With increasing brand awareness amongst the Indian youth and purchasing power of the upper class in tier II and III cities, Indian consumer spending is expected to grow four times to USD 4.2 trillion by 2017, reveals the ASSOCHAM-YES Bank joint study.
Indian luxury market is estimated to be worth USD 18 billion by 2017 from the current level of USD 14 billion with unprecedented growth in luxury categories including fashion, automobiles and fine dining, reveals the joint study.
Globally too consumer spending is on a rise, expected to reach USD 40 trillion by 2020 with an unprecedented growth of USD 12 trillion in a decade, adds the report.
While various estimates exist on the size and growth potential of the Indian luxury market; most estimates align on anticipated growth rates of 20 percent given the tremendous potential waiting to be harnessed such products: apparel and accessories, pens, home décor, watches, wines and jewellery, services: spas, concierge service, travel and tourism, fine dining and hotels and assets: yachts, fine art, automobiles and real estate.
The number of Ultra High Net (UHN) worth Households, with a minimum net worth of Rs 25 crore is expected to triple to 5 lakhs in next five years with a five-fold increase in their net worth to Rs 260 trillion. HNIs will be double in number by 2015 to over 4 lakhs with a collective wealth of USD 2645 billion. These projections along with the increasing price parity in the luxury products with other international destinations like Singapore or Hong Kong, and customized products offerings would indicate that the luxury market in India would evolve quickly, adds the report.
With the luxury market expected to grow at over 20 percent year on year, PE investments in the luxury segment are expected to increase and support the enhanced size of the Indian luxury market.
The survey conducted between September to January, 2015 successfully captured the viewpoints of close to 300 executives from India, United States, United Kingdom, Italy, France and Belgium.
High internet penetration across tier-II and tier-III cities along with high disposable income shall lead to approx. 80 mn transactions on the Internet by 2020. As a result, the luxury consumption is going to increase manifold in the country, highlighted the study.
The growing exposure of international brands and the desire to indulge in luxury has penetrated smaller cities and towns of India and it is not surprising to note that 66 percent surveyed do see themselves increasingly using social media platforms as a brand connect and to increase awareness within this new target segment.
About 62 percent of CEOs believe the ideal marketing strategy to penetrate in these towns is to begin retailing ‘ladder to luxury’ brands. This segment bridges the gap between the luxury and mid- market segments and provides an entry point for new consumers of luxury.
Close to 26 percent of the CEOs believe that the biggest hurdle facing the 30 percent mandatory sourcing criteria is the product quality constraint. Luxury brands are known for their unique style, quality, methodology and materials which collectively form a trademark to their recognition and a perceived sense of identity to their creations. Most CEOs are of the opinion that they cannot achieve the same product quality by outsourcing a part of their production to India.
Over 46 percent surveyed believe that regulatory bottlenecks, red-tapism and bureaucracy are the hurdles anticipated. While voicing concerns over the regulatory issues faced by the luxury industry, some suggested that while reforms are underway, current regulations were not supportive enough for businesses to scale viably.
About 42 percent of CEOs believe counterfeit goods result in a sizeable loss of revenue and serve as a major hurdle to conduct operations in India. CEO’s are of the view that more corrective measures need to be taken to lock down the emergence and continued existence of this market in the form of effective IP enforcement, plugging loop holes in the legal & judicial structure and higher conviction rates since the absence of these measures collectively lead to the global brand’s equity getting diluted and reduced consumer trust in their brands.
The lack of premium retail infrastructure in the country has led to a demand supply mismatch impacting both expansion plans as well as bottom-line margins due to higher rentals.
Given the uncertainty surrounding the macro issues of the Indian economy, 67 percent of the CEOs commonly believe that the political and regulatory landscape is an area of extreme concern while over 70 percent are concerned by the exchange rate volatility which is adding pressures on their margins of most of the luxury players.
With this level of growth and subsequent investment from luxury businesses, it is estimated that by 2020 the luxury market in India will be responsible for employing 1.8 million people. This will not only preserve traditional craft skills and heritage, but will also support communities, create employment and provide training.
According to 66 percent of the CEOs surveyed, the Indian economy is expected to improve in the short term primarily due to the recent reforms and monetary and fiscal measures initiated by the government.
Only 12 percent of the CEOs are of the view there will be a decline in the economy and attribute this to the uncertain global environment and inflationary pressures. They are of the opinion that inflation is a serious area of concern, which if prolonged, could impact consumer spending.
While 21 percent believe the economy will stay the same in the short term 81 percent of those surveyed had a more optimistic outlook for the next 3 years due to better infrastructure, a stable government and a favourable regulatory and tax environment.
CEOs within the luxury leisure travel & and hospitality segments attribute their positive sentiments due to the increasing in and outbound travel trend that is growing their business by double digit percentages year on year.
A number of others are also currently investing in the consumer space owing to lack of meaningful opportunities in other segments and some of these funds are expected to vet the luxury markets’ appetite for capital, said D S Rawat, Secretary General ASSOCHAM.
While China is on track to become the world’s second largest luxury market within the next five years, India too is not far behind. With positive regulations and policies for the retail industry being put in place by the government along with a burgeoning middle class which aspires to own and experience luxury goods and services, India is a market that can no longer be ignored by international brands.