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India’s luxury market on an impressive growth spree

By Meenakshi Kumar

15 Mar 2017

Burgeoning aspirational and younger middle class and growing sense of ‘brand-consciousness’ are driving growth of luxury sector in India. Moreover, increased Internet penetration has also contributed to this consumer behaviour, allowing consumers to search and satisfy their desire to own and possess designer brands. Taken together, these factors will help India’s luxury sector grow by about 30 to 35 per cent over the next three years – across categories such as fine dining, electronics, luxury travel, luxury personal care, fashion, and jewellery.

Investing makes sense

India’s share of the global luxury market is presently 1 to 2 per cent, and sales of luxury goods grew faster in India than anywhere else in the world in the last few years. An annual sector trends report from the Confederation of Indian Industry (CII) and research agency Kantar notes that between 2015 and 2016, the Indian luxury market grew from 14.7 billion dollars (Rs 96,751 crores) to a whopping 18.6 billion dollars (Rs 1,18,498 crores), at a growth rate of 25 per cent year-on-year. North India accounts for 40 per cent of spending on luxury products and services, with the Delhi National Capital Region leading the consumption share, followed by Punjab and Haryana. Southern and western India, each, account for around 25 per cent and eastern India lags in the luxury market with a 10 per cent market share. With their growing affluence, India’s tier-II and III cities are also emerging as new reservoirs of luxury spending.

Entry of foreign players

With growth in online shopping, it is expected that online luxury stores will see investments of $35 billion dollars (Rs 2,30,365 crores) in 2016, which will double by 2020. The traditional luxury clientele in India till date consisted of those who mostly shopped on their trips abroad. This trend still continues and needs to be tackled by luxury brands entering or operating in India. The modern Indian luxury consumer base is expanding, with a growing middle and upper middle class earning higher disposable incomes. While India’s consumer base is steadily growing and is more liberal in its spending habits, the desire for value proposition poses the greatest challenge. In this regard, luxury brands will have to struggle with such perceptions even as they differentiate themselves on the price platform.

Allowing 100 per cent FDI in single-brand retailing and 51 per cent in multi-brand retailing has opened up opportunities for international luxury brand companies when strategising their business operations in the Indian market. For instance, many French brands have already made plans to invest in India and open stores in the short term. Established brands such as Louis Vuitton are expanding further and increasing their investments, while some companies are recalibrating their joint venture partnerships to widen their Indian presence.

Removal of the cap on foreign ownership in single-brand retail and liberalisation of FDI limits in multi-brand retail will encourage international brands to invest more. Tikka Shatrujit Singh, Chief Representative in Asia for LVMH points out this was the last frontier to be opened. It will make India a preferred market.

Owing to these advantages, India has created a spot for itself among the most promising markets. India’s luxury spend is on par with the UAE, far ahead of Turkey, Thailand, and Argentina, and growing faster than Singapore and Australia.