Lack of infrastructure, blamed for the slow growth of India’s luxury market

India has been touted as one of the targets for luxury houses, but a lack of infrastructure is holding them up from doing further business there. A joint survey by ASSOCHAM  (The Associated Chambers of Commerce and Industry of India) and Yes Bank saw luxury CEO’s interviewed and 95 per cent of them blame a lack of adequate infrastructure for moving forward, a key barrier confronting the growth of luxury goods industry in India. “The lack of premium retail infrastructure in India is impacting both expansion plans along with bottom-line margins of the global luxury industry due to higher rentals thereby leading to a demand-supply mismatch,” according to the ‘India Luxury Top Management Survey 2012’

The Indian market for high-end products and services is estimated at over $USD8 billion   and is currently growing at an annual rate of about 20 per cent and is likely to cross $US14 billion during the course of next three years on the back of rising per-capita income and evolving consumer trends, highlights the  survey. “Finding the right quality infrastructure space has been the biggest impediment for global luxury firms,” asserted the CEO’s.

“Lack of quality infrastructure is a huge bugbear for luxury brands in India, thereby forcing them to go slow in their expansion plans and steep rentals together with high duties further impede the growth and development of the sector.” Besides inordinate high duties, varying tax structures, bureaucratic delays, red-tapism, exchange rate volatility, imposition of caveats, political and regulatory landscape are other significant challenges being faced by the luxury industry, highlighted the CEO’s.

The ASSOCHAM-Yes Bank surveyed about 300 global business leaders, stakeholders and influencers representing the global luxury industry from France, India, Italy and UK during August-November to ascertain the challenges being faced by the industry, extent of opportunities, industry perspective on outlook of Indian economy, consumer behaviour, market entry strategies, marketing mediums, financial management and the overall future outlook of the industry.

Some of the significant players across who participated in the luxury survey included – Gucci, Christian Dior, Louis Vuitton, L’Oreal Luxe India, LVMH India  and others. Lower import tariffs, better availability of adequate commercial areas, reasonable rent levels and increasing co-operation for an ever more effective enforcement of intellectual property rights are  other improvements suggested by the CEO’s to further perk up the luxury industry in India.

The CEO’s interviewed further said that clarity and streamlining the regulatory systems would benefit the growth of luxury sector in India. About 65 per cent of CEO’s agreed that tier II cities in India are ready to become new consumption hubs for the luxury industry and many said that ‘ladder to luxury’ is the ideal marketing strategy to penetrate in these towns followed by the e-retail route. About 36 per cent of CEO’s said that quality, exclusivity and social appeal are key drivers for luxury purchases in India followed by price and perceived value. While about 32 per cent said Indian consumers are label conscious.

Considering that different tastes and preferences makes marketing to Indian consumer a challenging affair, most CEO’s said print, followed by word of mouth publicity, digital, sponsorships and outdoor advertising are most effective marketing medium for Indian luxury consumer. Thirty per cent of CEO’s said private equity and 32 per cent said equity infusion by promoters are the preferred routes to raise finances for expansion of luxury brands in India. About 21 per cent said debt is the most ideal method of raising capital while about 17 per cent said IPOs are the preferred route to raise finances.

Gucci flagship store New Delhi, at Oberoi Gurgaon