Despite economic growth, India’s luxury market remains underdeveloped
The lack of upscale retail space, high taxes and red tape are the main factors which have been hampering the development of the Indian luxury market.
Luxury spending in India, the world’s second-most populous nation, was less than a tenth of that in China last year, according to Bernstein Research. Wealthy shoppers’ preference for the shopping centers of Paris, London and Milan pose a challenge for companies such as LVMH and Gucci Group in a country where the biggest stock market rally in 18 years produced about 42,000 millionaires last year.
India’s spending on luxury clothes, watches, jewelry and cosmetics was about 600 million euros ($777 million) last year, according to a Bernstein Research report. That compared with 6.6 billion euros for China excluding Hong Kong, Macau and Taiwan, and 3.4 billion euros in South Korea, a country with a population of about 49 million.
The absence of the ambience usually associated with luxury shopping is an impediment, said Narayanan Ramaswamy, executive director at KPMG in India. “A buyer of a Cartier watch doesn’t want to buy from a store that has pushcarts selling bananas on the sidewalk,” he said.
Suitable retail space for stores selling Louis Vuitton products or Bulgari SpA’s watches is rare in a country which got its first mall in 1999. The Murjani Group built the Galleria in Mumbai, which it says was the first Indian shopping center where most tenants sold high-end products targeted at the rich. Before that, luxury stores were mainly located in five- star hotels in New Delhi, Mumbai and Bangalore.
The DLF Emporio mall in New Delhi, where common areas resemble a five-star hotel lobby with fountains and potted plants, is one of the few locations in the capital city of 14 million people where brands such as those of Giorgio Armani SpA, LVMH, Jimmy Choo and Ermenegildo Zegna can set up shop. Luxury outlets in India also have to fight the perception that their collection is dated.
The Bernstein Research report concludes that a growing economy, increasing incomes and urbanization will boost the prospects for luxury retailers in the long term . Economic growth may accelerate to more than 8.5 percent in the financial year ending March, from 7.4 percent in the previous 12 months.
The number of millionaires in India rose 51 percent to 126,700 last year, according to the 2010 World Wealth Report by Bank of America Corp.’s Merrill Lynch & Co. and Cap Gemini SA. The Indian luxury market, including cars and jets, is forecast to reach about $14 billion by 2010 end and then double to $30 billion by 2015, consultant AT Kearney predicted in 2007.