury brands – from Armani to Cavalli to Versace, Ferragamo, Pamela Mann, Ivanka Trump and so on. The leading markets for luxury goods in India are Delhi NCR followed by Mumbai, Bengaluru and Chennai. There’s also a growing consumer base in non-metros like Ahmedabad, Chandigarh, Pune, Nagpur, Hyderabad and Ludhiana. The non-metros comprise of 16 per cent of the total luxury sales in India (Chaturvedi & Sharma, 2015).
The top-selling items in the luxury market are fragrances, watches, jewellery, skincare and apparel. Women with their increased purchasing power have given the luxury beauty market a boost in the arm. There’s something for everyone seeking luxury brands.
“At Genesis, we have a portfolio of brands that cater to all these segments – from Canali and Bottega Veneta on one side of discretion to Armani brands and Michael Kors at the other end of flaunting. This mix helps us reach every segment of the luxury consumer in India pretty seamlessly,” explains Nikhil Mehra.
When it comes to luxury fashion, menswear (especially made-to-measure) and accessories do well, relatively speaking. “This is because of the consumption trends in India,” says Founder, VanityCask Tech Pvt. Ltd., Tarun Joshi.
There are few Indian players in the luxury market, but not as many as one would expect in a growing market such as ours. Luxury & Lifestyle Consultant Anjana Sharma will let you know that in India luxury wear means wedding wear. “There are very few Indian designers in the luxury mix – Rohit Bal, Anamika Khanna, Sabyasachi, Nirav Modi (jewellery). Most Indian designers eventually end up doing ‘bridal’ since that’s where the money is. Irrespective of where they started their design journey.”
According to Anjana Sharma, the concept of western couture is only now taking off but restricted to red carpet events. “When it comes to Indian luxury wear, there’s no comparison. They score on artisanship and design but fail a lot regarding finishing. But when it comes to western silhouettes (by Indian designers) I don’t see originality.”
The Gripe Vine
Indians with their disposable incomes, exposure to brands and international travels are splurging on luxury goods like never before. So much so, even demonetization affected the industry only for the first few weeks. After that, things went back to business as usual. Anjana Sharma says that the wedding industry in India has proven that it is recession proof. “The big weddings are a clear indication…guests were spotted wearing current designs, not last years. I think the demonetization for the luxury consumer was more a short-term inconvenience.”
This must sound like sweet music to luxury brands. But, there is a jarring note.
While the luxury consumer is intrinsically the same the world over, there are however, peculiarities in every part of the world. More so in India.
“In India, the consumer has three distinct characteristics, which are different from a consumer in China or the West. Indians culturally are very price conscious, want lasting quality and are always looking for a good bargain in terms of relationship discounts,” explains Nikhil Mehra. Indians, even the new moneyed consumer, look for value for the purchase. Meaning, he or she will not drop a load of cash to buy a Ferragamo or Armani without thinking whether he can get the same bag or suit for a discounted price.
There is a marked difference between luxury retailing here in India compared to other global markets. “I don’t think anywhere else in the world do luxe brands go on sale as they do in India,” says Anjana Sharma. Pricing has been a bone of contention in the Indian luxury market.
Then there are other apples of discord. “From product to people, there is a disconnect at every level,” writes Rehan Shaikh, a marketing, communication and brand specialist on Linkedin while talking about things gone wrong with the Indian luxury retail. “Customer service is close to non-existent and so is the experience.”
Space Constraints
There are other sore points too which is preventing luxury retail in India from realising its full potential. Tarun Joshi sums luxury retailing in India thus: “Limited retail penetration, lack of luxury department stores, pricing parity (vis a vis Europe/USA), width and depth of merchandise.”
Lack of quality luxury space and the environment has been a bone of contention from the beginning. Traditionally, luxury buying is as much about the experience as it is about the product. If not more. The ambience, the exclusivity, the accessibility, the privilege hallmark, the opulence, the sensuousness, the indulgence – it’s the
whole package. And this pageantry that’s synonymous with luxury buying needs pertinent anchorage. Currently, the brands are limited to a few places like the malls and star hotels.
Sheetal Jain, a doctoral scholar, AMU and Director, Bardia Consulting Pvt Ltd, in a paper published in the AIMA Journal of Management & Research (May 2016) writes: “There are limited retail outlets for high-end luxe brands (DLF Emporio, Palladium and UB City). In India, high streets are very cluttered and over-crowded and therefore, do not provide a suitable ambience that luxury retail demands. Also, high rental costs of setting up luxury stores in high streets deter the retailers from opening these stores. Therefore, weak infrastructure is one of the major challenges that inhibit luxury retail growth in India.”
Nikhil Mehra believes that luxury has not been able to make inroads into the interior parts of the country, unlike China, “because apart from the key metros there are no luxury spaces available to house these global brands.
Now, lack of appropriate retail space might seem like a significant impediment to the growth of the luxury retail industry. However, this also means a shift in the way luxury brands are consumed. Increasingly, luxury brands are plying the online route to reach customers. Brands like Michael Kors and DKNY have strong online presence.
Digitalization of Luxury
According to ASSOCHAM (2016) report, around 140 million Indians are using the Internet. And they are mostly young Indians who like to experiment with luxury brands. Online purchase is expected to grow rapidly because by 2020 around 250 million Indians will be conducting business online. Currently, the number stands at 90 million. The ASSOCHAM report states that the purchasing power of the people living in Tier-2 and Tier-3 cities along with high penetration of Internet will result in approximately 100 million transactions on the web by 2020. That would roughly account for around 20-25 per cent of the total retail spending. Globally the online luxury sales are expected to hit the €20 billion.
There’s an increasing number of HNIs in Tier-2 and Tier-3 cities. The nouveau rich wanting to own luxury brands. Unlike the old traditional buyers, they are more interested in owning a world class luxury brand than the experience of luxury buying. It is this category that going ahead will aid the luxury retail industry to ride the digital wave.
Paying heed to the digital revolution, the brands are diversifying too. Many luxury brands have partnered with leading e-commerce businesses like Amazon, Myntra, Jabong, Darveys, Luxepolis, Luxury Station and so on.
“Digitalization is here to stay,” says Anjana Sharma. Luxury retail is restricted to the metros. So the convenience of online shopping will play a huge role in the growth of the luxury markets in smaller towns and cities.
Going digital will help to create better brand penetration into the interiors, says Nikhil Mehra. “But that still is in its initial phase. I think for e-commerce to mature, it needs to get away from offering discounts and create a marketplace where easy availability is the primary driver for shopping online and not discounting. Luxury cannot sustain its proposition if it is only discounted. The experience of purchase is critical and not price when buying luxury offline or online.”
However, Tarun Joshi warns that online retailing runs the risk of lowering the brand image unless handled carefully. “Digitalization will be of great help (in growing the market) if used judiciously.”
Would it be good for the brand image if iconic luxury brands go up for sale on the Internet? How will luxury fashion houses retain and sustain their singleness, which is based on experience and rarity?
The Tipping Point
While in the global markets, digitalization is disrupting luxury markets and is considered to be the tipping point, in India the pundits believe that it has to be a combination of many factors for the market to experience a tipping point.
“The tipping point, like in China, will happen once our retail infrastructure matches up with the proposed speed of growth,” says Nikhil Mehra.
Anjana Sharma believes that the “tipping point for luxury retailing in India will occur when the taxes are reduced, and you are truly competing against Dubai and Singapore. After all, a die-hard luxury consumer has easy access to these markets.” (Luxury goods in India are priced 20 per cent more than the other main markets due to taxes and duties).
Tarun Joshi says, “The tipping point in luxury retailing in this country won’t happen by itself. It needs carefully planned strategies, especially for pricing and merchandising.”
When it comes to luxury market, India still lags behind disproportionately to its economic growth. This is due to brands/ franchises not creating smart, India-specific strategies. “They are still trying to ‘copy-paste’ global strategies whereas a large, developing market like India, needs a focused approach,” says Tarun Joshi. “Low see-throughs and high operational costs combine to create negative cash-flows. This, in turn, hampers corrective action.”
Fragmented and diversified customer base offer a challenge to the retailers. To overcome that, the brands will have to tailor make their products to suit the whims and fancies of Indian consumers if they want to succeed. Brands like Versace and Louis Vuitton are said to be revamping their strategies to suit the Indian market.
“Any brand that wants to be successful in India needs to understand that the luxury business in India is a marathon, not a sprint,” says Nikhil Mehra. “You have to have a long-term plan in place and be patient. India has the huge advantage of the youngest consuming population in the world today and a growing level of disposable incomes added to high brand awareness levels. Once the infrastructure is in place to penetrate the interiors of Tier II and Tier III cities, this would be the largest consuming market for brands after China.”
In spite of the teething problems that’s hampering the industry from realising its full potential, industry watchers are optimistic about the future of luxury brands in India. We have all the demographics right for this market to flourish. There’s a significant offtake and growing as far the market is concerned. Though the brands are always plagued by doubts over the ability to sell non-discounted merchandise, Tarun Joshi is confident. “I think the future of luxury retail in India is brilliant provided we get customer-oriented, creating solutions based on customer needs rather than be driven by operational dilemmas.”
The Indian luxury market will continue to grow. A combination of on-ground luxury stores, unique digital experiences without compromising on the rarity component of luxury, tailor-made selling points and social media engagement is what will give it its tipping point.