The luxury market, comprising of products, services and assets is growing at around 5 per cent. The luxury products market forms around 30 per cent of this total market. Internationally, the market has stagnated in the recent past (2012-17) due to several macro-economic and global factors. Notable among them being the crackdown on corruption and gifting in China, terrorist attacks across Europe which impacted tourism and luxury purchases by tourists, appreciation of the euro and swiss franc against the USD and the Yen impacted US and Japan. Further the unsettled political climate in the US due to new leadership, and in EU due to Brexit took its toll.
Indian market to grow by 10 per cent
However, the Indian luxury products market, estimated at around $6.25 billion, was relatively insulated from these global events. It grew at a robust CAGR of 18 per cent over 2012-17 and is expected to grow by 10-15 per cent until 2022. Perfumes and apparels are the largest growing segments within luxury segment.
Indian brands emerge strong
Indian brands are creating global standards. Indian ethnic apparel, primarily wedding and festive wear has seen many Indian designers take centerstage and create a market where none existed. Likewise Reliance Brands and Genesis Colors have brought in international brands to India and opened stores in every high-end mall. While none of these are billion-dollar businesses, the innovations that they are bringing in the space and their growth rates are promising.
Foreign brands continue to attract consumers
Most luxury brands in India try to get at least some part of their latest collections every season. Despite this Indians who travel abroad prefer to shop in the US, Dubai, London, Singapore, France, Italy and Switzerland either for the bragging quotient or to take advantage of the generous deals available. Import duties make products at least 10-15 per cent more expensive in India, which can sometimes be twice as expensive as compared to deals available in post-season sales and in outlet malls. The market would easily double or triple if all of this shopping happened in India.
Indian brands flaunt logos
Indian consumers buy to flaunt. They want to show that they have arrived, using luxury products to communicate status and prestige. Hence “flashing logo” brands do well and brand performance is highly correlated to its popularity.
Businessmen emerge the biggest buyers
The real buyers of these products are small and medium enterprise owners and their families. They have money but crave status, have cash to spend and don’t know where to spend – luxury products offer the perfect solution – buy your way into elite society by flaunting luxury. It doesn’t stop at products, in fact products come later – house and car come first.
However, fundamental barriers like a scattered consumer base and higher prices leads to lower footfalls. An all pervasive middle-class mindset leads to bargain hunting lowering the percentage of full-price sell through hurting gross margins. Weak margins and a small base reduce the attractiveness of the market leading to fewer investments even though the country has the potential to stand out in growth terms.