Bumpy road for luxury retail


December 13, 2010

Retailer, December 2010

Varun Jain

Recently, 150 all new glittering Mercedes Benz cars rolled out of the company’s premises to be delivered to Aurangabad Group in Aurangabad, a small town of the country. The group consists of top industrialists, businessmen and professionals. Bookings for US-made Harley-Davidson cruiser bikes, expensive luxury and sports sedans from Mercedes-Benz, BMW, Audi and Porsche have hit the roof, with some dealerships experiencing shortfall in vehicle supply.

The fact that luxury in India is growing fast is quite evident. Luxury retailers from across the globe are thronging India, where they see a lot of potential for luxury retailing. But since there are other problems like that of real estate and government policies, the growth rate has not been what the retailers would have wanted to and hence the expansion is taking a hit.

What is the potential in the Indian market?

Luxury exists in India though its numbers may not be the same as of some other markets. "China, for instance, has far more millionaires, and a middle class which is larger than India’s. Luxury brands are not only bought by the wealthy people, it is bought in different ways with different products", opines Devangshu Dutta, Chief Executive, Third Eyesight. He further adds, you may not be able to afford an Armani suit but maybe you can buy a bottle of perfume. You buy into a brand.

And it’s growing, maybe not as fast as the luxury retailers would have want it to be, but yes, with the economy growing in income and wealth, and the number of rich and the middle class growing, the scenario is bright. In the mature markets, growth has plateaued and the Indian middle class with minimum income of around Rs1 million per annum and who loves to get the taste of luxury, this market is the one which is highly under penetrated, will give the luxury market in India huge fillip, feels Neelesh Hundekari, Principal & Head – Luxury & Lifestyle Practice, AT Kearney India. Indian luxury market is currently estimated to be at 4.76 billion in USD and has a latent demand of 3-3.5 billion USD, which is ready to be tapped.

The industry believes that there is a huge potential for luxury retailing in India but it will take some time to mature and be ready to be exploited by the retailers. The market matures with the availability of brands and the increasing numbers of consumers buying and using luxury brands. Since luxury brands started coming to India only recently, it is expected that it will take some time before the market matures. Consumer maturity and market maturity are interrelated. "Consumers will evolve and will make markets evolve in tandem. There is always a certain lag, wherein sometimes the market is ahead of consumers and sometimes consumers are ready but market is not. My belief is that by 2020 Indian market will be a serious luxury market for all global luxury brands. The basis for saying that is by 2020 Indian economy will be as big as Chinese and Japanese economy today. China and Japan are very large and serious luxury markets and are expecting that India will follow that path," suggests Harminder Sahni, MD, Wazir Advisors.

Infrastructure not up to the mark

For the international luxury brand, real estate and infrastructure have been a major problem. For them the location of their stores and the manners in which they present themselves to their customers and their target consumers, are the most important part of their businesses. They will never compromise on that.

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