Slowdown in growth for India’s luxury market
CPP Luxury Industry Management Consultants Ltd has concluded a 6 month comprehensiev study of India’s luxury market highlighting a trend of stagnation for 2012 and a major slow down in groth for 2013 across all luxury sectors. Despite the sheer size of the country, India’s luxury market is among the country’s least developed sectors, its development being hindered by several factors such as: legislation which limits Foreign Direct Investment (FDI), a high level of corruption and red tape, lack of awareness of luxury branded products and shortage of appropriate commercial real estate – among the most important factors.
Giving in to pressure by major international mass-market retailers, the Indian Government relaxed the legislation which restricts FDI, allowing foreign companies to wholly own businesses in India, however, on condition that 30% of the sold products are sourced locally, a clause which is impossible to apply, most international luxury brands weathering the on-going crisis thanks to their focus on craftsmanship and origin of production. FDI legislation has been constraining, for decades, international luxury brands to operate in India through a local partner, the market being dominated by 3 major local luxury retailers, each concentrating in their portfolio a minimum of 10 luxury brands. These retailers have thus been able to create a ”monopoly” at all business operations levels – customs, logistics, fiscal administration, leaving most international luxury brands deeply reliant on a local partner.
Operating through a local partner, many international luxury brands have ended up with under-representation, proliferated for years: limited range of products compared to flagship stores abroad, lack of marketing and implicitly lack of awareness and education of consumers, pricing level up to 30% higher than Europe or Middle East (preferred shopping destinations of luxury for the rich Indians), mediocre customer service at levels incomparable with flagship stores abroad. ”Tied up” by operational constraints, none of the international luxury brands present in India through franchising, have opted for direct operations since the changes in FDI legislation. On the contrary, some luxury brands which have entered India in 2012 (Christian Louboutin, Stuart Weitzman, Armani Junior, Damiani, Tumi) have chosen franchising to operate in India.
The top tier segment of the super rich has been undeterred in its habit to shop for luxury branded products abroad, the top destinations being London and Singapore. For the upper middle class, otherwise, the key potential driver for India’s luxury market has been growing increasingly disappointed by the local luxury offering and motivated by very competitive airline fares, have been opting for shopping abroad, the number one destination in 2012 being Dubai.
According to CPP’s research, India’s upper middle class which is made up of individuals aged 25 – 45, with annual incomes of minimum US$ 200.000 (net) , today counts 2.4 million individuals and the number is expected to double by 2014. Over 60% of this segment already shops abroad for luxury branded products, with a 20% more individuals in 2012 compared to 2011. CPP’s studies reveal that a focus on the upper middle class is the only sollution to put India’s luxury market on track.
Shopping abroad and under-representation (and not a slow down in purchasing power), have brought about a stagnation to India’s luxury market in 2012 and the trend is likely to maintain for the rest of the year, despite holidays such as Diwali.
India and the BRIC countries
With the exception of luxury cars, India bears no comparison with any of the other BRIC countries for all the other luxury sectors. India’s luxury fashion, accessories and watches market segment is a tenth of China’s, a quarter of Brazil’s and half of Russia’s. Regarding high-end internationally branded jewellery, India is by far, the least developed for reasons related mainly to India’s vast tradition in its local manufacturing of high end jewellery. The discrepancy between India and the BRIC countries is also evident in terms of growth rate – India having the lowest pace of retail expansion.
Changes in luxury consumer profile
Another important aspect which continues to negatively impact the local luxury market in India is the persistent ignorance by luxury brands of the important changes in the Indian luxury consumer profile. Exposure to Western culture and lifestyle through internet and travels abroad have been evidentiating two new Indian luxury consumer profile types:
- anti-luxury which opt for ”mix-and-match” (fast fashion items worn with luxury accessories)
- less bling - who seek to show off their taste for luxury products which are recognizable through style and design patterns, rather than logos
These emerging luxury consumers cannot be targetted through mainstream media, but mostly online, through blogs and social media. Among the BRIC countries, India and Brazil boast the highest growing such luxury consumers.
Another factor which is increasingly affecting India’s local luxury market is luxury online shopping. CPP has identified a new type of service rendered by ”specialized” local companies which facilitate payments and customs proceedures. This segment has grow 80% in 2012 and over 75% of Indian luxury consumers consult pricing online as well as seek for limited edition products. More than half of the Indian luxury consumers use the internet not only to browse trends and latest products but also for price comparison reasons.
CPP estimates that India’s luxury counterfeited market will surpass US$ 500 million in 2012, corruption and red tape playing an important part in facilitating the entry of counterfeited luxury products, especially from China, Thailand and Vietnam. The most counterfeited luxury product categories are bags and watches. It is also important to note that counterfeited products are openly sold even in large scale shopping malls, in so called multi-brand stores, which mix outlet stock (old collections) with counterfeited products. The trend is spread to second and third tier cities too.
The luxury brands with the highest sales in India are:
Fashion / Accessories: Louis Vuitton, Chanel, Dolce Gabbana, Giorgio Armani and Christian Dior
Watches: Rolex, Hublot, Tag Heuer, Omega
The grey market which refers to products brought to India by individuals, mostly purchased in duty free stores, therefore, bypassing taxation and VAT. This is the case especially for luxury watches and jewellery. The grey market in India, although in an incipient phase, if uncontrolled, can reach alarming levels within the next 2 to 3 years. Some of these individuals shop ”on order” for customers who desiring certain models. In other emerging markets this type of grey market has been curved by awareness and education related to the after-sale guarantee and service. This is not the case in India, yet. CPP estimates that, the grey market for luxury watches in India, currently accounts for 10% of the market share.
The only luxury products likely to see an increase in sales (up to 10%) in India in 2013 are: men’s fashion & accessories, yachting and home furnishings. Most other luxury sectors are likely to register stagnant sales figures in 2013, compared with 2012. Major international luxury brands which are not present in India are unlikely to enter the market in 2013: Prada, Ralph Lauren, Max Mara, Tiffany. Under-represented luxury brands in India, such as Chanel are also unlikely to benefit from any expansion of retail presence.
Home furnishings sales in India are boosted by the number of new premium and residential real estate developments, 2013 is likely to bring the opening of several major international luxury brands with mono-brand stores. The trend of furnished luxury branded residentials is likely to grow in 2013 – with Armani and Fendi leading the trend.
part 2 – to be released 23 October 2012