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Luxury Version 2.0
Policymakers and industry leaders believe the exercise of remonetising high value currency notes will eventually flush out unaccounted (black) money from the real estate sector that results in inflated prices and rentals of retail stores
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India is reaping benefits of a demographic dividend with two-thirds of its 1.3 billion people yet to celebrate their 30th birthday. This young, confident and digitally-savvy workforce is changing retail consumption patterns of the $2.3-trillion economy, which ranks among the fastest growing globally.
With subdued consumer spending in the US, much of Europe, China, Russia and elsewhere, many international luxury brands are looking towards India. Rising aspirations among urban consumers with increasing disposable incomes are driving sales of luxury.
Estimates suggest that the Indian luxury market is over $18 billion and is growing at a compounded annual growth rate of about 25 per cent. Long-term prospects seem bright due to political stability, a friendly business environment and robust inflow of foreign investments. The size of the Indian economy is likely to double by 2025.
The introduction of goods and services tax (GST) from 1 July has simplified various tax slabs and ushered in a new era of uniform taxation across the country. This will bring in transparency, streamline domestic supply chain and give a much-needed push for industrial and retail expansion.
Rising affluence and increasing interest in luxury is most apparent in the burgeoning fashion industry with top designers showcasing their collections at fashion weeks within and outside India. On the other hand, global brands are prospecting India for its consumers who are brand aware, have money and are willing to spend to acquire the good things in life.
While brands are adopting a customised marketing strategy after determining how to successfully engage with and retain these diverse and demanding customers, at the same time, shopping malls are mixing luxury, premium and super-premium products at the same location to attract aspirational consumers and give them a taste of luxury.
At the store level — still the primary distribution channel for luxury goods — brands offer a unique touch-and-feel shopping experience and an environment that is global. Nearly 70 per cent of luxury sales come from New Delhi NCR region and Mumbai.
The Next Wave
However, there are new sets of consumers in cities like Kolkata, Bengaluru, Chennai, Hyderabad, Pune, Ahmedabad, Surat and Aurangabad, which are home to some of the richest Indian families. Rising per capita incomes and growing air travel traffic in Bhopal, Chandigarh, Indore, Jabalpur, Kanpur, Kochi, Lucknow, Ludhiana, Nagpur, Patna, Vadodara and Vizag point towards a shifting growth paradigm in the coming years.
This provides a huge opportunity for brands to develop marketing strategies and effectively tap into one of the world’s largest earning populations. However, luxury will flourish with development of quality infrastructure. We need to grow and expand from tier-1 to tier-2 and -3 cities, and facilitate sound infrastructure in these new reservoirs of luxury spending.
Meanwhile online channels are spreading their reach into the interiors of India. About 60 million Indians currently buy fashion online. E-commerce is going to be a growth driver for luxury fashion brands in the future.
With the manifestation of social media, consumers are becoming aware and vocal about their lifestyle and looks. They are bold enough to experiment with fashion, silhouettes, colours and fits.
The country’s $40-billion bridal wear industry is arguably the most expensive in the world with a heavily encrusted wedding outfit by a top Indian designer costing anything between $50,000-100,000. The wedding industry is undoubtedly the biggest consumer of luxury goods and services.
A strong influence of Bollywood films dictates a larger-than-life approach and sets fashion trends in the Indian way of life. More colours, more embroidery, more bling and more drama take centre stage.
The New HNIs
Last year, the government introduced measures such as demonetisation, imposition of excise duty on gold and diamond jewellery, and imposition of luxury tax on goods. This dampened the sentiment for some time. However, the demand is now re-accelerating as underlying macro-economic fundamentals remain buoyant.
Policymakers and industry leaders believe the exercise of remonetising high value currency notes will eventually flush out unaccounted (black) money from the real estate sector that results in inflated prices and rentals of retail stores.
However, the business of luxury is no longer dependent on old, inherited wealth. There is a new generation of startups, entrepreneurs, professionals and business owners. These new millionaires and billionaires pay for quality, design and the brand — whether for homes, cars, yachts, watches or wearable tech gadgets for leisure and health.
The older HNIs — after having experienced a plethora of luxury products — are now looking for novel experiences.
According to global consultancy Knight & Frank, India’s ultra-high net worth individuals count rose by 340 per cent in 2016 to 6,020 while global growth was 61 per cent to 187,468. By 2025, the country is expected to account for 5 per cent of total UHNWI population and 6 per cent of the billionaire population across the planet.
Like other emerging markets of China and Brazil, India is increasing its contribution in the $2.2-trillion global luxury market. From being valued at $18 billion now, it has the potential to reach the $100 billion mark in the next 7-8 years.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.