The question everyone’s asking is how this industry almost tanked $19 billion! A country once known for its low spending and high savings is surprising the global economy with its appetite for luxury products. With increasing brand awareness amongst the Indian youth and purchasing power of the upper class in Tier-II and Tier-III cities, Indian luxury market is expected to cross almost $19 billion by 2016 from the current level of $14.7 billion!
The following three points summarize how the luxury industry in India is acing it:
- An interesting fact that was discovered in the recent survey by the Kotak Wealth Management group is that the number of millionaire Indian households worth 250 million rupees ($3.8 million) or more grew by 17% from 2014 to 2015! That is a humongous figure when you do the math. If that wasn’t enough, it is expected to more than triple to 348,000 households over the next five years with a combined net worth of 415 trillion rupees! We’re almost losing count of the number of zeroes.
“There are various factors that have fueled the luxury industry’s growth. Some of the most prominent ones are, the rise in disposable income, brand awareness amongst the youth and purchasing power of the upper class in Tier-II & Tier-III cities in India, said D. S. Rawat, Secretary General, Assocham.
The sectors such as five star hotels and fine-dining, electronic gadgets, luxury personal care, and jewelry performed well in 2015 and are expected to grow by 30-35 per cent over the next three years. Big ticket spends such as on luxury cars mainly SUV are likely to continue, growing upwards of 18-20 per cent over the next three years, driven by consumption in smaller towns and cities”, he added
The size of the High Income group consumers continue to enlarge and spend over 40% of their monthly income on some of the world’s largest luxury brands whereas the middle income group (MIG) consumers spend 8-10 per cent of income on luxury products, added the Kotak study.
- The growth of the luxury segment in Tier II cities is another major booster. Tier I & Tier II account for 45% of the total luxury market collectively in India. There are specific super rich segments such as Diamond merchants of Surat, Machine tool exporters in Punjab, Brass exporters of Moradabad, Marble merchants of Rajasthan, Flower exporters of Tamil Nadu, and many more which are not in traditional metro markets, but are key growth drivers of the luxury market in India. While Indian luxury brands are known to have sub products that are largely local, there are a few instances where international luxury brands have tried to ‘Indianise’ their offerings, most commonly seen in the food & beverages industry. This approach is majorly taken to induce the Tier II consumer.
Hard to believe, but Luxury-goods sales in India grew 25% in 2014, compared with 7% in China, according to research firm Euromonitor. That, in the relative sense, is a huge benchmark difference!
A bag is 8% to 10% more expensive in India than in Europe or the U.S. due to import duties and luxury tax. Indians prefer shopping abroad, say analysts, and are familiar with luxury brands’ latest lines.
As a result, luxury firms in India offer the same collection to their clients in Patna as they would in Paris. “The awareness is such that a client would say, ‘Why are you selling me old stock?’ They’d go ballistic,” says Soumya Jain, co-editor of “The Luxury Market in India: Maharajas to Masses.”
- Introduction of the affordable luxury segment has been a major mover. A noticeable increase in middle class wealth in the country along with a huge internet penetration and exposure to global media is key. There is a new and emerging segment of first time buyers who buy luxury products & thrive on good deals. Luxury car makers (mainly BMW, Mercedes & Audi) have successfully exploited this opportunity with a comprehensive line up of entry level models backed with attractive finance schemes. This new kind of consumer thrives on these deals and the luxury brands make most of it. Gradually the consumer becomes addicted to the high life and the brand has succeeded getting him in the loop.
“The consumption story for India is starting now and will continue for the next 10 to 20 years,” says Luisa Munaretto, co-founder of private equity firm IndEU Capital. “There is strong interest.”
And the wealthy in India are spread out. Some 44% of India’s millionaires now live in emerging towns and cities, according to a Kotak Wealth Management report.
These figures re-affirm the faith of newer and niche luxury brands looking to enter the Indian markets. The kind of growth and sales figures in the Indian context are a light at the end of the tunnel where in the global context luxury figures are flat-lining. It’s the beginning of a new era for the luxury markets as Indian consumers are exposed to the best it has to offer. It’s going to be a very different world soon with India being the major consumer, some have even begun to call it the ‘Luxury epicenter of the world’.
Brace yourselves, Luxury is coming.