Year 2010 could be the inflection point for the Indian luxury sector. At least that is what those in the sector are hoping. With the growth potential in established markets shrinking by the year, luxury brands are increasingly looking at newer territories. Though India?s share of the global luxury market is negligible currently ? just about 2% ? experts predict that the CAGR from 2006 to 2015 is likely to be around the 25%. The key drivers of growth include the rapid growth of HNIs, rising global exposure through travel, increase in per capita income and an increased supply of global brands in India, according to Neelesh Hundekari, principal, AT Kearney.
The fastest-growing areas this year for the sector are going to be China, likely to grow at 15%, and the rest of Asia-Pacific, including India, likely to grow at 10%.
But all this sounds familiar, and were touted as the reasons India would be the Next Big Market when brands started arriving en masse towards the middle of the first decade of this century. ?The fault lies with us,? says Sachin Jain, senior brand manager, Lladro India, speaking for the sector, which he says presented fancy spreadsheets extrapolating from the potential size of the market rather than ground realities.
The result left many scorched, and retreat was ignoble for many a brand. It didn?t help that India had a long tradition of luxury? the maharajas had patronised topline brands for about a century; we were arguably more aware of luxury than our counterparts in China, having not had a Communist spell-imposed break.
None of this helped the extremely clannish luxury sector when it made its initial foray. Whether global brands are now encouraged by the comparative resilience of the Indian economy or its rapid growth, minuscule base notwithstanding, entry and expansion for brands is on the cards in all three major categories of the luxury segment in India?products, assets and services. Points out Saloni Nangia, VP, retail & consumer products, Technopak Advisors: there are 8 to 10 million consumers for luxury goods in India ? those with an annual income of Rs 40 to 50 lakh or above. And there is a 15% pa growth of this tribe, boding well for the sector.
However, there are some peculiarly Indian challenges, which proved to be its Achilles Heel earlier too. The equation between mall developers and brands has begun to improve, agree most, though prime retail space remains in short supply. Rentals are about 25% above global levels, while revenue per unit area is almost half. There is very limited presence of luxury brands beyond Delhi, Mumbai and occasionally Bangalore. Duty structures, which are complex and include customs, countervailing duty, special additional duty and education cess, often lead to higher prices than in the neighbouring markets, says Hundekari. The modern day Indian is increasingly globe-trotting and still to come out of his deal-hunting mode, causing him to shop abroad, is affecting growth of brands in India. Luxury brands have also realised that just as they learnt to speak American, Japanese and Mandarin over the past decades, they will have to pick up a smattering of Indian as well. The Indian customer is his own being, and can be very aware and need guidance at the same time. Products and services will have to be catered specifically for him, including the Canali Nawab jackets or the Thomas Cook?s customised leisure travel packages. Est?e Lauder went to its potential customers realising not all were going to come to the store. Ludhiana has taken precedence over even metros for luxury car brands. ?There has to be investment, monetary and in marketing, developing India-specific product lines, and pricing on par with other markets by the brands and their Indian partners,? observes Nangia. How well the brands are able to address these concerns will probably decide whether Indian is a global luxe language too.