The country?s economic report card is showing up red. This month, inflation hit a 16-year high breaking the 12% barrier at 12.34%. Almost everyone is having second thoughts before reaching out for an extra helping that will satiate their want. In the context of the current economic slowdown, what is the ultra rich most likely to splurge on ? that Rs 80,000 tag handbag or the Rs 4 lakh suit piece or the one-lakh-rupee-watch? With more and more luxury labels setting shop in India and even as more are coming in, which category of premium goods are moving off the shelves? Which categories will sell, irrespective of inflation and slow downs?

Most luxury labels that have opened shop in India say volumes have never been their concern. ?It is not a volume game,? they aver. On the contrary. Worldwide, luxury accounts for 2% of all retail sales, informed Arvind Singhal, chairman, Technopak Advisors. ?It would be similar in India as well. The pricing worldwide has margins built in which allow the brands to make a low volume business viable.?

Premium Italian luxury brand, Brioni, which set foot in India in March 2007 with its first store in Mumbai, opened its second store in Delhi in April 2008. The label for the rich and the indulgent, has not witnessed any glitch in sales, says Conrad Curry, brand manager. ?Our clients are old customers, who have been buying our products from our boutiques around the world before we came to India.? The customers ? businessmen, politicians, film personalities and the ?loyal, traditional? ? continue to patronise it. ?The category that we service is not affected by the economic ups and downs,? he says.

Prices are not a matter of concern for the wealthy. Says Sukaiyna Gokal, brand manager for Middle-East and India, A Lange & Sohne, in India. ?The buyer?s scene is looking good now and we are well on our way to build up a sound customer base.

More so, people in India are getting well acquainted with the brand and state-of-the-art tradition in hand-crafted fine watchmaking.? Business has been good and the company, which has only one point of sale in India in Mumbai, is planning to expand to other metro cities.

Even in the US, which has been witnessing a slowdown in the economy for a longer period, the sector dealing with premium goods has been hit lesser than the other sectors, says C Ravi Shankar, Strategic and Commercial Intelligence, Transaction Services, KPMG. ?Many companies are reporting minimal or no slowdown in revenues, though a few have been affected.?

Shankar says some companies focusing on high-end merchandise have seen ?no impact? because their consumers were from the ?traditionally super affluent?. On the other hand, some companies had boosted revenues by attracting the ?aspiring rich?, with slightly lower priced offerings such as bags. The latter ?uptrading consumers? have begun cutting back on non essential spends, and companies that built toplines based on these consumers have been hurt more. ?As a countermeasure, some companies have begun focussing on more affordable products with their brand label, such as perfumes. It would be interesting to see how this strategy pans out.?

Affordable luxury

In the prevalent economic situation, affordable luxury continues to have a market. For instance, a luxury lingerie brand entered the country two weeks ago with a retail format distribution map for the country. Secret Curves, which terms its product as ?affordable luxury? with lingerie at the upper end selling between Rs 1,100 to Rs 1,800, says inflation ?does not matter to its high-end customer?. ?The income per household has gone up considerably and the spending power has kept pace with it,? says the CEO, Bipin Chandra.

In the Indian context, penetration of luxury goods has been low, averred Shankar, with a ?significant? population who can afford but have not begun consumption of these products. ?This leaves significant headroom for growth of luxury goods in India, and I would expect the India luxury goods sector to be less sensitive than the rest of the world to downturns. Of course, this is subject to severity and longevity of the downturn.? Moreover, the current slowdown is coming on the back of a four year long bull run, which has catapulted many more people into the wealthy category, and not all this new wealth would have been eroded, he pointed out.

A survey conducted by Technopak Advisors, a management consulting company focused on fashion, packaged consumer goods, retail, healthcare and consumer insights sectors, threw up interesting insights into the luxury category.

There are about 1.8 million households earning over Rs 45 lakh ($100,000) or more per year, spending about Rs 4 lakh ($9,000) per year on luxury or premium goods and services including giving a market potential of about Rs 72,000 crore ($18 billion) with a growth of about 14% in such households.

Luxury market

The market opportunity for luxury is pegged at 9% (Rs 6500 crore, $1.6 billion); and is growing at 20-25% annually, according to Teknopak?s survey. Who is the target consumer? ?It is not the Page 3 personalities or the most photographed in newspapers and magazines,? says Singhal.

?Most of these consumers are discreet and prefer to buy their first edition goods from the company directly. They don?t wait to shop in India?s emerging luxury stores or boutiques but in Europe where the stores have a direct hotline with the topline consumer.?

So who is the real luxury label shopper? The survey indicated CEO?s and other senior professionals in their 30s; entrepreneurs in myriad new businesses, like technology, manufacturing, services; returning ?prodigal? children; franchisees; small and medium retailers and other. They are located not in the top metros but in Tier II and III cities in Chandigarh, Ludhiana, Gurgaon, Lucknow, Varanasi, Kanpur, et al; said the survey. ?It is definitely not the maharajas of yore,? said Singhal. ?They are living off their assets.?

Will high rentals affect luxury labels? Most of them retail from five star hotels to top retail outlets in metros. ?The brands understand that this is the market development phase for them. Luxury brands have usually entered markets when they are about to start growing ? as they need to be present in a market to develop the market further. They understand that there is a gestation period before the business becomes viable ? therefore they are ready to invest in creating the right image for developing the market.? India?s luxury mall, Palladium, with an investment of Rs 100 crore is slated to open in Mumbai in 2009. The brainchild of Atul Ruia of Phoenix Mills, Palladium is designed to ?meet consumer aspirations for super exclusive and coveted luxury brands?. Says Ruia, ?With a market capitalisation of over $1.5 billion, we have combined our experience in retail and mall management to initiate this project.?

It is not that luxury brands as a category are not ?unaffected? by inflation. Said NV Sivakumar, India Leader for Consumer and Industrial Products and Services, PricewaterhouseCoopers, ?Some foreign labels that operate in the premium space may be experiencing some variations in sales, since their target consumers may be somewhat impacted by inflationary issues.?

Challenges

Most analysts averred that the challenges for the this category has been the lack of potential Indian partners with experience and understanding of luxury and premium products; coupled with the fact that market opportunity for exclusive stores is largely limited to Delhi, Mumbai and Bangalore.

There are no luxury retail environments available, besides the five-star hotels. Moreover, if the luxury labels are willing to allow themselves a gestation period, there is no need to shut shop.

The future? Analysts forecast that product categories, like accessories, men?s clothing, fragrances and cosmetics, could create inroads for the larger consumer base.