Luxury in India - Charming the Snakes and Scaling the Ladders

Luxury in India: Charm

ing the Snakes and S

caling the Ladders

Luxury in India: Charming the Snakes

and Scaling the Ladders

A CII – A.T. Kearney Report

Luxury in India: Charming the Snakes

and Scaling the Ladders

A CII – A.T. Kearney Report

October 2010

Confederation of Indian Industry

The Mantosh Sondhi Centre

23, Institutional Area

Lodi Road

New Delhi – 110003

India

Tel: + 91 11 24629994-7

Fax: + 91 11 24626149

Contact:

Amita Sarkar, Senior Director ([email protected])

Jaya Gupta, Deputy Director ([email protected])

A.T. Kearney Limited

1st Floor, Future Capital House

Peninsula Corporate Park

Ganpatrao Kadam Marg

Lower Parel (W)

Mumbai 400 013.

India

Tel:+91-22 - 4097 0700

Fax:+91-22 - 4097 0725

Contact:

Neelesh Hundekari, Principal ([email protected]);

Hemant Kalbag, Vice-President ([email protected]);

Pameela Pattabiraman, Manager ([email protected])

Subhendu Roy, Manager ([email protected])

This report has been jointly produced by Confederation of Indian Industry and A.T.

Kearney Limited, the contents of which are meant only for information purpose of the

reader. Readers are advised to conduct their own investigation and analysis of any infor-

mation contained in this report, and not rely on the information contained in this report

for any purpose. Neither Confederation of Indian Industry, nor A.T. Kearney make any

representation regarding the accuracy or completeness of such information and express-

ly disclaim any or all liabilities based on such information or any omission thereof.

No part of this report may be reproduced or distributed without the prior written con-

sent of Confederation of Indian Industry and A.T. Kearney Limited.

Copyright: CONFEDERATION OF INDIAN INDUSTRY. 2010, and

A.T. KEARNEY, INC. 2010

iv

The Luxury industry in India is no longer a new comer. Like many other industries in India, it is of great interest to both

international and Indian players. International brands see India as an emerging luxury market which could become a sig-

nificant part of their portfolio tomorrow. Indian companies also see the growth at the top end of the market as an oppor-

tunity to introduce premium offerings. This enthusiasm was reflected in the first moves of several iconic international

brands in the last 5-7 years. Indian companies have also seen the opportunity and a handful of players are now very active

in the space. Apart from luxury products such as watches, apparel, accessories, large Indian five star hotel chains, fine din-

ing and spas, apart from luxurious houses, the latest luxury cars and yachts have expanded the definition of luxury.

The Confederation of Indian Industry (CII) and A. T. Kearney have been active players in the luxury space. CII through its

National Committee on Retail has played an active role in trying to create an industry forum for players in the luxury indus-

try. CII brought the industry together to help organize the industry and create a forum for dealing with issues of common

interest. A. T. Kearney, apart from serving clients in the luxury industry has also contributed to providing a robust fact base

and perspectives on realizing the potential of the industry through their first study in 2007 (The Economic Times - A. T.

Kearney India Luxury Review 2007).

Just when the industry was showing signs of coming of age in 2007, from the third quarter of 2008, the global recession

dampened the hopes of the industry. The industry suffered internationally, and that acted as a brake on the emotional eupho-

ria for a good 9-12months in India as well. Several players used that time to consolidate their position, right size their busi-

ness, restructure real estate deals and become fitter. A few others suffered. Now with positive signs in the Indian economy,

optimism about the industry is on the rise, as demonstrated by heightened market activity and consumer spending. However,

key issues such as a relatively new market, duties, access to quality real estate etc continue to pose a challenge to exponential

profitable growth. A few key questions keep bothering CEOs in the sector:

� How to make the luxury business a successful proposition in India?

� How big is the market really? When will the market be fully ripe?

� What operating models work and do they need to be customized for India?

Given this backdrop, CII and A. T. Kearney decided to team up and take stock of the industry and address key questions that

current players, potential entrants and other stakeholders have about the industry. Our desire was to study and understand the

major changes in the industry in the last 3-4 years and the implications of these for the future of the industry..

With this end in mind, over the last three months, we conducted an exhaustive and comprehensive research of the industry.

The A.T. Kearney team collated and analysed large amounts of data, interviewed several industry leaders and luxury con-

sumers to develop all round insights on the industry.

The report establishes the growth trajectory for the industry over the last three years, takes stock of the opportunities and the

potential as well as the continuing challenges that it faces and estimates the likely potential over the next 5 years and recom-

mends actions for industry players to undertake. We believe that this report will serve as an important step in the industry’s

FOREWORD

v

journey of growth. It clearly confirms that the hope in the potential of the Indian luxury industry is not misplaced, that there

is still a huge latent demand in the market and that India will be an important market and player on the global luxury plat-

form. While the hope in the potential remains undaunted even after the recession, infrastructural and regulatory issues con-

tinue to impede the development. Like in all other sectors, though we are confident that the Indian industry will discover a

uniquely Indian way of converting them into opportunities.

We are grateful to all the industry leaders and consumers who spent time with us in sharing their perspectives and validating

our hypotheses.

We hope this study will act as a milestone in the evolution of the Indian luxury industry and will take the collective under-

standing of the industry a few steps forward.

Confederation of Indian Industry A. T. Kearney

vi

Over the last two decades, post liberalization in the 90s, the

new maharajahs of business have created some serious

wealth in India. This new found prosperity has attracted lux-

ury brands that were looking for new engines for growth to

make up for slow growth in their traditional markets.

While most industries are now coasting along smoothly, the

small and emerging luxury industry players have not stopped

reflecting on the past to ask some fundamental questions

about the market. This report attempts to answer these ques-

tions through a wide and deep coverage of all segments of

the luxury market in India. To get the most credible answers,

we adopted a robust methodology with a large element of

primary interviews and extensive data collection. We collated

data from a variety of sources to size the market and under-

stand the growth rates over the last few years.

Indian Luxury Consumer

While Indian consumers talk about exclusivity, uniqueness

and appeal to personal taste, the majority of the market is

still far away from this and brand/logo/badge value drive

luxury purchases very clearly. That said, traditional attributes

such as high quality, heritage, longevity, the “stories” associ-

ated with brands are beginning to emerge as drivers of pur-

chase. The mindset is still that of an “aspirer” not that of a

“connoisseur”.

The Indian luxury consumer is young - 30-45 years old.

While the average Indian luxury customer values High

Quality, Exclusivity and Social Appeal as key drivers of luxu-

ry purchase, they are also very Price Conscious and often

straddled with a “middle-class mindset”. The segments are

composed primarily of:

Medium size enterprise owners: This is the largest seg-

ment in terms of number - these are typically the medium

enterprise owners - industrialists and traders who run busi-

nesses with revenues upwards of 50 cr. Their wealth is their

passport to the elite segment of the society and conspicuous

consumption is their way of announcing it to the society. The

children are the bigger spenders, having been educated

abroad and hence familiar with brands and the luxury way of

living.

Traditionally wealthy families/large industrialists: This

group comprises two sub-segments - the first is the tradition-

ally wealthy families - who have been consuming luxury for

several decades and go for the finer things in life. The other

sub segment comprises the promoters of some very large

businesses which have come up in the last two decades and

have created a disproportionate amount of wealth very

quickly.

Corporate executives: Senior executives of corporate India

who are paid in excess of INR 1 crore (USD 225,000) and

bankers who earn big bonuses epitomize this category. These

executives are well traveled and are aware of brands. Most of

this segment consists of people who are in their mid-late for-

ties and represent some of the brightest minds in the coun-

try. Many of them though have come from middle class

backgrounds and hence have a conservative approach on

conspicuous spending.

Other segments include self employed professionals, young

professionals, expatriates, politicians and bureaucrats.

A correlation between the size of the luxury market, the

GDP/capita, number of HNIs and HNI wealth over the

years 2004-2009 shows that in terms of importance the num-

ber of high net worth individuals is the most important driv-

er. Interviews with leading luxury brands in India point to the

fact that family wealth is a stronger determinant of spending

than household income. The masstige phenomenon can also

be observed very clearly in India. Luxury products in India are

appealing to, and purchased by, middle-class consumers that

do not fit the typical profile of an elite consumer segment.

vii

EXECUTIVE SUMMARY

The distribution of the rupee millionaires is a good indicator

of the luxury consumer distribution in the country. While

Delhi and Mumbai continue to be the mainstay markets for

luxury consumption, there are several other cities with a large

base of potential luxury consumers. We believe in the next 5-

7 years, at least 5-7 new towns will get added on the luxury

map of India. We also believe that the potential in Delhi and

Mumbai has not been fully exploited and that there exists a

few more micro markets within these cities that need to be

tapped.

Luxury Market 2007-2009

Our endeavor in this study has been to provide robust data

on the size and growth of the Indian luxury market for stake-

holders to consider, debate and if it makes sense to base their

decisions upon. For sizing the market, Product, Price and

(where possible brand also) filters are applied to isolate the

luxury from the non-luxury in all segments. We err on the

side of conservatism i.e. only pure luxury is included.

Based on a category wise build-up, the size of the Indian lux-

ury industry in 2009 is estimated at USD 4.76 billion (at retail

prices). This includes all luxury products, luxury services and

luxury assets sold in India. The total luxury market has

grown at a CAGR of 13% between 2007-09, with luxury

products growing at 22%, services degrowing at 5% and

assets growing at 18%.

The most visible segment of the luxury industry is the luxu-

ry products segment. This includes the most visible fashion

luxury segments such as apparel, accessories, personal care,

watches and jewellery as well wines, spirits and high-end elec-

tronics. This market has been estimated to be USD 1.5 bil-

lion in 2009. Most luxury product categories have witnessed

over 15% growth over the past 2 years - performance of cat-

egories like Electronics, Wines and Spirits, Apparel and

Jewellery has been exceptionally strong.

The Indian luxury services market was severely hit by the

recession over the past 2 years. Nonetheless, the India

Luxury Services industry is considered to be one of the best

in the world. Consumer interviews revealed that consumers

prefer Indian hotel chains like the Taj, Oberoi or ITC even

when International chains like the Hyatt, Hilton or Four

Seasons have entered the country.

The current Indian luxury assets market is estimated at USD

2.45 billion. The growth of the Luxury Assets market is driv-

en mainly by the phenomenal growth of the Real Estate and

Automobile sectors.

Latent Demand and Future Potential

The Indian luxury market is still very small compared to

global standards. While India has one of the highest GDPs

in the world, its luxury consumption, in absolute terms, is still

very small. We believe that there exists a large latent demand

in India, constrained by both demand side and supply side

factors.

On the demand side, there are several potential consumers in

India who either do not buy luxury at all or do not buy

enough of it from the local market. As we had mentioned,

Rupee millionaires with incomes between INR 10-30 lakhs

do not really spend on luxury. On the other side, supply of

most luxury products in India is present is mostly present

Mumbai, Delhi or Bangalore. However, wealth creation in

the country is now no longer limited to these cities. It is tak-

ing place at a rapid rate in Tier I and Tier II cities like

Ahmedabad, Pune and Hyderabad.

The current market size for luxury products in the country is

around USD 1.5 billion. A regression based on India’s GDP

per capita and Number of HNIs, indicates that the size of

the Indian luxury products market should have been around

USD 3-3.5 billion. This implies that there is a latent demand

of almost USD 1.5-2 billion. As percentage of the current

market size, India’s latent demand is estimated at 120-150%

while for China it is estimated at only 10-15%.

We have estimated the expected growth in the luxury goods

market using a number of methods. Regression of the mar-

viii

Luxury market in India

Source: A.T. Kearney research and analysis

ket size for luxury products against the number of HNIs

results in a growth estimate of 18%. Based on numerous

interviews with luxury company CEOs, executives and

industry experts as well as secondary research, a bottom-up

build up of category wise growth rates leads to an average of

21%. Given this and considering the huge latent demand, we

believe that India’s overall Luxury Market will grow 21% to

become almost 3 times its current size by 2015.

Luxury Industry Challenges

Fundamentally there are four key challenges that any luxury

player faces in India.

1. Difficulty in reaching the target consumer: The scat-

tered nature of the target population and absence of

critical mass in India is a big concern for the industry.

While luxury magazines have increased in maturity and

volumes, they still reach only a small fraction of the

existing consumers and a much smaller fraction of new

consumers. Cost of reach is high, results uncertain and

word of mouth continues to be best method to create a

“buzz”.

2. Consumer reservations about luxury purchases:

India is faced with a low luxury penetration, with most

of the rupee millionaires with income between INR 10-

30 lakh segment having the capacity but not the propen-

sity to spend on luxury goods and services.

Furthermore, there are reservations against buying less-

er known brands as well as shopping in India.

3. Infrastructure and regulatory constraints:

Companies have to struggle with lack of credible real

estate options, underdeveloped back end infrastructure

like warehouses and logistics as well as regulatory restric-

tions on FDI and high import duties.

4. Lack of talent: Absence of skilled manpower has hin-

dered luxury players from being able to provide the

same customer service experience as that in internation-

al locations.

However, there are several ideas that could be used to

address these challenges.

To convert potential customers, who have the financial

wherewithal, to luxury consumers, players should look at

micro-segmentation of the population to identify specific

“high potential” professions. Once identified, focused com-

munication would be needed to reach out to them and con-

vince them of the offering. Players also need to look at effec-

tive media vehicles to reach their target consumers.

Consumer perceptions and reservations about shopping for

luxury goods in India can be addressed by breaking the myth,

getting high recall brands and bringing in “ladder brands”.

To address the infrastructure and regulatory challenges, play-

ers can use smaller retail formats to increase store densities

far above the global benchmarks in order to drive higher

sales productivity. A multi-brand environment would also

help players attract a critical mass of consumers and also

lower the burden on each brand in terms of operating costs.

Other options include mini high streets, collaborative efforts

with competition for both retail and supply chain and airport

retailing. Indian companies can capitalize on the regulatory

ix

Country comparison based on GDP and # of

HNIs

Source: Altagamma, A.T. Kearney research and analysis, Merrill Lynch Capgeminiworld wealth reports

Projected growth of luxury market in India


restrictions imposed by the Indian government to enhance

their presence in the market.

The resource crunch needs to be addressed through the cre-

ation of a parallel education ecosystem - similar to what has

happened in the IT, ITES, airlines and fashion industry.

Critical Success Factors

There is no instant formula for success in the Indian luxury

market. Everything about our country is different - the con-

sumer, the challenges and also opportunities for luxury

players. The Indian consumer is in a state of flux - evolving

rapidly, but perhaps along a path that is inherently different

from that taken by other developing economies. Several

luxury players have managed to seize opportunities in the

market early.

We believe that the critical factors for success in this market

include exploring formats that enable players to attract foot-

falls; getting the pricing right to encourage Indians to pur-

chase locally; providing a world class experience e.g. ambi-

ence and service; bringing in iconic brands as Indians still

buy luxury products for brand value and not to make a fash-

ion statement; getting the cost structure right by ensuring the

cost base is justified by the sales realized; getting access to

local expertise to get the best real estate deals; experimenting

with new formats such as a luxury discounter (liquidation

channel) that can help open the market by getting consumers

exposed to last year’s collections at attractive prices and help

them move up the ladder. While we believe there is a clear

opportunity to make an impact in this market, a systematic,

smart and careful approach is what will differentiate the win-

ners from the losers in the long run.

x

Foreword v

Executive Summary vii

Chapter 1. Luxury market – need for a fresh look 1

Chapter 2: Indian luxury consumer – rapidly maturing and looking for more 5

Chapter 3: Luxury market 2007-2009 – products leading the way 15

Chapter 4: Latent demand and future potential – only the tip of the iceberg so far 27

Chapter 5: Luxury industry challenges – obstacles or opportunities in disguise? 33

Chapter 6: Conclusion – luxury market gearing up, but a few bumps still ahead 41

Appendix 45

References 51

TABLE OF CONTENTS

LUXURY MARKET –

NEED FOR A FRESH LOOK

3

Luxury in India has been a roller coaster ride. Memories of

being the land of grandeur were wiped out by one and half

centuries of foreign rule and the subsequent Hindu rate of

growth. India became known for the 250 million middle

class families and luxury seemed like an alien concept to the

last few generations. So much so that when luxury made a

reentry in this decade, Cartier had to remind us that Indian

maharajahs used to be their biggest customers. The last two

decades though have been a turning point – the new

maharajahs of business have created some serious wealth in

the country post liberalization in the 90s. The Fortune 500

list has a few Indian companies now and more are getting

added as Indian companies acquire large western giants.

Corporate India is now a completely different animal –

CEOs earning million dollar salaries and youngsters draw-

ing a higher first paycheck than their father’s current salary

– has created consumers which never existed. This new

found prosperity attracted luxury brands who were looking

for new engines for growth to make up for slow growth in

their traditional markets. Most of these brands had hit a

jackpot with China and they hoped to unlock their fortunes

in India. Heightened expectations led to the entry of sever-

al brands in quick succession despite absence of a support-

ive regulatory framework, high quality real estate or talent.

While brands were trying to figure out strategies for

expanding in this strange country without losing their

designer shirt, the worldwide recession, followed by 26/11

played havoc with the growth plans of luxury brands. Few

exited, many reviewed their growth blueprints and cost

structures and tempered their growth expectations, while

some grabbed prime real estate at great prices. Fortunately

India emerged relatively unscathed from the recession and

is now on a trajectory which makes one wonder – was that

just a bad dream?

While most industries are now coasting along smoothly, the

small and emerging luxury industry players have not stopped

reflecting on the past to ask some fundamental questions

about the market. Is India ready for luxury? Will India

behave like China? Are there some fundamental weaknesses

in the industry that will never allow players to experience

exponential profitable growth? Will we ever make money in

this market? Answers to these questions need to be first

addressed at the industry level and then at the level of the

individual firm.

At the same time – their inherent optimism makes them

focus on questions that can guide their growth strategies.

Who is the luxury consumer in India? What’s the real

demand for luxury? At what income levels and price points

does luxury consumption begin? What is the size of differ-

ent segments of the luxury market? Which categories have

driven market growth? Which categories are going to drive

market growth in the future?

Scope and Methodology

This report attempts to answer these questions through a

wide and deep coverage of all segments of the luxury mar-

ket in India. The market has seen several changes in the last

3-4 years in both the consumer and the competitive land-

scape. For example, consumers have become more aware, a

few brands seem to have experienced some success and new

brands are now wanting to enter. These changes in the indus-

try have created the need to study the market closely and

understand the latest trends that are going to shape the

industry in the coming years.

Answering the above questions with credibility derived from

comprehensiveness of coverage and depth of analysis is the

key objective of this study. Given the nascent nature of the

market, it is imperative to look at all sub sectors – products,

services and assets to understand what is really happening.

LUXURY MARKET –

NEED FOR A FRESH LOOK

C H A P T E R 1

To get the most credible answers, we adopted a robust

methodology with a large element of primary interviews and

extensive data collection. We collated data from a variety of

sources to size the market and understand the growth rates

over the last few years.

� Transaction level data was sourced from to account for

every luxury product that entered the country. Various

researches were drawn upon to study items that are not

imported.

� Industry leaders covering all categories were interviewed

to analyze data from multiple sources. Private bankers,

wealth managers, art experts, real estate consultants, lux-

ury car dealers, top end jewelers, luxury fashion brands,

sommeliers, whisky experts, yacht companies hoteliers,

spa experts, restaurateurs were interviewed to get insights

into the market and what it takes to succeed.

� A wide cross-section of consumers was interviewed to

understand the buyer’s mindset – What does the con-

sumer look for in a luxury brand? Is the consumer price

conscious? Where does the consumer shop? What is the

consumer’s perception of Indian luxury brands?

� Macroeconomic variables were analyzed, correlated,

regressed to understand trends and derive forecasts.

Additionally, select case studies that illustrate the happen-

ings in the market were written.

This report is accordingly structured to answer these ques-

tions.

� Chapter 2 deals with the Profile of the Unique and

Mysterious Indian Luxury Consumer: We start with

understanding the Indian luxury customer, who rapidly

maturing and looking for more - age profile, occupation

profile, income profile and buying behavior and changes

in this over the last 3-4 years. Are only the 126,000 HNIs

consumer of luxury or can the 3 million households

earning above 10 lakhs also consume luxury? Is there a

market for luxury beyond Delhi and Mumbai? Has price

consciousness reduced? Has badge consciousness

reduced? Is the consumer still likely to shop overseas?.

The picture of this unique and mysterious consumer is

interesting and uniquely Indian.

� The third chapter details the Indian Luxury Market Size:

A detailed assessment of the luxury market in India from

2007 to 2009 with a detailed breakdown by products

(watches, jewellery, apparel, wines and spirits, electronics),

services (hotels, travel, fine dining, spas) and assets (luxury

cars, private jets, yachts, luxury homes). How big is the

market and how fast has it grown? How much has the lux-

ury products market grown over the last four years ago?

How did the Indian luxury market respond to the reces-

sion of 2009? The numbers tell a fascinating story.

� Latent Demand and Growth Potential is covered in

the fourth chapter: What is the potential of the luxury

market? How much is the latent demand in the market

that players can capitalize on? How much will the market

grow to by 2015?

� Growth Challenges – Obstacles or Opportunities are

covered in the penultimate chapter. What are the biggest

challenges facing the industry? Is real estate the biggest

challenge or is it attracting customers or is it managing

costs? How can the industry convert these challenges

into opportunities for growth? Will Indian companies be

successful in this market? . We also explore how these

challenges can in fact be opportunities in disguise. After

all Indian industry has shown time and again the ability to

convert insurmountable challenges into eye popping

opportunities.

� To conclude, we bring all our learnings together and pres-

ent what we believe are the Critical Success Factors

and Action Agenda for a luxury CEO and the industry

as a whole: What does it take to succeed in this market?

What are the top agenda items for a luxury CEO and for

the industry as a whole to take this ride to a new high?

4

Conclusions and key takeaways

� After years of middle class consumption, India is once again emerging as a potential destination for Luxury consumption

� However, most brands who had hoped to unlock their fortunes in India over the past decade have had to temper their expectations

with the unanticipated impact of worldwide recession and the 26/11 attacks on the Indian luxury market wreaking havoc on their

growth plans

� With the economy looking up again, it is now an opportune time to assess the potential and growth opportunities in the Indian lux-

ury market

� This report addresses all aspects of the luxury market evolution over the last 3-4 years, covering consumer behavior, market size,

latent demand and growth potential, challenges, opportunities and critical success factors.

INDIAN LUXURY CONSUMER –

RAPIDLY MATURING AND LOOKING

FOR MORE

7

INDIAN LUXURY CONSUMER – RAPIDLY

MATURING AND LOOKING FOR MORE

Any study of the luxury market needs to conclusively address

core questions around the luxury customer - Who, What and

Where. To fully understand answers to these questions, we

interviewed existing and prospective customers across vari-

ous locations, income and age groups. We also interviewed

industry leaders across all luxury categories on the Indian

consumer and understood the changes that they have

observed over the last few years.

In this section, we shall provide answers to three basic

questions:

1. What constitutes luxury in India?

2. Who is the luxury consumer? What has changed in the

last 2-3 years?

3. How is the behavior of the luxury consumer changing?

4. What are their specific tastes and preferences?

5. Where do they make their purchase?

Luxury in India – more aspirational luxury

than ultimate luxury

Industry leaders across categories believe that luxury is not

determined by price alone. Exclusivity is a far more impor-

tant parameter for a product or service to be called luxury. As

such customization, uniqueness, and even understatement is

important. Design, use of exquisite materials, presentation

and personalized service all contribute to luxury. Consumers

also talk about exclusivity, uniqueness and appeal to person-

al taste. This is not as yet corroborated by increased sales of

“ultimate and subtle” luxury products. The majority of the

market is still far away from this definition and

brand/logo/badge value drive luxury purchases very clearly.

Size, flashiness, clearly visible logos, well known brand names

are the key considerations in the purchase. That said, tradi-

tional attributes such as high quality, heritage, longevity, the

“stories” associated with brands are beginning to emerge as

drivers of purchase. Bulk of the Indian market is still domi-

nated by the more accessible and aspirational luxury prod-

ucts. Status – announcing your arrival into the elite segment

of the society – is the biggest motivation still. The mindset is

still that of an “aspirer” not that of a “connoisseur”.

The Indian luxury consumer - new insights

The Indian luxury consumer has been studied a few times

now. Various segments have been identified by earlier studies -

The old money/new money/gold collars/BPO mindset1 and

Industrialist/Corporate/Professional2 The focus of our con-

sumer research was to find out how the consumer has evolved

in the last 3-4 years. The accepted wisdom is that industrialists

and traditionally wealthy families is the largest segment, senior

corporate executives are a smaller but emerging segment while

young professionals are just entering the market.

Our research has shown that by and large the consumer seg-

ments that constitute the bulk of the market have not

changed significantly, although finer sub-segments are now

more apparent:

Medium size enterprise owners: This is the largest segment

in terms of number - these are typically the medium enter-

prise owners – industrialists and traders who run businesses

with revenues upwards of INR 50 crore. The source of their

spending is the surpluses generated by the business. Many of

these have grown as the economy grew rapidly in the last

twenty years. Their wealth is their passport to the elite seg-

ment of the society and conspicuous consumption is their

C H A P T E R 2

1 The Cult of Luxuru Brand - Inside Asia’s Love Affair with Luxury - Radha Chadha and Paul Husband

2 The Economic Times - A.T. Kearney India Luxury Review 2007

way of announcing it to the society. The children who tend to

be the second or third generation are the bigger spenders,

having been educated abroad and hence familiar with brands

and the luxury way of living. They are now educating and

enticing their more conservative elder generation into spend-

ing. Interviews also reveal that those who generate cash need

to necessarily spend it and luxury goods are a good avenue for

spending. These are very frequent luxury consumers and con-

sume the entire gamut of products and services and some

assets like cars and real estate. These consumers shop around

for deals and bargains, even travelling abroad if need be.

Traditionally wealthy families/large industrialists: This

group comprises two sub-segments – the first is the tradi-

tionally wealthy families – who have been consuming luxury

for several decades and go for the finer things in life. The

largest business houses in the country and historically

wealthy Marwari, Gujarati, Parsi, Punjabi families epitomize

this class. The other sub segment comprises the promoters

of some very large businesses which have come up in the last

two decades and have created a disproportionate amount of

wealth very quickly. Builders, miners, diamond merchants,

stock brokers, new age enterprise owners fall in this catego-

ry. Many of them have migrated to the highest ladder of lux-

ury consumption very quickly by acquiring yachts, houses

and really expensive cars.

Corporate executives: Senior executives of corporate

India who are paid in excess of INR 1 crore (USD 225,000)

and bankers who earn big bonuses epitomize this category.

These executives are well traveled and are aware of brands.

Most of this segment consists of people who are in their

mid-late forties and represent some of the brightest minds

in the country. Many of them though have come from mid-

dle class backgrounds and hence have a conservative

approach on conspicuous spending. While they can well

afford to spend, their propensity to spend is low. A gradual

change is being seen as they see more and more of their

compatriots spend. These consumers spend on some luxu-

ry products such as watches, accessories, select apparel, fine

dining, international and domestic travel and high end cars.

They also tend to shop on their frequent international trips

to get the best deals.

Self employed professionals: These comprise of profes-

sionals such as lawyers, doctors and architects: A small but

niche segment, comprising the top stars in their profession,

who have made it big. While many of these come from mid-

dle class backgrounds, they use their new found wealth to live

a good life. They shop for the entire range of products and

services although are found less often at the absolute top end

of the ladder.

Young professionals: Working in the service industries –

people in this segment earn the least compared to the others,

but since they don’t have family responsibilities, the dispos-

able part of their income is high. They are in tune with the

latest fashion trends, travel abroad once in a while and

believe in spending on what they fancy. They tend to con-

sume entry level products and are infrequent consumers.

Other segments:

Expatriates: Expatriates in the country are growing and

they are staying for longer periods: These are on expatriate

packages and are accustomed to luxury consumption in

other parts of the world. However most of these fly back

very frequently and stack up on their luxury products needs

on these trips. Luxury services and assets (mostly cars) are

influenced in a small way by this segment. The segment is

definitely driving the increasing awareness and need for lux-

ury products

Politicians and bureaucrats: Interviews reveal that politi-

cians and bureaucrats are a large segment for all luxury prod-

ucts, but have a much more pronounced preference for jew-

ellery, watches, cars and real estate.

Contrary to the popular perception that is generated by the

flashy lifestyles of film and television actors, they are not

large spenders by themselves and collectively do not form a

large segment. Luxury consumption of film and TV stars is

paid for by the producers. They also shop abroad a lot. Many

celebrities belong to rich business families and owe their lux-

ury consumption to their family wealth or get a lot of luxu-

ry products as gifts.

Citywise sub-segments: There are sub-segments in each

city that drive most of the purchases:

� Mumbai - stock brokers, diamond merchants/exporters

� Delhi – industrialists, traditionally wealthy, politicians,

bureaucrats

� Chennai – traditionally rich, industrialists

� Bangalore – builders, IT top brass

� Kolkata – traditionally wealthy Marwari businessmen,

traders

Age profile

The average consumer is still young – between 30-45. This is

in line with the overall demographics and is expected to stay

8

that way for some time. It is thus a young luxury market in

contrast with some of the mature markets like Europe and

the USA where the average consumer is much older.

Consumer Behavior

We found that while the average Indian luxury customer val-

ues High Quality, Exclusivity and Social Appeal as key driv-

ers of luxury purchase, they are also very Price Conscious

and often straddled with a “middle-class mindset”.

Corporate Professionals in particular tend to be more price

sensitive than the Traditionally Wealthy and Business

Owners. This is also due to the fact that the average “fashion

consciousness” of Indian consumers is still quite low – most

consumers prefer “well known” brands and make luxury pur-

chases for “brand value” and not “fashion value”. Table 2.1

summarizes the typical behavior patterns of the consumers

in each of the segments

Greater awareness - rapidly increasing and the entry of

brands, development of malls and magazines has helped.

Compared to three-four years ago, the number of people

who can correctly pronounce Chanel and Gucci correctly has

increased dramatically, although there is still a long way to go.

What is interesting to note is that the Indian luxury customer

is maturing rapidly and brand awareness has increased signif-

icantly over the past 3-5 years. Brands are beginning to see

loyal customers who have their preferred set of brands.

Among brands, the pedigree of a brand is very important.

There is a heritage value with luxury brands – customers typ-

ically put more value on brands that have been around for

many years.

When it comes to Indian brands, there is clearly a mixed per-

ception. While most customers were willing to purchase lux-

ury services from Indian players, the luxury products market

still has a long way to go. Specifically in services, Indian serv-

ice quality is considered to be at par with the best in the

world. Within products, the categories that customer prefer

have a high class value attached to it. Hence very select cate-

gories like jewellery and Indian designer apparel products are

considered ‘luxury’.

Fashion consciousness – changing very fast, dressing for a

look increasing in the metros – still a long way to go. In the

words of one of the luxury fashion CEOs - Indians are “sar-

torially challenged”. The younger members of the rich fami-

lies and the young professionals are leading the pack towards

building a sizable fashion conscious population.

Badge consciousness – continuing, no doubt. A logo is

probably the most important thing about a product. It is eas-

ier to sell a pair of sunglasses or a polo shirt where the logo

is clearly visible than a shirt where it is not so obvious.

Price consciousness – here to stay. The entire industry

acknowledges this and both the principals and the Indian

parties strive hard to match prices to make it price neutral for

the Indian consumer who would not mind taking a flight to

Singapore or Dubai or ask someone to get luxury products

for them, if the difference is more than 6-8%. The econom-

ics is simple – its costs 15-20,000 for a return trip (economy

of course!) to Dubai or Singapore. On a product costing

upwards of INR 200,000 (USD 4400), this is less than 10%

of the product price. That puts a limit on the amount of pre-

mium that anyone will be willing to pay for products that can

be easily purchased overseas and carried back. The grey mar-

9

Traditionally

Medium Wealthy Corporate Self

Size Families & Executives Employed Young

Enterprise Large Professionals Professionals

Owners Industrialists

Awareness

Fashion consciousness

(apparel and accessories)

Price Consciousness

Badge Consciousness

Propensity to buy overseas


Table 2.1 – Behaviour of various consumer segments

Very High Very Low

ket will willingly carry products for a fraction of the cost of

a return trip. The only exception to this is cars – where it is

not possible to bring it in – either legitimately or smuggled.

Propensity to buy overseas – reducing but still very signifi-

cant. One interesting observation is that Indian luxury cus-

tomers are not averse to buying from India. It is just that they

feel there are better avenues for purchase abroad. One of the

key challenges is to provide luxury shopping destinations that

offer a variety of brands under one roof. While most of con-

sumers purchase from boutiques in New York or Malls in

Dubai, in India there are not many avenues for luxury pur-

chase. Hence, for those also make luxury purchases in India,

shopping abroad is still by far the preferred option.

Consumers have certain perceptions about luxury shopping

in India, that have held them back from making large scale

and frequent purchases in the local market. Interviews with

industry leaders reveals that the consumer wants the same

package here – merchandise (range, freshness), convenience

(location), price and experience (ambience, service) – with an

extra expectation of service, given that this is India, where

labor is cheap. The development of the Indian duty free has

meant that Indians have an option of buying duty free prod-

ucts in India when they arrive rather than carting it all the way

from popular shopping destinations overseas. Consumers still

believe that the widest, most recent range of luxury products

is not available in India and that prices are more expensive

here, though at least two of these clearly are myths that need

to be broken. In fashion, collections are designed for the

whole world at once, no one creates separate collections for

India and old collections are not available. Width of range is

a trade-off that has to be made depending on the depth of

the market, so that is a possibility. Converting the overseas

market is a big challenge for retailers.

Propensity to buy from the grey market – by all accounts,

this is reducing in established brands. Concerted efforts by

players to bring in the latest merchandise, efforts by brands to

supply products at lower prices to India and Indian retailers

willing to work on thin margins has meant that the consumer

now gets a good bargain. New brands which consumers want

and are not available find their way in through this channel.

Driver of Luxury consumption: Number of HNIs,

HNI Wealth or Household Income?

It is generally accepted that luxury market size is positively cor-

related to household income (GDP/capita), the number of

high net worth individuals and/or their wealth. Discussions on

luxury are never complete without a reference to these param-

eters. A correlation between the size of the luxury market, the

GDP/capita, number of HNIs and HNI wealth over the years

2004-2009 shows that in terms of importance the number of

high net worth individuals is the most important driver, fol-

lowed closely by GDP/capita and HNI wealth. Interviews

with leading luxury brands in India point to the fact that fam-

ily wealth is a very stronger determinant of spending than

household income. Consumer interviews with traditionally

wealthy families support this pattern – they are habitual con-

sumers of luxury and less price conscious.

Some of the consumer segments mentioned earlier would fall

in the HNI category. However luxury consumption in India is

10

Figure 2.1 – Focus of masstige consumers


not limited to only the HNIs. The masstige phenomenon can

be observed very clearly in India. Luxury products in India are

appealing to, and purchased by, middle-class consumers that

do not fit the typical profile of an elite consumer segment.

For these shoppers, luxury represents status and prestige, a

place in society that they fit into as a result of their purchase

of high-end products. This phenomenon is observed even in

the large mature markets such as UK, where a large number

of individual consumers buy very small volumes3. Luxury

goods companies develop products that re-enforce the

“masstige” and drive volumes. As such it is very important to

look at the other indicator of the market – the GDP/capita.

In India given the fact that wealth is being created due to the

rapid growth, growing household incomes are converting the

middle class into emerging luxury consumers. As such there is

a large segment (below the INR 1 crore (USD 220,000)

income category) where while the wealth might be low, it is

the incomes that are driving the consumption. Measured in

PPP terms, INR 25 -100 lakhs in India is equal to USD 150-

650,000 of income in the US or EUR 120-500,000 in

Europe, which is definitely a luxury consumer.

The two above factors combine to make the consumer spec-

trum in India very broad. The starting point for luxury con-

sumption in India is INR 10 lakh (USD 22,000). It is highly

improbable that consumers earning less than this will think

about luxury. Our research shows that sporadic infrequent

luxury consumption for products and services begins when

annual household income goes upwards of INR 10 lakhs

(USD 22,000), becomes frequent when annual household

income crosses the INR 1 crore (USD 225,000) mark and

becomes habitual when the wealth crosses the HNI mile-

stone (USD 1 mn in liquid assets). For luxury assets, the

markers are understandably much higher and even within

11

3 An April 2006 report by Davenport Lyons reports that 43% of the UK population has spent on at least one luxury/designer product

Rupee Millionaires Near Millionaires Real MillionairesCategory Household Income INR 10-50 lakhs INR 50 lakhs – 1 crore INR 1-5 crore 5 crore+

(USD 22,000- (USD 110,000- (USD 220,000- (More than USD

110,000) 220,000) 1,100,000) 1,100,000)

Estimated number of

urban households 2,800,000 200,000 120,000-150,000

Typical Occupations Service Corporate Medium Large

Industry Executives, Enterprise Industrialists

professionals Self Owners Traditionally

Employed Traditionally wealthy

Professionals wealthy

Company CEOs,

top bankers/

Professionals

Luxury products Low ticket Watches, All All

value items some apparel,

such as accessories

leather

accessories Wines and

ties, cuff- spirits,

links, personal

Wines and care

spirits,

personal

care

Luxury Services Spas, Travel, All

Infrequent frequent

fine dining fine dining,

hotels, spas

Luxury Assets Cars, Yachts, Real estate, Paintings

Note: The figures for the number of households are estimated for the whole of urban India. Potential luxury consumers however, would reside only in Metros and Tier I cities. The total number of such potential consumers earning more INR 1,000,000 per annum is estimated at ~2.5 million Source: A.T. Kearney research and analysis

Table 2.2 – Typical consumption patterns

assets, the ladder become quite steep as one goes towards the

top. For example, consumer for private yachts would be the

top 200-400 richest families in the country – the billionaires,

super rich families (the HNIs) – earning anywhere upwards

of INR 50 crore (USD 11 million) per annum or with fam-

ily wealth in excess of INR 100 crore (USD 22 million). The

spectrum thus begins at rupee millionaires and goes all the

way to real billionaires.

While the small traditionally super wealthy families who

know what absolute or real exclusive luxury means, and can

be called connoisseurs, bulk of the incremental wealth gen-

eration in India has been the the handiwork of new age busi-

nessmen/industrialists - who were not so wealthy a couple of

generations ago. As the “new money” matures, one can

expect that the tastes and preferences will also evolve.

Geographical distribution of consumers

Luxury consumption in the country has so far been concen-

trated in Delhi and Mumbai with Bangalore being a distant

12

Figure 2.2 – Cities with high potential for luxury consumption

Source: Indicus Analytics, A. T. Kearney research and analysis

Chinese Cities LV Burberry Chanel Hugo Boss

Beijing 3 2 2 9

Shanghai 3 2 5 5

Other Tier I 6 6 0 8

Tier II 12 10 1 22

Others 11 13 0 43

Indian Cities LV Burberry Chanel Hugo Boss

Mumbai 2 1 - 1

Delhi 2 1 1 1

Bangalore 1 1 - 1

Others - 1 - -

Source: Company Websites, A.T. Kearney research and analysis

Table 2.3 – Comparison between number of stores in China and India

third. Brands have been thinking of expanding their foot-

print beyond these cities and have been wondering about

where their next store should be opened.

We now believe that the distribution of the rupee

millionaires is a good indicator of the luxury consumer distri-

bution in the country. We also believe that for luxury con-

sumption to take off a minimum critical mass is needed in a

city. While Delhi and Mumbai continue to be the mainstay

markets for luxury consumption, there are several other cities

with a large base of potential luxury consumers. A look at the

figure 2.2 suggests that while Mumbai and Delhi are the top

two cities, other cities also have significant potential for luxury

consumption.

Extrapolating the growth rates seen in these cities, over the

next 3 years implies that several new cities will become

potential centres of luxury consumption. Kolkata, Chennai,

Hyderabad, Pune, Vadodara are high potential destinations to

watch out for.

A quick comparison with China shows that in China there

are at least 20 cities/towns where luxury brands are present.

The corresponding number for India is a mere 3 to 4.

We believe in the next 5-7 years, at least 5-7 new towns will

get added on the luxury map of India.

We also believe that the potential in Delhi and Mumbai has not

been fully exploited and that there exists a few more micro

markets within these cities that need to be tapped. Pockets of

wealth and cities with good infrastructure could be the next

big destinations. In Mumbai, South Mumbai, Central Mumbai,

Bandra/Juhu, Powai and Thane are micro markets which are

far enough from each other, have concentration of wealthy

families and decent infrastructure. In Delhi, similar micro mar-

kets could be South Delhi, Gurgaon and Saket.

In summary, while the Indian luxury market is evolving, so is

the luxury customer. Understanding the nuances of the cus-

tomer is extremely critical to succeed in this dynamic industry.

13


� In India, the mindset of the consumer is that of an aspirer not a connoisseur. Size, flashiness, clearly visible logos, well known

brand names continue to be the key considerations in the purchase of luxury products.

� Several sub-segments have developed in the market with medium enterprise owners and traditionally wealthy families emerging

as the largest consumers of luxury products services and assets.

� Luxury consumption in India starts at a household income level of INR 10 lakhs (USD 22,000). However, the consumption remains

infrequent and sporadic for income levels even upto INR 30 lakhs (USD 65,000). Serious luxury consumption of all categories -

products, services and assets starts at an household income level of INR 1 crore (USD 220,000).

� Mumbai and Delhi remain the top two centers of luxury consumption with Bangalore as a distant third. However, several other cities

like Kolkata, Chennai, Hyderabad and Ahmadabad are emerging as potential consumption destinations.

LUXURY MARKET 2007-2009 –

PRODUCTS LEADING THE WAY

The changing nature of the luxury consumer manifests itself

in the demand for luxury products and consequently impacts

the fortunes of players in the market. Subtle nuances in

behavior can add up to dramatic trends in sales of individual

companies. Aggregated across all players in all sub-sectors

this performance is reflected in the performance of the

industry as a whole. New entrants look at industry aggregat-

ed trends to make up their minds about the potential of the

market and segments that they wish to play in. In this chap-

ter, we explore how the market for luxury stacks up across sub

segments and how it has shaped up over the last few years.

The key questions that one seeks to answer are around the

size and growth of sub segments, the grey market and how

the market has responded to the global recession in 2009.

Luxury Market Size

The absence of credible data on the size and growth of the

market has been a serious challenge for the industry. While

savvy businessmen depend on their native acumen and “nose

for opportunity” to decide upon entry or growth strategies,

the vast majority of other stakeholders have a huge discom-

fort when the size of an industry is unknown. With no pub-

lic limited or listed companies and the very wide range of

categories that belong to different and widely different indus-

try verticals – apparel, jewellery, liquor, cars, real estate,

hotels, travel – getting a comprehensive view of this market

is not easy. On the other hand, in India, given the relative

shallowness in many industries, there is a lot to learn from

what is happening in similar or adjacent industries. We have

seen CEOs wanting to validate what they intuitively feel is

right by looking for numbers that make sense or trying to

understand why something is not working by looking for

numbers to provide some answers. Our endeavor in this

study has been to provide robust data on the size and growth

of the Indian luxury market for stakeholders to consider,

debate and if it makes sense to base their decisions upon.

Given that luxury is the top and the creamiest sliver in all

consumer facing industries, we have tried to be as compre-

hensive in our coverage as possible. We have covered all the

major categories in products, services and assets. Also since

numbers stick in the mind, irrespective of the method used

to derive those, we have tried to take a 360 degree view of all

numbers, verifying and validating them from various inde-

pendent sources.

Boundary conditions and Methodology

For sizing the market, we have followed some time tested

guidelines.

Product, Price and (where possible brand also) filters are

applied to isolate the luxury from the non-luxury in all seg-

ments. We err on the side of conservatism i.e. only pure lux-

ury is included. A comprehensive definition of what consti-

tutes luxury in each category is given in the appendix.

Market size defined here means official luxury purchases made

inside India, not purchases by “Indian consumers”. Hence,

this does not include luxury product purchases undertaken by

Indians overseas (whether for consumption overseas or legal

duty-free imports). For example, this would not include a

Rolex watch or a Chanel perfume bought by an Indian tourist

in Singapore and imported under the duty-free allowance.

However, if the same watch or perfume was imported legally

(by the luxury brand/ distributor/ franchisee) and sold in

India, whether to an Indian consumer or a visiting foreign

tourist, it would get included. This also does not include the

purchases made by returning Indian tourists at Indian duty

free shops. Also the market size does not include illegal

imports into the country — the so-called grey market nor does

it include fakes (whether sold as originals or fakes). On the

other hand, consumption by foreigners visiting India would be

included in the market. We have estimated the market size for

the last three years - 2007, 2008 and 2009.

17

LUXURY MARKET 2007-2009 –

PRODUCTS LEADING THE WAY

C H A P T E R 3

The market size from 2007-2009 has been arrived at by fol-

lowing the methods described below:

� For imported products, transaction level data was

sourced. This was then filtered to isolate the luxury prod-

ucts at wholesale prices. Customs duties were added as

per the prevailing rates. Distributor/retailer margins were

added based on prevailing trends in the industry. The

resultant prices were cross verified for a sample with the

actual retail prices available in the Indian market. The

market sizes thus derived were cross verified with two

other sources – industry interviews and other independ-

ent sources. For example, for luxury watches we also

compared the exports of Swiss watches to India as a

cross check.

� For Indian products (such as designer apparel), a bottom

up estimation of player revenues was triangulated with

top down industry interviews.

� For services, we referred to industry reports – isolated

the leisure revenues (since a large portion is on account

of business travelers), studied revenues of key players in

the industry to ascertain trends, interviewed senior exec-

utives and experts to triangulate the estimates.

� For assets, we referred to credible sources such as SIAM

(Society of Indian Automobile Manufacturers) and Yacht

and Sailing companies. Estimates were triangulated with

interviews. For works of Art we have sourced data from

highly reputed industry experts. For real estate, we have

interviewed several international property consultants

and referred to industry reports to arrive at estimates.

Indian Luxury Market 2007-09

Based on a category wise build-up, the size of the Indian lux-

ury industry in 2009 is estimated at USD 4.76 billion (at retail

prices). This includes all luxury products, luxury services and

luxury assets sold in India. The total luxury market has

grown at a CAGR of 13% between 2007-09, with luxury

products growing at 22%, services degrowing at 5% and

assets growing at 18%.

A few interesting observations can be made from the data:

� The products have shown a very clear positive strong

growth of 22% over the three year period, making it the

second fastest growing market in the world after China.

What is interesting to note that this growth did not suf-

fer even during the recession. The growth tapered a little

bit during the recession, but only by a fraction and that

too in a few categories. Looking at this data, it might

appear that products market is immune to recession – for

example – for a rich businessman who is accustomed to

using a Ralph Lauren perfume or wearing Armani Jeans,

is not going to stop doing so, because his business is

growing at a slower pace than otherwise. Small luxury –

which is what the products segment is for the rich – too

personal, too insignificant and too hard to switch.

However, for the aspirational youngster who wanted to

splurge on a Ferragamo tie or a Hugo Boss suit, if his job

is uncertain, he might just defer the decision. The story

which the numbers don’t tell is what the growth rate

could have been if the growth had continued unabated.

We believe the growth rate could have been at least 5-

10% points higher, if the recession had not happened.

The foundations of this emerging industry were rudely

shaken and it was felt that luxury was being introduced

too rapidly in the country when the country was not

ready for it. New entrants deferred or shelved entry plans

as they battled a serious slow down in their large markets,

existing players slowed down expansion plans. For exist-

ing stores, marketing (events and parties) was curtailed

and as a consequence sales productivity growth was slow-

er than expected. So while it is not a loss in absolute

terms, it is lost potential.

� Service revenues have reduced in the period from 2007-

09, due to the global recession first, followed by 26/11,

followed by the H1N1 scare. Curtailment of travel by

individuals – both domestic and visiting foreign tourists

(following travel advisories issued by many countries) –

has led to a contraction of the major segments of this

18

Figure 3.1 – Luxury market in India

Source: A.T. Kearney research and analysisConversion rate (used throughout) : 1 USD = INR 47

market – hotels and travel - from its peak in 2007.

Downward corrections in prices to resurrect demand and

the inadequate response have meant that net revenues of

players have stagnated or reduced. Major service players

such as Taj, Oberoi and ITC have also experienced simi-

lar trends and the major airlines have experienced similar

trends. The industry expects to recover in 2010.

� Asset revenues in 2009 have increased significantly, grow-

ing by USD 700 million from their 2007 levels. However,

growth has slowed down considerably in 2008-2009 to

8% given 2007-08 growth rates of 29%. This is partly

due to the global recession, and partly due to the absence

of proper infrastructure – like marinas for assets like

yachts. The real estate sector has shown robust growth,

though a significant slowdown was observed in 2009.

Luxury automobiles sector has been strongest performer

in this segment exhibiting a 37% y-o-y growth over the

last two years – mainly due to the entry of international

luxury car brands like BMW and Audi

Luxury Products Market

The most visible segment of the luxury industry is the luxury

products segment. This includes the most visible fashion lux-

ury segments such as apparel, accessories, personal care,

watches and jewellery. In popular literature, it is this segment

that defines luxury. However our definition, which is a little

broader, also includes wines, spirits and high-end electronics.

This market has been estimated to be USD 1.5 billion in 2009.

The market has grown at a CAGR of 22% in the last 2 years

despite the recession that hit global markets. Most luxury

product categories have witnessed over 15% growth over the

past 2 years – performance of categories like Electronics,

Wines and Spirits, Apparel and Jewellery has been exception-

ally strong. Some interesting insights can be gleaned by look-

ing at the behavior of the major categories.

Jewellery

Luxury jewellery purchases forms the largest chunk of the

luxury products market (USD 730 million growing at

25%+)This is mainly due to the Indian mindset of buying

and investing in jewellery. Weddings and special occasion

purchases and the ability of high value diamonds and jew-

ellery to act as a store of value make this market a lot more

resistant to ups and downs. It is estimated that luxury jew-

ellery is almost 15% of the total diamond jewellery market,

making it a pretty large market. The market has grown in

excess of 20% over the last four years despite a doubling of

gold prices. Luxury in jewellery is a little hard to define. The

really top end of the market would be large high quality soli-

taires ( 3 carat+) and high end diamond studded jewellery (>

10 lakhs per piece). Most of these would be sold by leading

family jewelers and independent jewellery designers, estimat-

ed to be around 125-150 in the whole country. International

jewellery brands like Cartier, Chopard, Tiffany have been in

the country for some time, although their impact on the mar-

ket has been limited. Primary reasons are that the brand

“logo” is not identifiable in jewellery, Indians don’t yet want

to pay for design in jewellery, the range of designs available

is unlimited and all the high end jewellery is completely cus-

19

Figure 3.2 – Luxury Products Market (2009)

USD billion


Figure 3.3 – Luxury products market in India


tom made. The Indian jewellery industry has turned its atten-

tion to design; designers have begun to get attention and col-

lections based on themes are becoming well accepted. The

top family jewelers focus on this segment a lot more and they

have a competitive advantage due to long standing relation-

ships with wealthy families. The recently concluded India

International Jewellery Week showcased the luxurious

designer collections from jewellery houses and designers.

Many fashion designers have turned their attention to this

space which complements apparel. Interviews reveal there is

an almost insatiable demand for high end jewellery in the

country. Unlike other luxury products, this market is more

widely distributed with cities like Kolkata and Chennai hav-

ing a high demand.

Apparel & Accessories

The apparel segment has grown at a CAGR of 19%

between 2007 and 2009. The three big segments of the fash-

ion luxury apparel market are the international branded

apparel, Indian designer wear and accessories. The market

seems clearly polarized by wear occasions. International

brands cater to the casual wear, formal western wear and

accessories, while Indian designers cater to the

traditional/ethnic wear market. Except for Canali creating a

Nawab suit, international brands have stayed away from the

Indian wear market. The Indian designers have tried their

hands at western formal and casual wear, but haven’t met

with too much success.

Amongst the international brands, there are no runaway suc-

cess stories as yet, though a shared belief is that the more well

known a brand, the better its chances of hitting success early.

Unlike in mature markets, the market for men is much larger,

constituting upto 60% of the market. The market witnessed

the entry of several brands (Louis Vuitton, Burberry, Gucci,

Valentino, Zegna, Gas, Diesel, Versace, Armani, Hugo Boss,

Dunhill, to name a few) some in association with more active

Indian partners (Murjani Group, Sachdeva Group, Raymonds,

DLF, Genesis Colors etc). Results have been a mixed bag so

far – a few exited, some changed their partners and some oth-

ers have done well. In addition to mono-brands, The

Collective by Madura Garments is an attempt to address the

market through a multi-brand play. Most of these brands have

ventured out of five star hotels which was their first foot-

print, into luxury malls and some (like Diesel) even venturing

into the high street. Clearly the supply side disruption that

these brands have created has helped the market grow. The

recession made many of these brands temper their growth

plans and revisit their cost structures. These brands have also

provided enough fodder for the emerging luxury print media

as well. Zara, the affordable fast fashion brand from Spain

(not luxury) met with a very good initial reception driven by

its high brand recall amongst the premium Indian shopper

and attractive price points. The industry sees this as an indica-

tor of the maturing of the consumer, an affirmation of the

latent demand for premium contemporary fashionable appar-

el. Fashion shows, fancy store launches and end of season

sales are all helping the Indian elite get accustomed to the

brands and their promise. Fashion awareness is clearly getting

enhanced rapidly and the industry has clear expectations of

rapid profitable growth. Interviews reveal that the latest mer-

chandise is made available to the consumer and there is an

attempt to match price points with international prices. The

Mecca of discount pricing on luxury goods – USA, though is

a huge attraction for those who travel abroad creating a pull

away from this market.

The Indian designer wear market estimated at USD 125

million is a steadily growing market and has come to be

accepted as a clear top end segment of the market.

Indian Traditional Wear, sarees and designer wear are the

mainstay of this market. Weddings and personal collections

for HNIs is a big part of this market, though increasingly

all designers are trying to attract a larger segment – viz, those

earning anywhere upwards of INR 20-30 lakhs (USD 44,000

– 65,000). All designers now have boutiques, many in the

luxury malls and few of them like Ritu Kumar have multiple

stores. The sector is expected to get rapidly organized and

attract investment. Multiband formats like Kimaaya have

created distribution options for individual designers. The

industry though small at the moment expects exponential

growth riding on the back of increasing fashion conscious-

ness. What will be interesting to see is if the western luxury

brands would want to focus on this segment – for example

would there be buyers for a luxury Chanel saree or a Dior

ghaghra choli?

Accessories are the third and most attractive piece of this

market. We believe the potential of this market has not yet

been fully leveraged. These are products that meet all the cri-

teria that the Indian consumer is looking for – badge value

and low ticket prices. From the point of view of the brand,

these products don’t need customization for India and get

the customer to migrate to higher value products. Handbags,

belts, sunglasses, luggage, cuff-links, wallets are fast moving

items and it is reported that top brands like Louis Vuitton

have created a very strong business in this category. Some of

the challenges faced by this category are the absence of

multi-brand distribution options in addition to the amenabil-

ity of these products for buying overseas.

20

Electronics

Electronics in India is a very large segment and it is very

important to define what the Luxury Electronics market

would comprise. In our analysis, Luxury Electronics

include the high-end home entertainment systems – 55” or

larger Television and sound system from - brands like Bang

& Olufsen; custom built entertainment rooms or theatres

costing upwards of INR 10 lakhs (USD 22,000) and high-

end mobile phones from luxury brands like Vertu.

An emerging trend in this sector is that of home automa-

tion – for example a i-pad controlled house, where every

electrical system ranging from lights to security systems

can be controlled from an i-pad while sitting on a comfort-

able couch.

The Luxury electronics market in India is estimated at

around USD 160 million. The market for luxury mobile

phones is still niche catering to only the HNIs but there is

huge demand for home entertainment units in the country.

This demand is closely linked to the demand for luxury

homes. It is observed that people who purchase 4 bedroom

homes or larger homes generally convert one room into a

entertainment center. These ‘entertainment rooms’ are often

designed by free-lance consultants who also help consumer

source the various components like the television, audio sys-

tems, blu-ray players and gaming consoles. Interior designers

too, play a significant role in this industry by designing the

aesthetics of the rooms and by acting as intermediary

between consumers and the consultants.

This market is not limited to merely metros like Mumbai or

Delhi, but is also found in emerging Tier I cities like

Bangalore, Chennai, Hyderabad and Ahmedabad. The con-

sumer purchasing behavior is found to vary from location to

location but broadly, consumers in Metros are more brand-

aware and do a fair amount of research before buying these

products. In smaller cities purchases are driven more by the

‘I want one too’ attitude. There is a significant grey market

for these products mainly due to the high import duty levied

on these goods. A one year warranty that comes with most

of these products is currently not sufficient to push buyers

towards making more legal purchases.

Wines and Spirits

The Wines and spirits segment has grown steadily at almost

22% per annum despite exorbitant import duties being levied

on them. According to the Customs Tariff Act, a duty of

150% is levied on all imported liquor. This increases the retail

price after duties and margins for these products to almost 3

times the wholesale price.

While the demand for Foreign Liquor is spread out through-

out the country, most people tend to purchase liquor while

travelling abroad. It is estimated that purchases made by

Indians while travelling abroad or in duty free shops at

Indian Airports is almost 2-3 times the purchases made in

India. Additionally, government regulations in states like

Gujarat have stifled sales, creating a very high latent demand.

The Indian consumers are more aware of spirits brands

(Whisky, Vodka, Rum etc) and their prices than wines and

champagnes. Most consumers still don’t understand the intri-

cacies of fine wine and are often confused by their labeling

and pricing. Retailing of high end spirits and wines is negligi-

ble primarily due to the huge resistance of consumers to pay

the price after duty and the easier and cheaper option of duty

free imports. A grey market exists for luxury wines and spir-

its as a fallback for consumers. It primarily caters to the wed-

ding and party market where large quantities are needed.

Personal Care

The luxury personal care market (cosmetics and fragrances)

in India is estimated at USD 180 million.

This market, according to industry leaders, is quite different

from the markets seen globally. Fragrances are a larger mar-

ket compared to cosmetics mainly because 60% of the con-

sumers in this segment are men. The cosmetics market is

dominated completely by women and is no doubt growing

on the back of rising employment of women and growing

brand awareness. According to industry sources, a significant

amount of sales in this market take place through grey chan-

nels and could amount to almost 2 to 3 times the sales hap-

pening through legal channels.

Currently, department stores like Shoppers Stop and

Lifestyle are major channels of sales where brands are allot-

ted a shop-in-shop or a counter to create the brand experi-

ence. However, these stores cater to a wide segment of cus-

tomers – Luxury and non luxury and hence stock a wide

range of non-luxury brands as well. Counters for luxury

brands in these stores are located alongside those for non-

luxury brands. These adjacencies end up creating an atmos-

phere which amplifies the consumer’s price consciousness

and adversely impacts the sales of luxury brands. Some of

these formats are now considering dedicating separate floors

to luxury brands.

The retailing environment in India too leaves a lot to be

desired when compared to retailing locations for similar

products in places like Singapore, New York and Dubai.

As of now there are no multi-brand stores like Sephora

21

for retailing of personal care products. Parcos by Baccarose is

the first Indian attempt to build boutiques and spread

awareness.

Watches

The luxury watch market in India in 2009 is estimated to be

USD 54 million, at retail prices. A consequence of decreased

consumer spending due to the recession, the luxury watches

market had shown a 14.5% decline from 2007 to 2008.

However, it bounced back in 2009 posting a 47% y-o-y

growth.

Industry estimates of grey market purchases (not included in

the above) are to the tune of ~30% of the total market. It is

widely accepted though that the grey market transactions

have reduced due to increased availability, better matching of

domestic pricing with international prices. List prices in India

are generally 5 – 10% higher than low duty destinations like

Dubai and Singapore. Discounting and undercutting is ram-

pant (discounts upto 25% are not unheard of) as a conse-

quence of which consumers get luxury watches at very

attractive prices in India.

Most popular brands are Rolex, Omega, Rado, Cartier. Other

iconic brands which are popular are Piaget, Breguet, Jaeger

Le Coulture, Girard Perregaux, Audemars Piguet.

Interviews allude to the fact that, over 70% of Indian Luxury

Watch purchases take place in Mumbai or Delhi. However,

there is huge demand for watches in Tier I and Tier II cities.

Currently, consumers living in these cities have to travel to

the nearest metro to make purchases.

Luxury products market – supply constrained

Despite the entry of several brands in the last five years (and

exit by a few) we believe that the market is still supply con-

strained – The constraint is both in terms of number of

brands that are present, their footprint and the availability of

other distribution options. A comparative look at China will

illustrate all these.

The Chinese luxury products market is around four times the

Indian market. Of the more than 500 luxury brands present

globally, more than 300 are present in China, compared to

only 100 – 150 in India. Most brands have penetrated deep

into China beyond Beijing and Shanghai into the Tier I and

Tier II cities. Multibrand retailing is a big business in China

with several large multi-brand chains selling luxury products.

Online retailing is also a much more evolved business in

China.

22

Figure 3.4 – Distribution of expenditure on luxury products


Country of Orgin % of Brands % of Brands China

present in India

France/Belgium 28% 62%

Italy 30% 71%

UK 36% 64%

USA 24% 71%

Asia 13% 75%

Source : UBS European Luxury goods 2007, A.T. Kearney research and analysis

Table 3.1 – Percentage of international luxury

brands present in India and China

Luxury Market Spend – Women spend

mainly on jewellery

The Indian luxury market is quite different from global lux-

ury markets. With the exception of jewellery, the market is

dominated by men.

Jewellery constitutes over 40% of the Indian Luxury

Products Market and the entire spend in this sector comes

from female consumers. However, in many sectors like fra-

grances for instance, Indian men spend more than Indian

women, contrary to the global trend. The same trend is

noticed in Luxury Western wear segments where purchases

by men far outnumber the purchases by women. In watches

too an estimated 60% of purchases are made by men. It is

because of a few unconventional categories that are excep-

tionally large in the Indian market – Designer Indian Wear

and a huge jewellery market – that overall purchases by

Women exceed those made by men.

Luxury Services Market

The Indian luxury services market was severely hit by the

recession. In fact, as Figure 3.5 highlights, the market actual-

ly declined over the past three years. Nonetheless, the India

Luxury Services industry is considered to be one of the best

in the world. Consumer interviews revealed that consumers

prefer Indian hotel chains like the Taj, Oberoi or ITC even

when International chains like the Hyatt, Hilton or Four

Seasons have entered the country.

Hotels

Our estimate of the Luxury Hotels Industry includes

leisure revenue from room-rents from all Five Star, Five

Star Deluxe and Heritage hotels in the country. Revenues

on account of business travel have been excluded. This

industry has declined since the peak reached in 2007.

Multiple factors have contributed to this decline. The glob-

al financial crisis and the terror attacks on India’s financial

capital Mumbai have resulted in a sharp drop in foreign

visitors to India. Several countries issued travel advisories

and most companies have curtailed travel. The recent

H1N1 pandemic has further restricted global travel.

However, the industry is expected to turn around in the

2010-2011 fiscal.

Fine Dining

Bulk of the fine dining restaurants in India is located in five

star and five star deluxe hotels in the country. Hence, these

restaurants have been affected by all the growth curtailing

factors affecting five star hotels. However, contradictory to

this, the number of independent fine-dining restaurants has

increased in the past 2-3 years. Food price inflation has

pushed up the average cost of a meal at these restaurants.

With the Indian consumer becoming increasingly ready to

pay for leisure services, the revenues of these restaurants

have gone up. Hence, overall the Fine Dining industry has

grown at 5% per annum

Travel

We define Luxury Travel as the total revenue from domestic

business class and first class flights taken by leisure travelers.

Hit by recession, the revenue in this market has declined sig-

nificantly from 2007 to 2009. Part of the reason has been

that most airlines reduced their fares in this period in an

attempt to boost demand. However the demand has

remained depressed for a better part of the last three years.

Indians also spend a large amount of money on vacations.

However, we have not included this market as part of this study

because most luxury consumers take their vacations in exotic

locations abroad. Only a very small part of revenues from these

vacations are collected by tour operators and holiday planners in

the country. Most of it is paid to foreign airlines and hotels

which strictly speaking are not a part of the Indian Luxury

Market. That said, revenues from luxury vacationing can be sig-

nificantly large. An average HNI takes at least two holidays per

year – one short and one long. During these holidays, he spends

money on Business/first class air travel and best-in-class luxury

hotels. It is estimated that total revenues in this industry could

add up to around USD 1.7 billion. But most of it is booked

directly overseas or spent in a fragmented manner among all

tour operators. Hence, they are not included in our estimates.

23

Figure 3.5 – Luxury services market in India

Source: FH & RA Indian Hotel Industry Survey, A.T. Kearney research and analysis

Spas

In the past few years, spas have ridden the wellness boom

and have become well accepted in the country. The number

of spas has increased steadily in the past two-three years,

with every luxury hotel boasting of a spa today. Additionally,

independent spa chains like Ananda have emerged and have

performed well. However, even today, most luxury spas in

India are located in five star and five star deluxe hotels, with

independent spa chains making up only a small fraction of

the market. Hence, most spas have been impacted by the

industry-wide downward trend that has hit the hotels and

tourism industry. It is estimated that spas industry has grown

5% per annum from 2007-2009.

Luxury Assets Market

The third constituent of the Indian luxury market comprises

the ownership of luxury assets within the country. The cur-

rent Indian luxury assets market is estimated at USD 2.45 bil-

lion. Figure 3.6 depicts the category-wise break-up and his-

toric growth of the luxury assets market.

The growth of the Luxury Assets market is driven mainly by

the phenomenal growth of the Real Estate and Automobile

sectors. Private aircrafts are not considered luxury purchases

and hence, have not been included.

Real Estate

The luxury residential real-estate sector has shown a histori-

cal growth of 19% per annum.

The standards of luxury in this industry are defined by the

kind of premium the developer is able to charge over the

given market prices in a location. The consumer defines lux-

ury in terms of the premiumness of the location (south

Mumbai, south Delhi etc), the quality of the finish and the

fixtures and also the kind of company one would have as

neighbours. The biggest cost driver being the location and

given the need from the masstige consumer to upgrade,

developers have started offering luxury homes in otherwise

non-luxury locations to attract the emerging luxury con-

sumers. Pure luxury though continues to command a premi-

um. Homes upwards of INR 10 crore (USD 2.2 million) in

Mumbai, 5 crore (USD 1.1 million) in Delhi and 2-3 crore

(USD 400,000 – 600,000) in other cities would cater to the

elite in the society. Despite the weak commercial real estate

market, the residential and particularly the luxury end

remains strong. The latest trend in this industry is “branded

luxury homes”. Armani and Gucci homes are on the horizon

for those who will have nothing less. Developers who have a

strong market share in this space are those with deep pock-

ets and the ability to hold on when the market experiences

ups and downs.

Luxury Cars

Luxury cars have shown the strongest growth rate in the

Luxury Assets group growing at an average of almost 40%

per annum year on year from 2006. The last three years

have seen the entry of brands like BMW, Audi,

Jaguar, Porsche and Land Rover. The availability of more

variety has seen consumers shift from the traditional

luxury cars to bolder and sportier variants. Also, the

introduction of International variants of different

models in India within a few months of their World-wide

launch by brands like BMW is significantly driving sales.

BMW has upset the incumbent Mercedes in a matter of two

years, despite the steep import duty on cars, clearly reinforc-

ing the latent demand in the market. BMW is a driver’s car,

yet in a country where the elite would rather be driven

around, it has emerged as a market leader. Jaguar and Land

Rover both have found their niches – a strong loyal customer

base exists for them among the traditionally wealthy families,

not to mention the attraction for new wheels for the new

money.

Yachts

Yachts are pure leisure crafts and very few of them are used

for transportation purposes. The main driver is leisure and

sport, both of which are catching up. Right now the market

is concentrated in Mumbai but is expected to grow beyond

to other coastal cities. India’s long coastline is an advantage,

but the absence of marinas is a big deterrent. So is absence

24

Figure 3.6 – Luxury assets market in India

Source: Interviews, A.T. Kearney research and analysis, secondary research

of maintenance facilities and maintenance staff. Here again

the market is highly sensitive to individual purchases and the

recent attacks in Mumbai has resulted in serious restrictions

from the Coast Guard which has been a dampener.

Sailing too is emerging as sport in India but industry sources

say that sailing will not be limited to only HNI or Luxury

consumers but will target the growing Indian middle class. So

strictly speaking it will not be a luxury leisure activity

Art

The market mainly comprises works by Indian artists with

works of foreign artists making up less than 5% of the mar-

ket. Recent years had seen a lot of younger buyers entering

this market which had contributed tremendously to its

growth in the year 2007 and 2008. However, 2009 saw the

number of such buyers reduce drastically.

The Art Market has experienced a slowdown, falling by

around 25% from its peak in 2010. The slowdown is mainly

due to due to the recession, but the failure of some promi-

nent art galleries has also had an adverse impact on the sen-

timents of the market. However, the market is expected to

take off again in six to eight months time.

Aircrafts

Our research has revealed that in India most private and non-

scheduled aircrafts are either owned by corporate or by char-

ter companies. It is estimated that only 2 percent of India’s

general aviation aircraft fleet is owned by individuals compared

to 57 percent abroad. All private aircrafts are used predomi-

nantly for business travel and the primary driver being conven-

ience. There are hardly any planes that are bought for purely

personal leisure travel and that is very difficult to identify.

Business Jets require a large eco-system for maintenance and

quality control, which is why most HNIs in India are averse

to purchasing them for purely personal usage. As such we

have excluded this category from the luxury market. As and

when the leisure personal travel becomes significant, this cat-

egory should be considered for inclusion in the luxury mar-

ket. It is expected that, with advent of the very light jet, one

may see individuals buying and operating aircrafts in the next

5 to 10 years.

25


� The overall Luxury Market has grown at 13% per annum. This growth has been mainly driven by the growth in the products and

assets sectors.

� The Luxury products segment has shown the strongest growth - growing at 22% y-o-y despite the recession.

� The Luxury Assets segment has grown at 18% per annum from 2007-2009 mainly on the backs of the Luxury Real Estate and

Automotive sectors both of which have grown at more than 15% per annum.

� Luxury Services have declined owing mainly to the recession and also partly to terrorist attacks in India and the H1N1 pandemic

in the past few year.

LATENT DEMAND AND FUTURE

POTENTIAL – ONLY THE TIP OF THE

ICEBERG SO FAR

We have seen from the previous chapter that the luxury

industry in India has now recovered strongly and is poised

for rapid growth. However, by any definition, the Indian lux-

ury market is still very small compared to global standards.

While India has one of the highest GDPs in the world, its

luxury consumption, in absolute terms, is smaller than that of

a country like Singapore! This raises several interesting ques-

tions for luxury players looking at the Indian market:

� How does the luxury consumption pattern in India differ

from that in other countries?

� Is there a large latent demand for luxury goods and serv-

ices in India?

� What are the reasons for the latent demand not being

realized?

� What is the growth potential of the luxury market in

India?

This chapter aims to address these questions and provide

insights on the large latent demand in the Indian luxury

market.

Drivers of Latent DemandWe believe that there exists a large latent demand in India.

This latent demand is on account of two factors – demand

side and supply side. The demand side factors comprise of

innate consumer behavior that creates a demand for luxury

goods and the supply side factors are those that make supply

available in the market for consumers to consume. When

demand exists and supply is available, transactions take place

creating a market.

Demand side factors: Consumer behavior

If there is one phrase that could sum up the Indian approach

towards luxury buying, it would be the “middle-class mind-

set”! Luxury players are faced with challenges on two fronts

� People who can afford it – don’t buy it

� People who buy it –don’t buy enough

What is it about Indians that makes us such bad luxury con-

sumers? If consumerism is going up and we are spending

more money than ever before, then what are we buying

today? To answer these questions, we analyzed consumer

buying behavior across products and services, to understand

the drivers of latent luxury demand in India.

Products

� While brand awareness is rapidly increasing in India,

brand consciousness still fairly low. An Indian CEO

would happily sport a INR 5,000 (USD 110) watch –

while the typical global CEO would wear brands that cost

100 times as much! The importance given to “labels” in

India continues to be low, especially for the entry level

luxury consumer.

� Luxury consumption in India really begins at income lev-

els above INR 30-40 lakh (which would translate to USD

200,000 in PPP terms) per annum. Households with

income levels of INR 10-30 lakh (USD 60,000-180,000

PPP) are rare or infrequent luxury consumers. This dif-

fers significantly from other countries where luxury con-

sumption begins at much lower income levels (USD

50,000-75,000).

� Even at higher income levels, Indians typically spend less

on luxury products than their global counterparts. Indians

still pick and choose certain categories for luxury consump-

tion (perhaps a pen or maybe cufflinks?). Few Indians today

have a portfolio of luxury goods across categories.

� In contrast to global markets, luxury consumption in

India today is dominated by men, not women. Drivers of

global luxury products consumption – high-end apparel,

accessories and personal care – rank fairly low in the

average Indian women’s list of priorities. Women in India

29

LATENT DEMAND AND FUTURE POTENTIAL

– ONLY THE TIP OF THE ICEBERG SO FAR

C H A P T E R 4

still tend to spend more on jewellery and ethnic wear

(sarees) than on typical luxury products offered by inter-

national players. While an Indian woman wouldn’t think

twice before buying a INR 100,000 (USD 2200) gold

necklace – getting her to buy a Prada bag for the same

amount isn’t such an easy task!

� The importance given to grooming and styling in India is

also lower than international expectations. It isn’t uncom-

mon to see Indian women without a trace of make-up in

work environments – very different from western mar-

kets and even other Asian countries where stepping out-

side without foundation, eyeliner and lipstick is virtually

unheard of.

Services and Assets

� A major factor for the low growth of luxury services in

India is quite simply - infrastructure limitations. Indians

today do not have much choice in terms of luxury serv-

ice facilities – clubs are limited and hard to get into

(unless you have significant clout) and needless to say,

options for sports like golf and sailing are practically

non-existent

� Fine dining services have done well in India, but the market

is still restricted by the low propensity of the average Indian

to consume alcoholic beverages. Champagne doesn’t flow

quite as freely in the Indian market as it does globally!

� The main constraint on growth of the luxury assets mar-

ket is also limited infrastructure – airports cannot sup-

port more private aircrafts, driving luxury automobiles is

a much more hassle, much less pleasure on our congest-

ed roads and docking facilities for yachts are poor

Supply side factors: Serious constraints

We also believe that unlocking the potential of this market is

a direct function of supply side interventions. The supply of

most luxury products in India is present is mostly present

Mumbai, Delhi or Bangalore. However, wealth creation in

the country is now no longer limited to these cities. It is tak-

ing place at a rapid rate in Tier I and Tier II cities like

Ahmadabad, Pune and Hyderabad. Consequently, the

demand for luxury products in these cities is increasing.

However, there is no supply to service this demand.

A comparative look at China will illustrate the extent of sup-

ply constraints. One of the reasons is that there are much

lower luxury stores in India than in other high growth mar-

kets, like China. We looked at the number of stores for some

prominent brands in India and China and saw that the Indian

market has much less stores when compared to China – one

of the key reasons for the demand in India staying latent!

All these factors have resulted in an “untapped” demand for

luxury goods and services. Consumers have the money and

are willing to spend, but need to be given the right avenues

and channels to put their money into. Given this understand-

ing of the Indian luxury consumer, we believe there is a large

latent demand potential for luxury goods and services in

India. We have estimated both the expected growth potential

and the latent demand for luxury going forward.

Extent of Latent Demand

An estimate of the latent demand can be arrived at by look-

ing at other luxury markets. It has been established that the

size of the luxury market for a particular country correlates

well with the Number of HNIs in the country and its GDP

per capita. Using these parameters we classify global luxury

markets into three categories (Figure 4.1):

1. Large Mature Markets: These are markets that have

been explored to almost their full potential. They gener-

ally include developed countries US, Japan and other

European countries

30

Brand No of Stores in India No of Stores in China

Gucci 3 35

Omega 5 61

Hugo Boss 3 86

Chanel 1 8

Cartier 1 (24 multi brand) 33 (111 multi-brand)

BMW (Dealers) 15 147

Rolex* 13 200

Source: Brand websites *includes multi-brand stores

Table 4.1 – Comparison of stores by brand in India and China

2. Small Mature Markets: These Markets too have been

explored to their full potential. However, the size of the

luxury markets in these countries is small because the

population of the countries is very small.

3. High Growth Market: These markets include markets in

developing countries like India and China. These markets

currently have a huge latent demand, which over a period

of time will get converted into revenues.

The current market size for luxury products in the country is

around USD 1.5 billion. A regression based on India’s

GDP per capita and Number of HNIs, indicates that the size

of the Indian luxury products market should have been

around USD 3-3.5 billion. This implies that bulk of the

potential in the luxury market has not been unlocked and

there is a latent demand of almost USD 1.5-2 billion. As per-

centage of the current market size, India’s latent demand is

estimated at 120-150% while for China it is estimated at only

10-15%.

Taking another perspective, the luxury market in India is

only a fraction of the overall market. Figure 4.2 highlights

this by examining the split between luxury and non-luxury in

two industries (apparel and automobiles) across several coun-

tries. It can be seen that the Luxury market in India consti-

tutes a far smaller percentage of the overall market than lux-

ury markets in other countries.

Finally, with the total expenditure in urban India being USD

350 – 400 billion, the luxury market today forms just 1% of

consumption. When total expenditure in rural India is also

factored in, this figure falls even lower. Even if luxury spend-

ing in urban India were to grow to 2-3% of the total con-

sumption, the market would open up dramatically.

Lets now look at how much of this latent demand can be

converted into revenues in the next five years and what will

still remain latent even then.

Expected Growth

In mature luxury markets, luxury penetration being high,

incremental consumption will be on account of increased

spending from existing customers and a small growth in the

consumer base.

31

Figure 4.1 – Country comparison based on GDP

and # of HNIs

Source: Altagamma, A.T. Kearney research and analysis, Merrill Lynch Capgeminiworld wealth reports

Figure 4.2 – Comparison of Luxury market with total market


However in nascent markets like India, there are several driv-

ers for luxury market growth – these are a substantial addi-

tion of new consumers and significant increase in per capita

consumption both of which are facilitated by launch of new

brands and launch of new stores. Hence while sales grow on

account of a moderate same store sales growth, an equal or

greater amount comes from addition of new stores.

We have estimated the expected growth in the luxury goods

market using a number of methods. Regression of the market

size for luxury products against the number of HNIs results

in a growth estimate of 18%. Based on numerous interviews

with luxury company CEOs, executives and industry experts

as well as secondary research, a bottom-up build up of catego-

ry wise growth rates leads to an average of 21%.

Given this and considering the huge latent demand, we

believe that India’s overall Luxury Market will grow 21% to

become almost 3 times its current size by 2015. Figure 4.3

below provides an overview of estimated luxury market

growth in India.

As a consequence of this growth, an increasing percentage of

the latent demand will be converted. However given that the

latent demand is so large, there will still be a significant

untapped potential even in 2015. Figure 4.4 provides an esti-

mate of the latent demand that will still remain untapped

even in India in 2015.

The market can grow faster and a greater portion of the

latent demand can get converted if supply constraints are

removed faster. Greater supply will help educate and convert

consumers removing the demand side constraints. India

will need to see significant investment from luxury market

players to tap into its latent demand and unlock its true

potential.

What are some of the challenges that luxury players entering

the market have faced? What are the issues unique to India

that companies are still grappling with? And what measures

can be taken at an industry level and by players individually,

to realize the full potential of the India luxury market. We

address these questions in the next section.

32

Figure 4.3 – Projected growth of luxury market

in India


Figure 4.4 – Latent Luxury products demand



� Latent demand for luxury products in India is on account of two types of factors : Demand side factors - the middle-class anti lux-

ury mindset of most Indians (changing fast) and supply side factors - lack of penetration of brand stores beyond Mumbai and Delhi

� The latent demand for luxury products in India is estimated at around USD 2 billion or more than 150% of the current market size.

� As the market grows at an estimated 20% per annum, the percentage of latent demand will decrease. However, it is estimated that

a there will be a significant latent demand in 2015 as well.

LUXURY INDUSTRY CHALLENGES:

OBSTACLES OR OPPORTUNITIES IN DISGUISE?

34

The last two chapters present an interesting dichotomy. On

one hand, the Indian luxury customer is evolving, has

become discerning and is more willing to spend than ever

before. However the market is still small, albeit growing, with

a significant portion of demand that is still latent. Big multi-

million dollar businesses have still not been created and those

that are seeing topline growth have still not seen more than

modest profits. And of course there are failed joint ventures,

brands that have gone back and brands that are not sure

about India as their next destination. What is standing

between the dream and reality? What is preventing potential

from converting into performance? The answer, like most

others, is uniquely Indian – real, and at times frustrating.

In this chapter, we take a good hard look at the challenges

faced by the industry today. As is generally true for every

Indian challenge, we shall see that these can actually be

turned into opportunities by determined players.

Fundamentally there are four key challenges that any luxury

player faces in India. Many of these will apply to all players,

the ones associated with retail will apply more to the luxury

products players.

1. Difficulty in reaching the target consumer:

Every luxury CEO’s biggest concern today is – where is my

consumer and how can I reach him or her? The scattered

nature of the target population and absence of critical mass

in India is a big concern for the industry. Luxury companies

know the consumer is out there but don’t know how to com-

municate their value proposition to them. While luxury mag-

azines have increased in maturity and volumes, they still

reach only a small fraction of the existing consumers and a

much smaller fraction of new consumers. Cost of reach is

high and results uncertain. No databases are available and

word of mouth continues to be best method to create a

“buzz” around your brand that will attract the consumer.

New catchments can be risky if the requisite critical mass is

not found. Except Delhi and Mumbai (and even here, except

for a few catchments) there is a risk of not attracting enough

footfalls of the right type despite a very good offering.

Alleviating this risk could prove to be big boost of confi-

dence for the industry.

2. Consumer reservations about luxury purchases:

There are three key challenges that luxury companies need to

deal with when it comes to the Indian consumer’s mindset:

a. Low luxury penetration amongst the rupee million-

aires: In India amongst the consumers that can afford

luxury, it is the segment with household incomes between

INR 10-30 lakhs (USD 60,000 – 180,000 in purchasing

power parity terms) that is growing the fastest. In the US

and other developed economies, anyone with this equiv-

alent level of income would qualify as an entry-level or

serious luxury consumer. In Hong Kong and Japan for

example, office secretaries constitute a very large con-

sumer base for luxury handbags. Our research has

revealed that in India however, the INR 10-30 lakh seg-

ment has the capacity but not the propensity to spend on

luxury goods and services. This could be attributed to a

middle class mindset that still has a utilitarian view of life,

leading to price conscious mid market purchases.

Converting this class from nibblers to frequent pur-

chasers remains a significant challenge.

b. Reservations about buying lesser known brands:

How does a brand become well known if no one wants

to try it out? When Indian consumers shop for luxury,

they want everyone to instantly recognize what they are

wearing and with the vast majority still having low brand

awareness, this desire for instant social acceptance can

make it very difficult for new brands to obtain a footing.

A question that all luxury firms in India are grappling

35

LUXURY INDUSTRY CHALLENGES:

OBSTACLES OR OPPORTUNITIES IN DISGUISE?

C H A P T E R 5

with is: “When will the consumer move to a mindset

where he or she would buy a brand that they ‘identify

with’ rather than one that is ‘identifiable’?”

c. Reservations about shopping in India: While con-

sumers are maturing, there is an inherent belief among

them that they do not get the same merchandise variety,

pricing and experience in India. There is widespread

notion among consumers that the merchandise in India is

of a poorer quality, the stock is old, variety is too little

and price is high. CEOs on the other hand swear by the

fact that that is history. The latest collections are brought

in and price is indeed matched. Variety is a function of

matching the depth in the market with the amount of

inventory you carry. Whether it is fact or perception,

unless the Indian consumer believes that he/she does not

need to travel abroad to shop and that he/she can get the

same, if not better “package – merchandise, service,

experience and price” here, Dubai/Singapore/US will

continue to be a draw.

3. Infrastructure and regulatory constraints:

Companies today have to struggle to operate in an environ-

ment that is not wholly conducive to luxury retail. Some of

the key challenges in this regard are:

a. Lack of credible real estate options: Traditionally, lux-

ury brands in India have been sold in 5 star hotels and

standalone stores. However, these businesses have not

been able to attract sufficient footfalls to sustain them-

selves. Over the past few years, a few luxury malls have

emerged in key cities – viz. DLF Emporio and UB City.

Palladium is an experiment in locating a super

premium/luxury mall next to a premium high footfall

mall. While these offer a premium shopping experience,

the combination of footfalls, conversions and rental costs

has not worked out very favorably for all tenants. Rentals

have exceeded 20-25% of revenues in many cases, making

the business unviable. Additionally, while several malls had

offered revenue sharing options to retailers during the

recession, making this an attractive value proposition for

retailers, they have now begun reverting to fixed rentals

with the market picking up again. Real estate players have

also taken an opportunistic view of the market when it

comes to retail. While there was a host of luxury malls slat-

ed to open up over the past 2-3 years, most of these proj-

ects were converted to residential constructions during the

recession, leading to the shortfall in luxury retail space cur-

rently. Apart from malls, currently there are limited distri-

bution alternatives. Luxury high streets, the internationally

preferred retail channel, do not have enough quality supply

in India. Experiments such as converting bungalows into

shopping destinations have not been very successful.

Luxury players today are yet to crack the real estate puzzle

in India.

b. Supply Chain: Back-end infrastructure – including ware-

housing and logistics – is not very developed in India

today. Luxury players face several challenges in transporta-

tion and storage of goods. There are also limited third-

party logistics providers with expertise in this domain.

c. Regulatory restrictions: Free market trade in the luxu-

ry industry has been restricted by several government

regulations. FDI is permitted only upto 51% in single

brand retail and is not allowed in multi-brand retail.

International players who are looking to enter India are

forced to tie up with Indian partners even when they

would much rather enter on their own. While some part-

nerships have been successful, others have not done too

well as international players ended up finding partners

that did not have the necessary skill sets to manage luxu-

ry businesses in India successfully. Furthermore, import

duties on most luxury categories are prohibitively high

which has created barriers for international entrants and

lowered profitability of luxury players. It is a Hobson’s

choice for the retailer – either jack up prices (leading to a

sales risk) or absorb the duties and make less money. The

third choice which is to get the parent brand/principal to

absorb the duties, only happens if the brand is very seri-

ous about India and is willing to invest significantly in the

market. Where the prices are high is where the grey/over-

seas market is also a threat. Take luxury watches for

example, while countries like Dubai, Singapore and USA

36

Fig. 5.1: Import duties on luxury watches

Source: Primary Interviews, A.T. Kearney analysis

have duties of 0%, 4% and 6.2% respectively, India has a

whopping 35% duty. This has resulted in a grey market

estimate of over 60% in watches.

4. Lack of talent:

The final challenge is one of human resources - the lack of

skilled talent. Across categories all industry leaders unani-

mously agreed on the need for high quality talent with the right

retail and service mindset. An absence of this manpower has

hindered luxury players from being able to provide the same

customer service experience as that in international locations.

This list of challenges mentioned above might appear daunt-

ing, but similar challenges exist in many other industries also.

Also one should expect business cycles and externalities to

have a disruptive impact on all industries periodically. We

however believe that these challenges need to be taken head

on and addressed in a systematic manner. Some ideas and

solutions are suggested below.

1. Reaching the target consumer effectively:

To effectively reach the consumer, there are two targeted ini-

tiatives that luxury companies can undertake:

a. Micro - segmenting the Market: To convert potential

customers, who have the financial wherewithal, to luxury

consumers, players should look at micro-segmentation of

the population to identify specific “high potential” pro-

fessions e.g. builders, stock brokers, diamond traders or

ethnic communities. The segments will vary by cities and

by behavior. The sharper the segmentation, the more

effectively can it be leveraged. For example, a young con-

sumer in the age group of 30-35 earning INR 30 lakhs

(USD 65,000) per annum might or might not be a poten-

tial consumer. But if the person in question is one who

has a spouse who also earns a similar amount, works in a

service industry in South Mumbai and stays in Bandra

and has no kids, it is more than likely that he/she is a

potential consumer. Identifying such micro segments is

not easy. However the rewards in terms of conversions

can be very significant. Once identified, very focused

communication would be needed to reach out to them

and convince them of the offering. This is not easy and

needs a lot of thought, planning and effective execution.

The results can however be very rewarding.

b. Innovative media choices: Players need to look at effec-

tive media vehicles to reach their target consumers. While

the number of luxury media publications has increased

significantly in the last 3-4 years, there is a consumer well

beyond the reach of these magazines who is waiting to be

converted. Magazines like GQ have definitely upped the

ante in the luxury print media and this would definitely

have a salutary impact on the existing consumers and also

a rub-off impact on the non-consumer. Given the vast

majority of non-consumers to whom the brand needs to

reach, a few companies like Omega have started using

traditional mass media like newspapers to reach a larger

target base. Others like Tag Heuer and Longines have

used TV advertising and Bollywood celebrities to create

an impact. We believe a more creative approach would be

needed to convert non-consumers.

2. Addressing consumer reservations

A key task at hand is to address consumer perceptions and

reservations about shopping for luxury goods in India. This

can be attempted in three ways – breaking the myth, getting

high recall brands and bringing in “ladder brands”.

a. Breaking the Myth: A comparative analysis of prices of

three items across three locations reveals that prices in

India are competitive with other locations. Luxury brands

need to ensure this message is clearly communicated to

the target consumer base. Furthermore, players need to

ensure they create the right ambience for the Indian

shopper in order to give the same experience as abroad.

b. Get high recall brands fast: High recall brands which

consumers would accord a warm welcome to should

come in sooner than later – their entry would help open

up the market.

37

India Singapore Dubai USA

Formal Shirt (Armani) USD 110-150 USD 100-120 USD 100 - 120 USD 100 - 120

Watch (Omega) USD 2000-2200 USD 2000-2100 USD 1800-2000 USD 1800-2000

Bottle of perfume (Chanel Coco) USD 170 - 200 USD 160-180 USD 140-160 USD 150-170

Table 5.1: Comparative analysis of prices in different countries

c. Bringing in “ladder brands”: A challenge that con-

sumers face when looking to trade up is that there is a

large “jump” between different price point segments.

This is because the super premium segment, which strad-

dles the price points between mid-market popular brands

and the luxury labels, is underpenetrated in India. As a

result of this, consumers find it tougher to evolve

towards luxury purchases. The white space for “ladder

brands” between luxury and mid-priced brands presents

an interesting opportunity to both Indian and interna-

tional players. Given how price conscious the Indian con-

sumer is, there is a significant demand for “affordable

luxury” e.g. brands like Coach. New entrants can look at

focusing on this area to ensure that the entire spectrum

of consumer needs, straddling the various price points, is

met. This is in line with international trends, where the

evolution of the luxury market in economies like

Thailand and Malaysia has been accompanied by strong

and rapid growth of the “super premium” segment.

Discount luxury is another format that is missing in

India. In the USA, established formats like Coles, allow

new consumers to experience luxury at a discount (last

year’s stock) and then gradually trade up. This aids a con-

sumer to gradually migrate / evolve from a mid-priced

brand to a higher priced segment without the jump seem-

ing too big. Indian companies should strongly consider

entering into partnerships with these affordable luxury

brands or look at luxury discount retailing to initiate new

consumers into the market.

3. Addressing infrastructure and regulatory issues

The key challenge for luxury brands is to ensure adequate

footfalls at reasonable rentals. They need to address infra-

structure issues headlong, and in some cases as a group. An

overview of suggestions to tackle the three key issues of real

estate, supply chain and regulatory restrictions is given below:

a. Real Estate:

i. Sizing it Right: Suitable real estate has typically been in

short supply and extremely expensive, often constituting

up to 30-40% of sales. Thus, smaller retail formats, that

drive high sales per sq ft, have managed to do better than

larger ones. Luxury product players need to look at

increasing the store densities far above the global bench-

marks in order to drive higher sales productivity.

ii. Many-in-One: A multi-brand environment would help

players attract a critical mass of consumers and also

lower the burden on each brand in terms of operating

costs. Several players have taken up initiatives in this

direction e.g. Ethos, a multi-brand luxury watch chain has

outlets across India. Other examples include Parcos, a

luxury perfume chain and The Collective, a super premi-

um/luxury apparel MBO format. While the jury is still

out on the long term success of these models, initial

reports seem to suggest the wind is blowing in the right

direction.

iii. Mini High Streets: The Courtyard in Mumbai presents

an interesting concept for luxury retailers. It is a collec-

tion of high-end but small designer boutiques that form

a fashion nexus. This provides a “pull” and thus increas-

es traffic to these luxury stores. Our belief is that such

concepts will proliferate in India – the earlier serious

players capitalize on these, the faster can they overcome

infrastructural hurdles.

iv. Collaborative real estate creation: Can luxury brands get

together and create luxury destinations when it is a com-

mon problem for all? Why can’t one brand take the lead?

Brands will have to adopt principles of “co-opetition” -

co-operate with your competitor for the common good.

v. Buy When You Fly: Airport retailing is fast catching up

in India and there has been a recent entry of good qual-

ity airport duty free locations. These have given an excel-

lent opportunity to reach out to a large consumer base.

Luxury retailers that we interviewed identified airport

retail’s open environment highly conducive to luxury

shopping in the Indian context as it lowered the barriers

for “new” customers. Another potential benefit is that

duty free shopping destinations in India could help to

convert the overseas duty free purchaser to an Indian

duty free purchaser. While it would still not constitute

purchases on the Indian soil, it would help many brands

build a much larger business in their Indian entity and

hence access to bigger marketing resources.

b. Supply chain:

Companies can look at collaboration options for back-end

infrastructure. Even while different brands compete in the

front-end, there are options for sharing key facilities like tem-

perature controlled warehouses and transportation services.

There is also a significant opportunity for third party logistics

providers to serve this space in a more effective manner

c. Regulatory environment

Indian companies can capitalize on the regulatory restric-

tions imposed by the Indian government to enhance their

presence in the market. Several Indian players have already

made in-roads into the market in different ways. In addi-

tion, international brands in themselves should look at dif-

ferent margin structures for India, to build a long term

presence in the market.

38

i. Partners in Retail: Companies like Genesis Colors,

Planet Retail, Major Brands and DLF House of Brands

have tied up with international players to bring luxury

brands into the Indian market. Other efforts like The

Collective, Ethos and Parcos and have gone down the

MBO route, creating a multi-brand environment to bring

in international brands.

ii. Made in India - Product Brands: A few Indian play-

ers have also ventured down the route of creating “home

grown” product brands. Amrut Whisky is the first Indian

single malt that has received appreciation internationally.

Whether this will become a well accepted product in

India and overseas remains to be seen. Interviews with

Indian consumers reveal that while they are sure of using

luxury services from an Indian brand, especially in the

hospitality segment, they are a little skeptical about the

quality of an Indian luxury product and that stems from

the fact that luxury products require high quality work-

manship and there isn’t enough credible evidence of that

as yet at the luxury end in Indian products.

iii. Differential margin structures: Given the high duty

structures, international brands should look at different

margins for India than other countries – at least in the

short run. This will enable competitive pricing that is

required to “hook” the Indian consumer – so that this

country can be converted into a significant long-term

market for luxury brands.

4. Addressing lack of resources

Resource crunch is there to stay in India, not just in luxury

industry, but in most spheres. Skilled sales associates, show-

room managers and brand managers all are in short supply

– in the wider retail space and more so in luxury. Luxury sell-

ing requires a confident “I am your equal” attitude based on

product expertise which allows sales associates to play the

role of luxury advisors. Given that most sales staff come

from middle class backgrounds, this skills and attitude set

would not come to them naturally. Hence training is an

absolute must, which is also expensive. However, education

in India is considered an investment. Every growing indus-

try has created a parallel education ecosystem – look at IT

and IT education, ITES and corresponding education, air-

lines and air hostess education, fashion education – the list

is endless. Companies like Aptech, NIIT, Frankfinn have

built businesses serving the vocational needs of students

which the education system does not fulfill. It is time Indian

players saw this as an opportunity and created luxury and

retail education academies. A few Indian players have

already started thinking about this actively and soon we

might see some concrete steps.

As is evident from the paragraphs above, success in the lux-

ury industry is not easy. While there is clearly an opportunity

waiting to be tapped, the industry is still nascent, and hence

too early to pronounce any initiative as definite success.

Despite these challenges though, we discovered a tremen-

dous sense of optimism tempered with realism amongst the

industry leaders. Hidden in the challenges lies the opportuni-

ty. Brands that are courageous yet cautious, optimists yet real-

ists will do well in the long term.

39


� With the lack of a proven real estate model, a highly fragmented consumer base and no central organization to address regulato-

ry issues, luxury brands in India still face a stiff set of problems.

� The problems can be addressed but would require some amount of out-of-box thinking. Market micro-segmentation and unique

real estate models could hold the key to success.

� The obstacles are common across the board. How a particular player deals with them will differentiate the winners.

CONCLUSION – LUXURY MARKET

GEARING UP, BUT A FEW BUMPS

STILL AHEAD

There is no instant formula for success in the Indian luxury

market. Everything about our country is different – the con-

sumer, the challenges and also opportunities for luxury players.

The Indian consumer is in a state of flux – evolving rapidly,

but perhaps along a path that is inherently different from that

taken by other developing economies. After centuries of util-

itarian existence, Indians finally have the money to afford

luxury. Age-old feelings of guilt associated with “splurging

on extravagances” are slowly being wiped out with the

growth of the “Me-First” MTV and Youtube generation.

Gucci, Prada and Versace are no longer hard-to-pronounce

words in a foreign language – people have begun to recog-

nize and value brands much more over the past few years.

But this does not mean that Indians have started to whole-

heartedly embrace luxury just yet. Luxury consumption is to

a large extent limited to a young consumer base – typically

industrialists, corporate executives or service professionals.

Real luxury consumption in India begins at income levels

above INR 30 lakh (USD 200,000 in PPP terms) – far high-

er than global threshold incomes. The luxury market is also

largely restricted to the top 5 cities, thereby touching just a

tiny fragment of Indian’s population. While brand awareness

is on the rise, both brand consciousness and fashion con-

sciousness remain low. Women in India continue to prefer

gold and diamonds to designer shoes and bags. For luxury

players looking to enter the country, the first hurdle to cross

is understanding the unique features of the local market and

accepting that “It Happens Only In India”.

The Indian luxury market has had its ups and downs over the

past few years. While the luxury products market has grown

strongly at nearly 20% over the past 4 years, services have

actually seen a dip in performance on the back of recession

and security concerns. Assets have grown steadily, fuelled by

the strong showing of automobile and real estate sectors. In

spite of this growth, the Indian luxury market is highly

underpenetrated today. Comparisons with countries like

China indicate that there is significant latent demand in the

market. While there seems to be no doubt that the market

will continue to grow at 20% or more for the next few years,

the true potential of the market can only be tapped if luxu-

ry players – both Indian and international – make significant

investments in the country in the years ahead.

Today, the key question for most luxury players is – having

established a presence in Mumbai, Delhi and Bangalore –

what next? There are several challenges that companies have

to overcome in order to look at India as a lucrative, long-

term market. With a scattered customer base and limited

vehicles for market intelligence and communication, reaching

the target consumer has proved to be a nightmare. Lack of

credible real estate options at affordable prices and high

import duties has resulted in a fundamentally unfavourable

cost structure for most players in India. And the absence of

“masstige” brands has led to players having to grapple with

the difficult task of converting the mid-market customer

directly into a luxury consumer, without taking her/him

slowly up the price ladder.

While the challenges may seem daunting, several luxury play-

ers have managed to seize opportunities in the market early.

We believe the following are the critical factors for success in

this market:

� Get the footfalls right: Be it airport retailing or setting

up multi-brand luxury retail outlets, CEOs need to

explore formats that enable them to attract footfalls.

Personalised and focused outreach programs for your

target consumer, which gives the consumer a reason to

shop are absolutely critical. This battle for the mindshare

has to be won, one consumer at a time.

43

CONCLUSION – LUXURY MARKET GEARING UP,

BUT A FEW BUMPS STILL AHEAD

C H A P T E R 6

� Get pricing right: The Indian luxury consumer is not

only well informed about global prices, but she/he also

has several opportunities to make purchases overseas.

Most Indians are willing to pay a 6-8% premium, and no

more, for the convenience of shopping in India.

Ensuring that pricing is competitive, even if it means tak-

ing a hit on margins, is a factor for luxury CEOs to seri-

ously think about.

� Provide a world class experience: Consumers in India

expect the same ambience, service and overall experience

that they would get in luxury stores abroad. With labour

in India being cheap, most Indians are used to personal-

ized attention and service when they shop. For the luxu-

ry players, the key takeaway is – to attract Indian con-

sumer – pamper them, surprise them, show them that

you love them! But also, don’t intimidate them and do all

that you can to eliminate the fear and apprehension that

a first time consumer might have. And if you can give the

consumer a reason beyond shopping, a nice café, a nice

place to hand out, even better.

� Get iconic brands into the country: Consumers in

India buy luxury products for brand value and not to

make a fashion statement. While brand awareness is

increasing, Indians still prefer to play it safe and buy

“famous” brands. It will really help open up the market if

brands which are really well known to the Indian con-

sumer were to make an entry. They are likely to receive a

favorable consumer reaction and as a consequence good

real estate deals. Of course brands which are already

present, would do well to focus heavily on brand build-

ing and communication to the target consumer base, to

go beyond awareness and build loyalty.

� Get your cost structure right: Most companies had

extremely aggressive plans for the Indian market upon

entry – resulting in them building a cost base for signifi-

cantly higher sales projections than are being realized

today. With players struggling for profitability on a four-

walls basis, players have two options – either build an

operating model that supports a low footfall business and

is yet profitable or plan to dig into your deep pockets to

invest – in between options won’t work.

� Cracking the real estate puzzle: Perhaps the most crit-

ical capability for a player and a source of immense com-

petitive advantage. Five star hotel lobby shopping is not

working and the rest of the market is non transparent

and complex. It is absolutely critical to get access to local

expertise to get the best rates and deals with a very hard-

nosed mindset. The industry needs to think of co-opeti-

tion models to work together and create luxury destina-

tions in every major catchment.

� Experiment with new formats: New formats such as a

luxury discounter (liquidation channel) can help open the

market by getting consumers exposed to last year’s collec-

tions at attractive prices and help them move up the lad-

der. A multi-brand in every category can help create

awareness about new brands in a shallow market.

As is apparent so far, the potential in the luxury market is far

more than what is obvious. On the other hand there is no

instant formula for success. While some sparks of brilliance

are being seen, we believe there is a clear opportunity to

make an impact in this market. A systematic look at the

opportunities, a smart and careful approach is what will dif-

ferentiate the winners.

44


� There is no doubt that there is a significant latent demand in the Indian luxury market. Luxury consumption can begin at much lower

income levels - upwards of Rs. 10 lacs. Unlocking this demand is key to growing this market.

� Critical success factors for a luxury player are attracting the right footfalls, getting the pricing right, providing a world class experi-

ence, getting the cost structure right, experimenting with new formats and developing a robust real estate management capability.

APPENDIX

The following table describes the categories covered in each

class — product/ services/ assets. Definitions used as filters

are also mentioned. Names of brands are only meant to illus-

trate the peer group, the criteria mentioned are the filters used.

47

APPENDIX I

Category Segment based Definition Representative

classification Brands

Accessories Products Includes high-end footwear, belts, handbags, sunglasses and Gucci, Dior

other accessories like wallets, mobile phone covers etc

Apparel Products High end premium branded wear LV, Chanel

Art Assets Arts and paintings bought at auctions and art galleries Not Applicable

Cars Assets Premium Imported Cars Audi, BMW

Electronics Products Includes high end plasma TVs, Home Theatre systems and Vertu, Bang &

mobile phones Olfusen

Fine Dining Services Gourmet food at select fine dining restaurant and restaurants Restaurants like

of five star hotels Indigo, Aurus, Zodiac

Grill

Home decor Products Premium articles of home décor LLadro, Rosenthal

Hotels Services Five star deluxe, five star and heritage hotels Taj, Oberoi

Jewellery Products High End Gold, Platinum and Diamond jewellery None

Personal care Products Premium branded cosmetics and perfumes Chanel, Dior

Real Estate Assets Top end homes in large cities Orbit, Oberoi

Spas Services High end Spas or Spas in five star hotels Ananda, Jiva

Stationery Products Premium branded writing instruments Montblanc

Travel Services Domestic leisure travel by business calls/first class Jet, Kingfisher

Watches Products High End premium watches Piaget, Jaeger le

Coultre

Wines and Spirits Products High end imported liquor Remy Martin,

Glenlivet

Yachts Assets Personally owned yachts Azimut Yachts

I. Category-wise classification

Category Segment based Classification Price points used for classification

Watches Products Retail Price > USD 3500

Jewellery Products Retail Price > USD 20,000

Apparel Products Retail Price > USD 200

Accessories Products Footwear: Retail Price> USD 325

Eyewear : Retail Price> USD 250

Handbags: Retail Price> USD 450

Belts: Retail Price> USD 125

Personal care Products Fragrances : Retail Price > USD 50

Cosmetics : Retail Price > USD 30

Wines and Spirits Products Retail Price > USD 75

Stationery Products Retail Price > USD 250

II. Price-wise segmentation (wherever applicable)

48

Source: Knight Frank India

IV Conversion rate used in the document1 USD = INR 47

Category City Location Rentals (Rs/ Stock Occupancy Future

sq.ft/month) (sq.ft/) level supply

Luxury Malls Mumbai Palladium 350-500 120,000 90% -

Delhi DLF Emporio 600 ~ 1000 350,000 70%-75%

Bangalore UB City - The Collection 350-450 150,000 85% -

Chennai - - - - -

Kolkata - - - - -

Hyderabad - - - - -

Pune - - - - -

5-star hotels Mumbai Taj - 15,000 100%

Oberoi 600 ~ 800 20,000 50%

Grand Hyatt 500 ~ 600 35,000 75%

Delhi ITC Maurya Sheraton 900 ~ 1000 10,000 95%

Le Meridien - 5,000 100%

Intercontinental Nehru Place 250-300 21,000 70%

Taj Mahal Hotel - 5,000 100%

The Oberoi Maidens - - -

The Imperial - 2,000 100%

Grand, New Delhi 600 ~ 750 25,000 95%

Hotel Shangrila 900 ~ 1000 6,000 100%

Bangalore Leela Galleria - 20,000 100%

Chennai - - -

Kolkata - - -

Hyderabad ITC Sheraton 250-300 30,000 95%

The Park 400-450 18,000 0%

Pune - - -

High street Mumbai Colaba 400-600 150,000 90% 0

Linking Rd 400-800 500,000 80% 150,000

Lokhandwala 300-400 50,000 90%

Delhi CP 500 ~ 900 1200000 85%

GK I 500 ~ 800 125000 65%-70%

GK II 225 ~ 325 75000 60%-65%

Khan Market 1000 ~ 1400 180000 85%

South Ex 600 ~ 1000 125000 90%

Bangalore MG Road 200 ~ 250 575,000 95% 75,000

Brigade Road 220 ~ 300 560,000 95%

Commercial St. 100 ~ 250 364,000 95%

Chennai Anna Salai 85 ~ 120 700,000 90%

Nungambakkam 90 ~ 140 550,000 95%

Adyar 60 ~ 90 350,000 95%

Kolkata Park Street 270 ~ 295 200,000 95%

Camac Street 235 ~ 275 125,000 95%

Hyderabad Panjagutta 65 ~ 100 800,000 80%

Begumpet 70 ~ 80 750,000 75%

Pune MG Road 150-250 270,000 95%

F.C Road 120-150 180,000 95%

Airport Mumbai - 15,000 75% 25,000

Duty-free Delhi - 20,000 80%

Hyderabad - - - 53,800

III. Real Estate Rentals in different retail formats

Acknowledgements

1. Amar Agarwal, Lladro India Pvt. Ltd

2. Ashok Minawalla, Pallazio

3. Darshan Mehta, Reliance Brands

4. Gulam Zia, Knight Frank, India

5. Hemansu Kotecha, Baccarose

6. Junaid Khan, Electronics Consultant

7. Kapil Kaul, Centre for Asia Pacific Aviation

8. Manav Singh, Club One Air

9. Mehul Choksi, Gitanjali Gems

10. Navnit Kachalia - Navnit Motors

11. Nirupa Bhatt. Gemological Institute of America

12. Prasad Kapre, Blue Skies Business Management Group

13. Sanjay Kapoor – Genesis Luxury Fashion

14. Rahul Bhalchandra, YLG

15. Ram Iyer, The Collective

16. Samar Choksi, Australia Tourism

17. Savita Apte - Consultant (Art)

18. Shakeel Kudrolli, Aquasail

19. Srinath Sridharan, Wadhavan Group

20. Pradip Hirani, Kimaaya

21. Priyesh Patel/Harsh Merchant, Lakozy Electronics

22. Paolo Ciarlariello, Luxottica

23. Tarun Tahiliani/Sailaja Tahiliani

24. Vikram Achanta - Tulleeho

25. Vikram Madhok, Abercrombie and Kent

26. Vinod Bamalwa - Bamalwa and Sons Jewellers

27. Vinod Hayagriv, CKC Jewellers

28. Yash Saboo - Ethos

29. Rishi Nathani - Touchstone Wealth Management

30. Tashvinder Singh - Citibank

49

APPENDIX II

A.T. Kearney TeamNeelesh Hundekari - Principal, Head - Luxury and Lifestyle Practice

Hemant Kalbag - Vice President, Head Consumer Industries and Retail Practice

Subhendu Roy - Manager, Consumer Industries and Retail Practice

Pameela Pattabiraman - Manager, Consumer Industries and Retail Practice

Arnav Dey

Sulakshana Sarathy

CII TeamAmita Sarkar - Senior Director & Head - Services, Agriculture and Food Processing

Jaya Gupta - Deputy Director - Retail, Media & Entertainment

About CIIThe Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of indus-

try in India, partnering industry and government alike through advisory and consultative processes.

CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in India's

development process. Founded over 115 years ago, it is India's premier business association, with a direct membership of over

8100 organisations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over

90,000 companies from around 400 national and regional sectoral associations.

CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expand-

ing business opportunities for industry through a range of specialised services and global linkages. It also provides a platform

for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting

industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country

carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity

management, skill development and environment, to name a few.

CII has taken up the agenda of "Business for Livelihood" for the year 2010-11. Businesses are part of civil society and cre-

ating livelihoods is the best act of corporate social responsibility. Looking ahead, the focus for 2010-11 would be on the four

key Enablers for Sustainable Enterprises: Education, Employability, Innovation and Entrepreneurship. While Education and

Employability help create a qualified and skilled workforce, Innovation and Entrepreneurship would drive growth and

employment generation.

With 64 offices in India, 9 overseas in Australia, Austria, China, France, Germany, Japan, Singapore, UK, and USA, and insti-

tutional partnerships with 223 counterpart organisations in 90 countries, CII serves as a reference point for Indian industry

and the international business community.

About AT KearneyA.T. Kearney is a global team of innovative, insightful and collaborative experts who deliver creative, meaningful and, above

all, sustainable results.

We're a team of management consultants that generates powerful strategic insights to address practical, real-world needs - and

we see each project through to completion. By daring to challenge conventional thinking, we create customized approaches,

rightly suited to our clients' challenges, which help them achieve both immediate and long-term business objectives. With deep

expertise across a wide range of global industries, and a proud legacy of collaboration, we pride ourselves on delivering great

outcomes for every one of our clients.

We believe, above all else, that by doing good, we will do well for our clients, ourselves and our community. We do this with

passion for people, ideas and the world in which we live.

50

APPENDIX III

1. Claudia D'Arpizio, Altagamma Worldwide Markets Monitor, 2006, 2008

2. Cris Infac, Industry report on Hotels, 2009

3. Directorate General of Civil Aviation, Aircraft Register Reports, 2008,2009

4. Edelwiess Research, Hotels and Tourism, 2010

5. Euromonitor, Travel and Tourism in India, 2010

6. Euromonitor, Sector Capsule - Fragrances in India, 2010

7. FICCI, Ernst and Young, Wellness Report, 2009

8. HVS, Indian Hotel Industry Survey 2008-09

9. International Monetary Fund, World Development Indicators

10. Merrill Lynch Cap Gemini, World Wealth Report, 2007-2010

11. Research on India, Luxury watches Market in India, 2010

12. Research on India, Personal Care India, 2010

13. Research on India, Gems and Jewellery Market, 2010

14. SIAM, Automobile sales in India, 2007-2010

51

REFERENCES

Documents

Luxury in India - Charming the Snakes and Scaling the Ladders