Rewind a few years and the talk from leaders in the luxury sector was around the growth potential for their brands within the BRIC countries. With slowing growth at the time in the US and Europe, the real possibilities lay in the consumers of Brazil, Russia, India and China. Some of these predictions came true – certainly China became a golden ticket and allowed for consistent double digit growth for many fashion brands and likewise, Russian spending has accounted for a significant percentage of global fine jewellery sales.
However Brazil has just entered what Bloomberg has described as the “deepest recession since at least 1901” (1). Growth in China has now slipped to the slowest in 25 years, despite the devaluation of its currency, and the geopolitical and economic unrest in Russia has reduced its tourism spend to a few roubles.
With this in mind we believe 2016 is the year for India to become top of the agenda for luxury brands.
The Indian economy has shown strong resilience, resulting in consumers spending increasing amounts on luxury goods. Growing at a rate of over 20% last year, India’s luxury market is set to more than double to $5.6 billion by 2019,(2).
India has a rich heritage of embracing luxury and opulence. For example, in 1926, the Maharaja of Patiala asked Cartier to re-model the crown jewels, still its largest commission to date. However international brands have long found it difficult to penetrate the market with poor quality retail real estate and a strong consumer loyalty to domestic brands.
This consumer landscape is now changing rapidly. Personal wealth is on the up and the number of millionaires living in India has grown from 62,000 in 2011 to 137,000 in 2015 (3). This figure is predicted to treble in the next five years. With this accumulation of money has come the desire to enjoy Western luxury goods and the total luxury goods market in India is now worth over $10 billion.
With the majority of Indians still preferring to wear traditional dress from local designers, sales of accessories and shoes have accelerated faster than ready-to-wear, growing almost 24% from 2013 – 2014. The luxury fashion houses have launched a charm offensive to win over the Indian customer and more importantly retain their long term loyalty. Karl Lagerfeld produced an Indian inspired collection for Chanel for A/W 2012/13 and Kering’s Marco Bizzarri, said in 2013: “India and Italy have a lot in common, especially the tradition of luxury. There is tremendous scope for a flourishing luxury goods market in India.”
Outside of fashion, other sectors have equally benefitted from the rise of the Indian middle class wealth. The luxury car market in India has grown much faster than the mass-market sector. Audi is the market leader with sales of 11,292 units; (5) This trend is set to continue as young, educated Indians who are exposed to global marketing (and BBC TV’s Top Gear) enter this market with high levels of disposable income. Joe King, Head of Audi India, described India as “the world’s youngest consumer of luxury cars”. (5) Indeed, the average age of a luxury car owner in India is only 35 compared to a global average of 43-45 years.
Beauty and cosmetics are one of the most rapidly changing market sectors in India growing 31% between 2013 and 2014 (4). Through international travel, the consumer is more brand aware than ever and even the men’s grooming market is also gaining traction. Gilles Moutounet, Country Head, L’Occitane en Provence India, comments: “The level of awareness has grown dramatically in five years. We have witnessed in these five years, the arrival of most high-end brands in India and the opening of many new high-end retail locations, which have helped to develop the level of awareness.”
L’Oreal believe in the importance of the market enough to invest €135 million in a research and product development facility in India to reach its objective of the region of become one of its top five markets by 2020 (6)
One of the biggest challenges facing luxury retail is the poor calibre of the infrastructure and real estate compared to markets such as China. Whilst global cities have marquee shopping districts such New York’s 5th Avenue or Bond Street in London, Indian main street locations are congested, polluted and lack the ambience for a genuine luxury experience. In recent years, improvements have seen the opening of stores from the likes of Burberry and Louis Vuitton in Jubilee Hills in Hyderabad and Bandra Linking Road in Mumbai. However even here, such brands trade adjacent to small local traders selling beads and inexpensive jewellery.
In high-end malls, the total volume of space leased by the luxury retailers remains small. In fact only 2% of the quality mall space across top eight cities of India is meant exclusively for luxury retail (7). This has led to developers building hybrid malls such as DLF Emporio in New Delhi or Palladium in Mumbai where high street labels such as Mango and La Senza trade alongside the likes of Bottega Veneta and Jimmy Choo. Atul Ruia, managing director of Phoenix Mills, the company that owns the Palladium and Phoenix malls in Mumbai comments: “Hybrid malls have been a huge driver of luxury goods sales, because the customer who shops at Zara here also shops at Burberry. All the brands realize that five-star hotels are not the way to go. The kind of numbers we have seen at or DLF Emporio in New Delhi are phenomenal because they reach a much wider audience. The numbers are surprising the luxury companies themselves.” (7)
Whilst the real estate is improving, suitable space remains at a premium until development meets the demand. Retail space for luxury brands is set to double in the next three to four years, according to a report by CBRE Group, the world’s largest commercial-real-estate firm. Developments in major cities will add an expected 16 million square feet of commercial space, with luxury retailers taking an estimated one to two million square feet. (7)
One way brands have side-stepped the real estate issue and targeted high net worth individuals directly has been the success of the trunk show. 44 per cent of India’s multi-millionaires live in more industrial second or third tier cities (8). Without a standalone store in the area, trunk shows are a way of bringing such consumers together in an environment in line with the global image and allowing them to purchase from latest collections.
Where India firmly remains behind more developed markets is the penetration of e-commerce. Although online sales are developing due to the boom in smartphone sales, it still accounts for less than 2% of luxury goods sales (4). Consumers remain nervous of the authenticity of goods sold online and prefer the bricks and mortar experience where they can touch and try a product on.
However India has one the largest ‘young’ and digitally connected populations in the world. This segment of population will drive the growth of the online luxury market. Early adopters are using sites such as http://www.darveys.com/ an Indian equivalent of Farfetch, or https://confidentialcouture.com which stocks pre-owned product from the likes of Dior and Chanel. Net-a-Porter recognised the potential of shipping to India before its competitors and in 2012 Vineet Bahl becomes the first Indian designer to retail out of the site.
The opportunity in India in compelling. More than 1.2 billion people populate this country that is experiencing rapid urbanisation, increased disposable incomes and growing awareness of luxury products. Like China in the late 1990’s, brands face many challenges to gain traction, but the rewards are potentially vast. With share prices and sales growth needing to be maintained, India presents rare possibilities for expansion and offset the challenges ahead as other markets mature.
- Brazil Heads for Worst Recession Since 1901, Economists Forecast. By David Biller for Bloomberg
- Luxury Goods in India, By Euromonitor, February 2015
- Kotak Wealth Management report, 2015
- 5 Charts That Explain India’s Luxury Market. By Wall Street Journal. August 2015
- The rapid expansion of the luxury car market in India. By India Transport Portal, August 2015
- Luxury cosmetics consumption to sky rocket in India despite economic slow down http://www.cosmeticsdesign-asia.com/ January 2016
- Luxury Retail in India: Evolution and Future Prospects. By Cushman and Wakeman, 2013
- Supply of retail space for luxury brands to double in 4 years: CBRE. By The Economic Times, June 2015
- Startups rise in luxury goods market in India. By www.yourstory.com. January 2016
Mathew Dixon is the Director of Search Practice at Hudson Walker International