CHAPTER – 3

INDIAN LUXURY

INDUSTRY

3.1 INTRODUCTION

It can’t be doubted that luxury sector has generated ‘buzz’ which is excessively high in

comparison to the present size of the market. It also indicates that players who are dealing in are

attracted towards the Indian market and recognize the potential generated by this industry.

This chapter constitutes the detailed discussion about the luxury industry of India. Various

government reports, newspapers, press releases, articles, company’s websites were referred to

provide insight about this sector to luxury researchers and managers. CII – A.T.Kearney Report,

2010; CII – A.T.Kearney Report, 2011; CII – IMRB Report, 2013; a joint study of ASSOCHAM

and Yes Bank; KPMG and ASSOCHAM Report (Indian Luxury Summit 2014); ASSOCHAM

Press Releases were some of the prominent sources which had provided the useful and

meaningful information about the industry.

The chapter provides the detailed estimates about the prospective growth potential of the luxury

industry in India as well as the size of the luxury market in India from the period 2007 – 2015

including an analysis of all the three segments of luxury including assets, services and products

segment. The chapter also identifies the new luxury consumer segments, emerging trends in the

Indian consumer market, growth in luxury retail space, the latest government policies and

amendments in FDI. In addition to this, chapter also highlights the several challenges that exist

in the Indian luxury industry and are still needed to be addressed.

Further, this chapter highlights the key opportunities that luxury players can’t ignore is the

growth of new markets in India. The detailed outlook is provided on the rising markets in tier-2

and tier-3 cities of India, rising consumer demand in these cities and present picture of the luxury

players in these cities. It is important to provide evidence about the growth of consumer demand

and luxury players in these cities so as to assist the purpose of the present research.

3.2 OUTLOOK ON THE INDIAN LUXURY INDUSTRY AND CONSUMER

MARKET IN INDIA

3.2.1 Indian Luxury Market: Past to Present

India’s love affair with luxury is not new. India is traditionally a rich country and thus in India

luxury is not alien. The country is famous for its majestic and glorious period where sultans,

nizams, nawabs and maharajas were having wealth and power to live unparalleled opulent and

luxurious lives. Aromatic, quality textiles (Muslins and cottons), high quality iron and gems were

in high demand during AD 23-79. During the sultanate period, Gujarati and Marwari were

wealthy merchants. The great city Cambay, had wealthy merchants owning lofty houses with

fine stone and mortar and tiled roofs. These houses were surrounded by orchards and fruit

gardens. Hindu and Muslim merchants were attended by pages bearing swords with silver and

gold work. The Hindu merchants of Delhi were famous for their fine houses, or celebrations of

festivals with great pomp and show.

The royal shopping lists of Indian royalties are still remembered. It is well documented that in

1926 Cartier, an iconic jewellery house created the world’s most expensive piece of jewellery –

‘Patiala necklace’ for Maharaja Bhupinder Singh of Patiala. The necklace had platinum chains in

five rows containing 2930 diamonds and 962.25 carats De Beers diamond which was at its time

the world’s seventh largest DeBeers diamond1. Though princely states have long perished and

princely titles hold no more value than mere courtesy, but the shopping lists of the princely states

are remembered till today. During the British era, European fashion and luxury houses such as

Rolls Royce, Mauboussin, Jaeger-LeCoultre, Van Cleef and Arpels, Christofle, Cartier, Louis

Vuitton were some who have offered their products and services to Indian royalties and even

these royal families have started becoming addicted to the western world. Huge patron was there

for prestigious jewellery and cars among the maharajas. The Maharaja of Mysore had at least 24

Bentley and Rolls Royce. It was estimated that in India during the period 1903 and 1945

approximately 800 Rolls Royce were dispatched. Louis Vuitton – luxurious luggage maker had

served Indian royalties by creating masterpieces for their travel to foreign lands. Apart from

1 Unnithan S., (2004, Feb 23). Tale of a missing necklace: Discovery channel to air mystery of ‘The Patiala

Necklace’, Indiatoday in.

trunks for clothes it has created shoe-maintenance kits, elegant toiletry kits, tea cases and various

other special trunks to serve the specific requirements of its royal clients.

The stories of love for fine things, especially the nobility and royalty - threads of gold, hand-

carved furniture, richly embroidered clothes, exquisitely carved accessories and of course

jewellery are there in the Indian history. Jewellery, elaborate weddings and finest domestically

manufactured fabrics are deeply ingrained in Indian culture.

Undoubtedly, Indian royalties have become the ladder of success for these luxury brands. They

have not only given financial success to them by buying their art and designs but also creative

success in terms of introducing them to high cultured India and enhancing their creative

knowledge. Unfortunately, with the decline of princely titles after independence, these luxury

houses have shifted their attention to other markets.

In 70’s or 80’s if someone own a telephone or a television or a car was considered as rich.

Furthermore, if one owns a refrigerator or a gas connection they were viewed as the wealthiest

persons. Luxury was not at the stage of visibility and the people were ignorant about definition

of luxury those days. But this was all past.

Thereafter, India experimented with socialism and the trend could not be followed. Luxury

companies are reassessing their strategies to approach the Indian shores again. The dawn of

liberalization, globalization and privatization has once again given momentum to the dormant

desires of the modern maharajas (Industrialists, entrepreneurs, young professionals and rural rich

people).

The luxury field has gone through a series of transformations in the last decade – international

expansion of luxury market, increasing demand for luxury products, transformations in the socio-

demographic profile of consumer (Emergence of new consumer segment than traditional elite),

changes in consumer behaviour, increase in number of sellers in terms of both multinational

companies and domestic companies, financial strength of producers is increasing etc. Other

changes are the result of modifications in marketing tools and strategies used by luxury players –

expansion of product lines has given rise to ‘affordable luxury’, adoption of new communication

channels and developments in distribution channels.

Over the past decades, the luxury market is flourishing and establishing its reputation globally.

As the luxury market is increasing, simultaneously the changes in consumer behaviour can be

foreseen. Also, India is not far behind. PricewatehouseCoopers, (2011), stated that the economic

growth of China and India, the two Asian countries has largely sustained the hope and

progressive instinct within the luxury players operating in this industry. In India and China the

number of millionaires will nearly get doubled by the year 2020 according to Deloitte, (2011).

According to a firm ‘National Skill Development Corporation’ which accelerates development in

the Indian economy as well as in other emerging economies predicted that approximately 1.76

million people will be required to stockpile all the luxury brands and services by the end of 2022.

In the luxury summit 2008 French ambassador to India Jerome Bonnafont said that he has strong

feeling that in India art of luxury is alive, because of maharajas and bollywood stars, media

advertisements and lavish Indian weddings.

The market related to luxury in India is gathering increased attention with each passing year.

India is considered to be among the favourable markets for luxury brands being the second-

fastest growing economy. The country has experienced trade liberalization and made a

remarkable shift towards the free market economy after the economic reforms in 1991. India has

acquired a secured position among the rapidly growing economies of the world with the diverse

consumer universe of over and above 1.2 billion people. With the increasing economic growth

rate and increasing wage rates over the last decades, India is destined to acquire the position of

third world’s largest economy by 2050 surpassing the United States (US) and China.

The Associated Chamber of Commerce and Industry of India (ASSOCHAM) Secretary General,

Mr. D.S.Rawat, added in the press release that, “The combined efforts of globalization, a

revolution in internet, social media and economic growth have created a boom in the luxury

market of India. He also added that as dominant consumer segment of luxury has undergone the

changes similarly the consumption patterns of consumers’ are going to transform over the period

of time.”

High luxury brand visibility is a sign of the increasing luxury market in India. Most of the top

end globally operating luxury brands have recognized the prospectiveness of the luxury industry

in India. The industry related to luxury brands in today’s India is growing at the increasing rates

and this scenario has never been seen before. In addition to the traditional wealthy Indians who

dominated the luxury market the new set of consumers are emerging as the potential buyers of

luxury brands including first-generation entrepreneurs and young professionals who have

contributed significantly to the growth of high net worth individuals (HNIs).

Mr. D.S.Rawat says, “Aspirational integration with the globe, a growing number of millionaires

and billionaires and a young demographic profile are all the driving factors which are

contributing to present India as a big potential market to global luxury players. Since the lifestyle

and high-end products are inelastic, thus they don’t get much influenced by the global

downtrend.”

The Indian luxury market could be broadly broken down into the below mentioned categories: -

• Products: - Jewellery, wines and spirits, watches, personal care, home décor, pens and

apparel and accessories.

• Services: - Fine dining (Hotels and restaurants), travel and tourism (Resorts), concierge

service and spas.

• Assets: - Automobiles, cars, fine art and yachts.

From the above categories luxury products are growing much faster than projected. After that

the services are performing well, with fine dining and hotels are doing exceptionally well. The

overall growth of the luxury assets in India was hampered due to the real estate however, the

automobile segment especially cars have continued to show a strong growth.

3.2.2 Indian Luxury Market Size From 2007-2015

The Indian luxury market is interestingly poised today. The luxury market of India is growing

higher than the expectations and the research reports on the luxury market predicts that this

scenario is likely to continue over the proceeding years. The luxury players are optimistic about

the Indian luxury market after looking at growing Indian luxury market size and positive

consumer sentiments. The Indian luxury market is experiencing attractive increase of 20 per cent

from past several years. The Indian luxury market size for the period 2007 to 2015 is highlighted

below (Figure 3.1 – 3.4).

• Period from 2007 – 2009

Figure 3.1: Indian Luxury Market Size From 2007-09

(In USD Bn)

Source: CII - A.T. Kearney Report 2010

The Indian industry of luxury is rapidly evolving over the past years. A Confederation of Indian

Industry2 (CII) - A.T. Kearney

3 Report 2010 had reported that the Indian luxury market has

shown the growth at a compound annual growth rate (CAGR) of 13 per cent from 2007 to 2009

(See Figure 3.1). The Indian market size related to luxury in 2009 was evaluated at US dollar

(USD) 4.76 billion.

The report highlights that the most visible segment among the three luxury categories is luxury

product category and it has also shown that the luxury product market had grown significantly at

22 per cent to touch USD 1.5 billion in 2009, followed by 5 per cent degrowth in services and 18

per cent growth in assets.

Luxury products like electronics, wines and spirits, apparel and jewellery has shown the

exceptional performance in these years. Degrowth of the Indian luxury service market was due to

the recession that has effected this segment over the past two years.

The Indian luxury assets market was estimated at USD 2.45 billion and the growth in this

segment was mostly driven by the growth in real estate and automobile sector.

2 CII is an industry-led and industry-managed organization, not-for-profit, an non-government, premier business

association, playing proactive role in development process of India.

3 A.T. Kearney is a trusted advisor to the world’s foremost organizations and a leading global management

consulting firm.

• Period from 2009 - 2010

Figure 3.2: Indian Luxury Market Size From 2009-10

(In USD Bn)

Source: CII - A.T. Kearney Report 2011

CII - A.T. Kearney Report, (2011) has projected the total Indian luxury market growth from

2009 to 2010. According to CII - A.T. Kearney Report, (2011), “The market growth was higher

than assumptions over the past year and this strong upside growth is expected to follow over the

years to come.” Positive consumer sentiments are driving the luxury players towards India.

Consumers are rapidly evolving as well as adapting to the global trends. The luxury market in

India was valued at USD 4.8 billion in 2009 in comparison to USD 5.74 billion in 2010, with the

overall growth of 20 per cent by CII - A.T. Kearney report as show in the Figure 3.2.

If the figures are compared with the past years, it was seen that luxury products have reached a

size of USD 2.05 billion with the growth at 29 per cent. The services have reached USD 0.95

billion with the growth at 22 per cent and followed by the growth of assets at 13 per cent and

touched USD 2.75 billion.

Figure 3.3: Growth Rates by Category - Actual Vs Estimated

Category 2009

Market

(USD mn)

2009-10 Growth Key Drivers

Estimated Actual

Yachts 2 12% Negligible Inadequate infrastructure

Real Estate 1440 15% Negligible High interest rates, lower supply and

expected market correction

Hotels 440 10% 10% New hotels, footprint expansion

Personal Care 230 20% 24% Introduction of new brands

Watches 50 27% 29% Increasing supply through higher

distribution reach

Wines and Spirits 180 22% 25% Increasing consumer awareness

Apparel and

Accessories

205 30% 30% New entrants, footprint expansion

Travel 32 15% 22% Increasing inbound tourism

Fine Dining 270 10% 40% Footprint expansion, new brands

Cars 745 32% 36% New brands and better pricing due to

local production

Stationery 9 20% 25% Increasing supply and usage as

gifting item

Electronics 160 22% 35% Increasing supply (Modern trade)

Jewellery 730 21% 30% Increasing gold and diamond prices

and low price elasticity

Source: CII - A.T. Kearney Report 2011

Various estimates are made on the overall expansion and size potential of the luxury industry in

India and it was seen that growth has beaten all expectations. Most of the estimates anticipated

the rate of growth of 20 per cent, where the excessive potential can be encashed in all the above

categories. Figure 3.3 highlights the breakdown of luxury market categories growth rates -

Actual vs Estimated for the period 2009-2010.

As per CII - A.T. Kearney Report, (2011) apparel, accessories, wines and spirits had shown the

continuous growth while jewellery, cars, electronics and fine dining had shown the tremendous

growth beyond expected (See Figure 3.3). Real Estate has not shown any growth due to the high

interest rates as well as yachts has remained unchanged due to the lack of marine infrastructure.

• Period from 2009 - 2015

Figure 3.4: Projected Growth of Indian Luxury Market

From 2009 to 2015 (In USD Bn)

Source: CII - A.T. Kearney Report 2010

According to CII - Indian Market Research Bureau4 (IMRB) report, (2013) pegged that the

luxury market in India was at USD 7.58 billion, or about Rs 47,127 crores in 2012. It is also

projected in the CII - A.T. Kearney Report, (2011) that the luxury market size will be expected to

value USD 14.72 billion by 2015 (USD 7.9 billion assets, USD 1.45 billion services and USD

5.38 billion products). Thus, it was meant that the luxury market will triple in five years from

2010 to 2015. Regardless of the harsh global times, the luxury industry in India in 2013 was

fastened to grow at the rate of 30 per cent and continued to expand at 25 per cent in 2015 and has

touch USD 15 billion in 2015 as compared to USD 8 billion in 2013 (See Figure 3.4), revealed

by the joint study of ASSOCHAM and Yes Bank5. The recent study of ASSOCHAM and Yes

Bank indicated that the luxury market of India will reach USD 18 billion by the end of 2017 in

comparison to USD 15 billion in 2015. It is clear from the various statistics released so far that

luxury industry has not really suffered from the economic slowdown.

4 IMRB International is a survey and business consultancy firm and a multi-country market research firm that offers

a range of customized research services and syndicated data.

5 YES Bank has institutionalized a specialized ‘Luxury Banking Group’ focussed on luxury products, allied

segments and retail infrastructure in the sector that is in line with banks philosophy of promoting luxury retail in

India.

The global luxury market was booming through 2012-2013, a global economic recovery period.

Indian luxury market has shown a little or no impact in 2013, a period marked by slow Indian

economy and diminishing consumer confidence. KPMG6 and ASSOCHAM published a report

named “Indian Luxury Summit 2014.” According to this report, the Indian luxury market has

shown a healthy growth at the rate of 30 per cent in 2013 and reached USD 8.5 billion in 2013.

This growth scenario can be seen in India as consumer refused to compromise on the ‘luxe’ life

and the overall growth was driven by lifestyle segments.

Electronic gadgets, wines, personal care segment, hotels and fine dining and jewellery had

shown good performance in 2013 and are presumed to increase at 30 to 35 per cent in preceding

three years. 30 per cent of the increase is likely to be seen in the consumption of branded wine in

metro cities.

The ASSOCHAM had made the statement with regard to financial year 2014 as it was going to

be a satisfactory financial year for the players in the market of luxury, even when the country

will go through general elections but the large number of economic reforms may not take place.

The favourable economic conditions, increase in consumer spending, changes in consumer’s

consumption and spending patterns, increase in young working population and increasing craze

for brands and luxury products, especially among youth will become the reason for the market

take off in the year 2014 as per ASSOCHAM.

Various factors that are important for the growth of luxury market are real estate, consumer

attitudes, regulatory environment and ecosystem and all these factors are improving in the

country.

3.2.3 Evolving Consumer Base

The gross-domestic product (GDP) of India has shown an average rate of growth of 7.27 per cent

during a decade (2000 to 2010), making India part of the rapidly growing economies of the

6 KPMG in India offers its clients a wide range of services including risk advisory services, tax and regulatory,

financial and business advisory and internal audit.

world. During the 12th

five year plan period (2012-2017), the Indian economy is expected to

experience the growth rate of 9-9.5 per cent as per Planning Commission estimates. The rise in

per capita income is accompanying the GDP growth. Since 1985 the real household disposable

income of consumers’ has grown more than double (Mukherjee and Satija, 2012).

India being the world’s second-largest populated country has a large and growing middle class

base with almost 50 per cent of its population belongs to the age of below 20 years (Hoffmann

and Coste-Maniere, 2012). Punj and Kaushik, (2013) highlighted that such composition of the

Indian population has the capability to influence the consumption basket

From 2006 to 2013, the number of high net worth individuals grew by 200 per cent in India.

Households with an annual disposable income of above USD 100,000 has increased by 60 per

cent, to 1.1 million in 2013 from 700,000 in 2006, and are projected to grow by another 300 per

cent. There is an indication that the Indian market will experience a shift towards the new

money, till the market continue to evolve and the population of high net worth individual is

growing (Punj and Kaushik, 2013).

The portrait of the Indian luxury consumers is experiencing a strong evolution which resulted in

redefining the consumer profile and how luxury players operate in the space. Even the speed of

transformations in consumers is considerably higher than expected by luxury brand owners.

Luxurious consumption in India constitutes only 1 to 2 per cent of the luxury at the global level.

However, India is becoming a leading global destination for the luxury brands since there is a

significant increase in the HNI population and therefore an overall rise in the disposable income.

The rise in urban elite class coupled with growing Indians in the billionaire’s club has

encouraged luxury players to woo Indian consumers. 55 billionaires with total net worth of USD

194 billion added to the global billionaire list from India (KPMG-ASSOCHAM “Indian Luxury

Summit 2014”). This is a great improvement from 2004, where only nine Indians were there in

the list.

Figure 3.5: Number of Ultra High Net Households

Source: Kotak Wealth Management Report 2013

It was reported in KPMG-ASSOCHAM “Indian Luxury Summit 2014” that high net worth

individuals (HNI’s) are likely to grow at CAGR of 27 per cent through 2017-18 (See Figure 3.5).

Globally, consumer spending is estimated to touch USD 40 trillion by the year 2020 with an

unexpected increase of USD 12 trillion in ten years and Indian consumer expenditure on luxury

branded goods is supposed to increase four times to touch USD 3.6 trillion during the same

period as the result of increase in consumers income levels and increasing aspirations of

acquiring luxury brands. The expectation is that in the succeeding five years the number of HNI

households with a net worth of Rs 25 crores will most probably triple to almost 2.86 lakhs or so,

which in turn will lead to an approximate five-fold increase in net worth of Rs 235 trillion. The

number of HNI’s will tend to increase two fold by 2015 i.e., approximately to 4 lakhs with net

wealth of USD 2645 billion from 153,000 in 2010 (ASSOCHAM Press Release 2013, CII-

A.T.Kearney’s report 2011).

The KPMG-ASSOCHAM “India Luxury Summit 2014” has listed the diverse key consumer

segments - senior corporate professionals, successful entrepreneurs, young working women who

live with their families and are liberal spenders and farmers who have sold their land to

developers. “Indian Luxury Summit 2014” has reported that each of the segments mentioned

above consist of potential luxury consumers, but they attach different meaning to the word

‘luxury’ (See Figure 3.6).

Figure 3.6: Luxury Consumer Segmentation

Luxury consumer segmentation

• HENRYS? - High earning, not

rich yet This segment includes

elite upper middle class

population that has been growing

significantly over the last few

years.

• Young professionals and working

women are the key segments in

this category and they are more

conscious about their social

status.

• Traditionally wealthy individuals

who are born in rich industrial

families.

• Individuals with high net worth,

who have worked diligently to

make a name for themselves in

their business circles. These

include C-level professionals,

doctors, accountants and lawyers.

• Windfall consumers, these are the

consumers who have shown

sudden changes in their

consumption habits as a result of

any windfall gains-typically

upgrading to better

brands/products or increasing

consumption as a whole or both.

For instance, gains from sale of

property.

• Shopping for more prominent

brands and product and are

growing fast.

• Consumes luxury items as an

indulgence, but regards it as a

necessity.

• Beauty, style and individuality are

the key drivers for luxury

consumption.

• High business acumen, thus spend

wisely. May also buy counterfeit

product, to gain social status at

reasonable costs.

• Sudden monetary gains have lead

to the aspirational shopping. The

shopping is based on the

accessibility and awareness of the

brands.

• Higher propensity to experiment

with brands to become the first in

their circle to adopt a new brand.

That is why they are always

aware about latest global trends

and fulfils their requirement

through luxury shopping.

• More impulse shopping, with

focus on exclusivity and brand

popularity to maintain flamboyant

lifestyles.

Up

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ote

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xis

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Beh

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hara

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isti

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Source: KPMG-ASSOCHAM “Indian Luxury Summit 2014” (KPMG in India analysis as

on 17 January 2014)

The report of KPMG-ASSOCHAM “India Luxury Summit 2014” has clearly divided the luxury

consumer segment into two – ‘already existing consumers’ and ‘upcoming consumers.’ In

addition to already existing consumers such as traditionally wealthy individuals and individuals

who have gained the high net worth position, there are new set of consumers who have driven

the growth of the luxury market in India. This new set of consumers named as ‘closet

consumers’ or ‘new age high net worth individuals’ is evolving in India. These people are neither

born rich nor luxury is their style of living, but now they are exploring and experimenting with

luxury. They are aware of brands and purchase them after considering its worth and that is why

this set of consumers does not buy sunglasses of Prada as it is Prada. They still have a middle

class mindset and thus appreciate his Indian roots and culture while making purchases. Players

have to work out of box to understand the preferences of consumers’ and provide them with

customized buying experience so as to develop a feeling of comfort among these new luxury

buyers and gain the loyalty from these new consumers.

The luxury space was well-defined and limited only to the preferences of the ultra high net worth

households. The luxurious consumption has expanded from maharajas to masses to include

aspiring middle class, including entrepreneurs, young professionals and well-travelled corporate.

The HIG or moneyed class of India has always had exposure to luxury brands either through

imports or by overseas travel. In the recent past the economic growth of the country has given

rise to a new generation consumers and increase in the potential luxury buyers beyond the

traditional shoppers of luxury can be seen. These potential consumers are typically the aspiring

upper middle class consumers which form the larger group. The Indian middle class will increase

to 41 per cent of the population by 2025, according to ‘Mckinsey Global Institute.’7 This

consumer segment is majorly investing in higher education system so as to avail the fruit in the

form of high net worth jobs in the future. The reports reveal that this aspiration to upgrade the

‘consumption ladder’ is contributing to the fact that they are driving the growth of the Indian

market. The youth population of India has increased like never before. This consumer segment

travel overseas regularly, always excited about international television shows and exposed to

global luxury brand.

7 McKinsey Global Institute (MGI) is a global consulting and trusted advisory firm, providing services to world’s

leading businesses, institutions and governments.

India Luxury Summit 2012 was organized by ASSOCHAM and Yes Bank. Approximately 300

global luxury business influencers, heads and leaders from India, Italy, France and United

Kingdom were examined at the end of 2012. According to Ms. Francesca Bortolotto Possati,

Chairwoman and Chief Executive Officer, The Bauers, Venice, “You have to customize

according to Indian consumer needs as they are aware of their want and are significantly

sophisticated.” “Each city in India is a learning experience as consumers of Chennai are

significantly distinct from that in Chandigarh. This also adds to the difficulty that each time a

luxury player plans to enter in a new city, they have to take considerable steps so as to recognise

and know about the consumers of that city” Director, L’Oreal Luxe India, Mr. Marco Riggio.

ASSOCHAM has proposed a survey on “Indian Luxury Market Holds Strong Despite Global

Economic Downturn” in cities such as Dehradun, Chandigarh, Pune, Hyderabad, Ahmedabad,

Chennai, Kolkata, Mumbai, Delhi etc. Approximately 200 employees were included in the

survey from each city and it was found that the global slowdown has not influenced the patterns

of spending of the high income group (HIG). It was reported by many respondents during the

survey that maintaining their lifestyle is on priority and is significant facets of their social life.

Mr. D.S.Rawat, Secretary General ASSOCHAM says that even when the economy is going

through slowdown, the size of the HIG consumers is increasing on the continues basis and ready

to disburse more than 40 per cent of their monthly earnings on world-known brands in luxury

segment. New areas of spending are on hype such as launch parties or throwing showy and

luxurious parties for business success and weddings.

The ASSOCHAM survey further stated that women choose to evolve in purchase of luxury as

source of pampering and self-reward where as the consumption of luxury brands by men is

driven by status as motivators for purchase. Females make most of the purchase around bags,

footwear, spa treatments, cosmetics, jewellery, clothes and perfumes and males around watches,

alcohol and automobiles. In addition to this the joint purchase decisions are made for hotels,

resorts and restaurants. In the same survey, it was also reported that majority of respondents

purchase luxury goods such as cosmetics, watches, bags and perfumes etc. during overseas trips.

There is a sustainable increase in potential consumers engaging in online medium to make luxury

purchase. The ASSOCHAM survey reported that at least once in a month, approximately 75 per

cent of potential buyers surf brands in the luxury segment on net. It was also reported in a survey

that around 66 per cent of respondents prefer to make purchases of widely established luxury

brands and 69 percent showed that they will likely to spend extra for the consumption of popular

and widely known brands in the luxury segment.

Below are the highlights of emerging trends with regard to Indian consumer market: -

• Increasing Potential Destinations on Luxury Map

Mumbai, Delhi, Bangalore and Pune are the top destinations which are already listed in the

luxury players’ diaries. Many brands are launching their outlets in these cities such as Diesel

Black Gold, Paul and Shark, Hermes, Dior, Gucci, DKNY, Missoni, Cartier, Judith Leiber,

Canali, Louis Vuitton etc. But new destinations are catching the attention of luxury players like

North Mumbai/Juhu, Gurgaon, Ahmedabad, Amritsar, Chandigarh, Bhubneshwar, Surat,

Coimbatore, Goa, Guwahati, Jaipur, Kochi, Kolkata, Raipur, Indore, Meerut, Dehradun,

Ludhiana, Jalandhar and many others. These new catchments on the luxury map acknowledged

the presence of rich in these cities as well as the willingness of the brands to encash this demand.

• Revolution of Digital Media and Communication Networks

There is no denial of the fact that there is a drastic change in the manner marketers communicate

or reach the target market. Digital methods of marketing and disseminating information to the

consumers are becoming streamlined, practical, more versatile and faster. The world is shifting

from analogue to digital. Internet, facebook, twitter, mobile phones etc. is shifting the way

consumers interact and communicate with each other.

Online retailing is the medium to reach the target market beyond the metros and the net savvy

but hard-to-reach consumers of India. This is helping to remove the barrier of physical presence

of the luxury brands in small cities. E-commerce, the buzz word of today has contributed a lot in

the spread of the luxury market in smaller cities. E-retailers in India are witnessing a large

percentage of their clientele from smaller cities opting for high-end products like watches,

jewellery, clothes, bags and exclusive experiences, like spas and cars. The crux is that the

business environment is going through drastic changes and the evolution of digital media is

among one of those changes. Thus, managers who are not taking the immediate steps in

correspondence to this new marketing digital scenario are at high risk as they will going to

extinct from the market very soon. Retailers of the luxury brands therefore are viewing their

websites and apps as important resources to inform consumers and provide them information

regarding the products, store locations, company etc.

• Adoption of Global Trends

Indian buyers are attracting as well as adapting to the global taste at a much faster pace than

anticipated. Consumers are well informed about the global trends and are increasingly

demanding the most recent fashionable and trendy luxury products. CII – A.T. Kearney report,

(2011) states an example of the adoption of the global trends in India. According to the report,

the consumption of the white wine shooted up from 30 per cent to 50 per cent of the market in

summer’s inspite of the fact that traditionally, India has been market of red wine. This trend

portraits the picture of market of Europe where during the warm climate people consume white

wine. The Indian market has no longer a lagging market. Consumers watch for the latest

collections in the apparels, accessories and personal care and purchasing parity have no longer

remained a purchase criterion of Indian consumers. Though luxury players do introduce the latest

merchandise in India simultaneously they introduce in another markets, but even then Indian

consumers criticize about the depth and width of range. It has become important for the players

to plan their offerings in terms of the variety and choices they are providing keeping in mind

economies of inventory and likely obsolescence.

• Emergence of New Consumer Segment

Today the luxury is not restricted to the traditional wealthiest consumers. New consumers have

attracted the attention of the luxury players. The KPMG-ASSOCHAM “India Luxury Summit

2014” has listed the diverse key new consumer segment (See Figure 2.7) and also discussed the

behavioural characteristics of the upcoming potential. The two segments of the market, i.e., the

small and medium entrepreneurs (SME’s) and young who are famous as facebook generation are

becoming the significant segments of the luxury players (CII – A.T. Kearney report, 2011).

Luxury players are adopting the key trends to catch this net savvy generation in at an early stage

to reap the benefits in the long run. For example - Luxury Champagne player Moet Hennessy

had introduced its first Indian-made wine in 2013 who previously offer only imported products

to cater to a new breed of urban youth segment.

3.2.4 Growing Luxury Space: India

India explains not more than 2 per cent of the global luxury market and only USD 6 billion

market as compared to Chinese market of USD 25 billion. India has far to go in order to compare

its offerings and services with Chinese market. Still, the growth of the Indian luxury market and

its potential can be determined by the presence and increase in the entry of high-end luxury

brand players in the country, CII - A.T. Kearney report, (2010). The national as well as

international luxury players are in hurry to set up their stores in the country. The various reasons

are being attributed by the industry experts to this positive growth, such as increased brand

awareness among Indian consumers, well-travelled consumers, a stable economy with increasing

young population and growing disposable incomes. Today, when India has become a market for

luxury historically, it was a sourcing country. India knows as how to give birth to luxury from

skilled manpower, but what required is technology, marketing and consistency to modify this

niche market, added by Jyotiraditya Scindia, Minister of State for Commerce and Industry,

Government of India.

Sometimes from now, Indian consumers have given life to global luxury brands. The growth of

this segment can’t be ignored on the account of the trends over the recent years. The young

Indian consumers’ have bought the clear shift in consumerism and are embracing the global

luxury brands as well. This consumer segment also includes the well-travelled young Indians,

who are open to new brands to enhance their self-worth and all this is fuelling growth in the

Indian luxury industry.

The opening up of shopping malls are among the various reasons of driving the growth of the

luxury market in India. Earlier, luxury brands mostly used to operate in star hotels or airports. As

a result, these operating destinations were not able to attract the large customer base for the

luxury brands. Mr. Tikka Shatrujit Singh, advisor to Louis Vuitton India adds, “The visibility

and footfalls are higher in malls than in hotels. Where mall will get you with 1000 clients, hotels

will give you only 10.” Thus it is understood that upcoming mall culture has not only added to

the conducive shopping atmosphere and experience but it has also helped the luxury brands in

terms of increase in footfalls. The luxury retailers have understood the fact that Indian malls have

gained character and thus they are strategically choosing as which mall would be ideal to operate

in, taking into account all the co-existence factors. There is a list of India’s impressively

beautiful shopping malls and these malls are the places where numereous luxury brands are

available under one roof and caters to a wider consumer base. These luxury malls with gold-

plated taps in washrooms, dedicated concierge desk, huge crystal chandeliers, ginger lily

fragrance and tasteful window display have changed the way India used to shop. The list

includes: –

• DLF Emporio, Vasant kunj, New Delhi

• High Street Phoenix, Mumbai, Maharashtra

• UB CityMall, Banglore, Karnataka

• Select City Walk, Saket, New Delhi

• Phoenix Market City, Banglore, karnataka

• Orion Mall, Banglore, Karnataka

• City Emporium Mall, Chandigarh

• Quest Mall, Kolkata

• City centre, Salt Lake City, Kolkata

• SGS Magnum Mall, Pune, Maharashtra

• Channai Citi Centre, Chennai, Tamil Nadu, etc.

Many luxury players are enhancing their visibility through luxury hybrid malls but some of the

other entry modes were seen in the past followed by the luxury players. One of the diffrentiated

mode of entry was followed by Hermes, the brand has opened its standalone outlets in iconic

buildings in Pune and Mumbai.

According to Mr. D.S. Rawat, Secretary General ASSOCHAM, Indian luxury lifestyle market is

flaunting and because premium lifestyle products are inelastic to price, they remained uneffected

by slowdown. Be it family holiday to exotic destinations in Unites States or Europe, driving

around in top-end luxury cars or SUV’s, going out and enjoying for a fine dining in star hotels or

sporting branded jewellery, Indian consumers are no more behind.

AASSOCHAM has conducted a survey on “Indian Luxury Market Holds Strong Despite Global

Economic Downturn” in major cities namely Dehradun, Chandigarh, Pune, Hyderabad,

Ahmedabad, Chennai, Kolkata, Mumbai, Delhi etc. Approximately 200 employees were

included in the surveyed from each city on an average and it was found that as per the

expenditure on luxury brands Delhi ranks first followed by Mumbai (2nd

), Ahmedabad (3rd

),

Chandigarh (4th

), Kolkata (5th

), Bangalore (6th

), Chennai (7th

) and Dehradun (8th

).

According to CII - A.T. Kearney report, (2011) India luxury has crossed the boundaries of Delhi,

Mumbai, Banglore to Pune, Hyderabad and Chennai. There are about more than 30 outlets in

personal care, watches, accessories and apparels collectively in the above cities. North Mumbai

and Gurgaon are emerging as the new desinations of luxury.

With the increasing growth of the luxury market at 25 per cent year over year basis, private

equity investments are continuously increasing, leading to enhanced size of the Indian luxury

market. During January 2009 to August 2012, private equity investments were not more than

USD 1 billion in comparison to USD 35 billion in 2013. Number of funds such as Everstone, L

Capital and Avigo are planning to invest in consumer centric business in India.

There is a continuous expansion of the Indian market related to luxury as new luxury brands are

coming to serve luxury demand across the various segments.

3.2.4.1 Growth in Indian Luxury Product Segment

The position of top three global luxury brands in India is occupied by Hermes, Louis Vuitton and

Gucci. However, India has grown an appetite for newer luxury brands as well. As a result brands

like Fendi, Burberry, Bottega Veneta, Paul Smith, Jimmy Choo, Roberto Cavalli have made their

visibility by entering the India’s growing market to become the lifestyle statements of the upper-

middle class and growing new luxury consumers.

Where product range is concerned Louis Vuitton is the first name that strike our minds. Louis

Vuitton sells its international product line in India such as accessories, jewellery and travel-

related goods except ready-to-wear clothing. Louis Vuitton Moet Hennessy (LVHM) is operating

in India by making its presence in through five stores including in Delhi and Mumbai and

planning to open one store each in Delhi and Bangalore and looking for more stores in cities like

Kolkata and Hyderabad. Players such as Canali, Edmond Frette, Altagama and Missoni are

researching the Indian market and searching for local partnership to extend their wings in India.

Fendi with one store in India planning to open six more. Versace, leading Italian fashion brand

has already started with its first boutique in India.

The India’s leading luxury fashion coglomerate - Genesis Luxury has redefined the fashion

retailing in India. It has joint ventures with UK’s leading brand ‘Burberry’, classic menswear

Italian luxury label ‘Canali’ and in tableware division with ‘Villeory and Boch’ to form ‘

Burberry India’, ‘Canali India’ and ‘Villeory and Boch India’. Generic Luxury bought iconic

British label ‘Paul Smith’, red carpet favourite brand ‘Jimmy Choo’, Italian handicrafted leather

bags and accessories by ‘Bottega Veneta’, the respectable fashionable luxury brand ‘ Milan

Armani’, international luxury travel, business and lifestyle accessories brand ‘ Tumi’, luxurious

home and personal care product brand ‘Crabtree and Evelyn’, Italian high quality handbags and

accessories of essential elegance ‘Furla’ and luxury apparel and accessories brand ‘Michael

Kors’ to India.

Indian homegrown players are also dominating the luxury apparel and accessories market in

India. Sabyasachi Mukherjee, Ritu Kumar, Tarun Tahiliani, Gaurang, Gaurav Gupta, Rohit and

Rahul Gandhi, Anita Dongre, Manish Arora, Rohit Bal and many more fashion designers have

bring forth the fashion statements on the global luxury ramp.

Luxury watch segment represents the fastest and largest develoing segment in the luxury product

segment. Experts say that today affluent Indians are not only spending on themselves, but this

segment is recording high sales Vol.s because high-end timepieces are becoming popular as gifts

too. According to Director of Popley Group, Mr. Rajiv Popley, (Well known store in Mumbai)

says, “Almost 30-35 per cent of sales Vol. and value are recorded via corporate gifts.” Premium

and affordable luxury watch brands such as Tissot, Seiko, Emporio Armani, Mavoda, Hamilton,

Citizen, Cerruti, Rado, Edox, Longines, Louis Erard, Raymond Weil, Ernest Barel are not new to

India. Cartier, Rolex, Carl F Bucherer, Graham, Breitling, Tag Heuer, Omega, LVHM’s and

Fossil are operating and doing good business through franchise showrooms across major cities.

Louis Vuitton Moet Hennessy watch and jewellery India is planning to increase the number of

showrooms of Tag Heuer from 12 to 30 by the turn of the decade and also adding to the stores of

Zenith and Dior. The Raymond Weil watch brand is also on the track of introducing more stores

in India. The brand has introduced a stand-alone boutique in Mumbai (Two boutiques) and

Kolkata in addition to existing stores in Delhi and Chennai. Seiko, a luxury watchmaker from

Japan has already established its subsidiary in India so as to serve Indian consumers in a better

way. Susumu Kawanish, President, Seiko watch India says, “In India, the expansion prospects of

the luxury watch segment is highly impressive. The brand has already launched its Ananta

Collection in India, whose timepiece are priced Rs. 1-5 lakh per high-end piece. Seiko is

planning to introduce eight stand-alone outlets in addition to the single outlet present in Chennai

and also enhancing its visibility through 300 point-of-sales with current 250 sales points, within

the next two to three years to come. Rado has also launched its second store in Hyderabad and

introduced its latest collection in Odisha with the help of Khimji jewellers, a local jewellery store

selling brands like Omega, Tissot and Longines.

The Indian luxury product market is also showing the fastest growth due to the personal care

segment. The demand and consumption curve for luxury personal care products is increasing

drastically. This segment comprises of hair care products, fragrances, skin care products and

cosmetics. It is also estimated that recent developments in terms of 100 per cent FDI in single

brand retail is going to bring in a major upsurge to this luxury product segment. Increased

awareness in men and women of grooming as well as of international brands and rising incomes

are the key factors that are dominating this segment. International brands such as Estee Lauder,

Lancome, Clarin, L’Oreal, Christian Dior, Nina Ricci, Shiseido, Schwarzkopf etc. have entered

the country and also working aggressively to increase their footprints in India. With the

increased awareness of grooming in men, the personal care men segment is gaining grounds.

Wills and Orosilber have launched their personal care products for men’s segment. With the

increase in highly paid young working women’s the demand for skin and hair care products and

high-end cosmetics have increased drastically. Kiehl’s, L’Occitane has made an entry in the

luxury product market of India.

The Indian jewellery industry has gone through rapid transformation. Jewellery is no longer

considered as an investment. The increase in the percentage of working women has led to the

popularity of light weight jewellery that can be worn on the regular basis. With these

transformations in the Indian market and increasing retail innovations, various national and

international brands are increasingly solidifying their footprints in the Indian product market The

brands are attracting the Indian consumers through their continuous innovations and creativity.

Tiffany and Co., The Gem Palace, Harry Wirston, Caratti, Dia, Mirari Jewels, Opulence By

Jewelex, Alpana Gujral, Ganjam and Anmol Jewellery are few to name who has entered the

Indian luxury branded jewellery market The companies are blending their offerings with Indian

customs and heritage which gives a unique boost to their sales as well as brand promotion

strategies. Tra Jewellers, GRT Jewellers, Kalyan Jewellers, Malbar Gold and Diamonds, Asmi

and many others introduce their product lines on a regular basis in the market to cater to the

needs of the diverse consumer base of India.

Miele, a German high-end domestic appliance maker has entered India in 2011. The company is

planning to invest Rs. 100 crore in the country in 2014 under its expansion strategies. Mr.

Dhananjay Chaturvedi, Managing Director, Miele India told to Economic Times, ‘The amount so

planned to invest in India would include investments in brand building, infrastructure

development, hiring and training and after sales services. Currently, the brand is present in 10

cities – Delhi, Ahmedabad, Pune, Mumbai, Surat, Banglore, Hyderabad and Chennai. Miele is

finding its place in tier-2 cities such as Indore, Nagpur, Raipur, Coimbatore, Vijaywada, Jaipur

and Rachi. It is also targeting institutional sales to hospitals, garment exporters and pharma

companies for its dish washing, disinfection and sterilization machines. It has also entered into

partnership with various real estate developers making luxury apartments such as Supertech, 3C,

M3M etc. With the purpose of fostering brand awareness in the country the brands have entered

into below-the-line activities. It has also joined hands for collaborative events with non-

competitive luxury brands such as Harley Davidson, BMW, Mini Copper, Audi etc.

Indian luxury market has attracted many players such as Damiani, Royce, Godiva Chocolates,

Faberge Jewellery which have either entered or planning to enter the market Market has also

renewed interest in the luxury players which exited India previously.

While women shop brands for wrist watches, bags, clothes, shoes, shades and lingerie, men in

India are reported mostly shopping for brands such as David Jones, Ralph Lauren, Armani, Boss

Orange, Fred Perry, Tag Heuer, Versace etc.

3.2.4.2 Growth in Indian Luxury Service Segment

The fine dining market has seen the entry of new footprints as well as the significant expansion

of the existing players. A press release by ASSOCHAM reported that there is the significant

growth in the number of Indians travelling abroad. They are now well versed and tasted the fine

dining services of abroad and when they return back to India they want same in India too. Mr.

Rawat, Secretary General ASSOCHAM added that, “The growing restaurants are trying their

best to tap younger generation who are always hungry for exquisite. The consumers’ in their late

20’s and 30’s are increasing catered by the speciality restaurant owners and five-star hotels as

they are more experimental and have money to spend.”

International luxury hotel chain ‘Starwood Hotels and Resorts’ are operating in India with its

renowned brands – Luxury Collection, Aloft and Four Points by Sheraton, Le Meridien,

Sheraton, Westin, W and St Regis. According to the Managing Director, India, and Regional

Vice President South Asia, Mr. Dilip Puri, Starwood Hotels and Resorts India Pvt. Ltd., “Talking

about company’s overall expansion plans in India, the objective is to have 100 hotels by the end

of 2015 either operating, management contracts signed or in the pipeline. There will be atleast 15

new openings from now to 2015 leading to 60-65 hotels that will be operating and other will be

in the process of development.” Mr. Puri added that for upper upscale brands the company is

focussing on key tier-1 (Delhi NCR, Mumbai, Bengaluru, Hyderabad, Kolkata) and tier-2 (Agra,

Dahej, Tirupati) markets where as Aloft and Four Points are targeting key tier-2 and some tier-3

cities and company is also looking at opportunities that exist in micro markets within larger

markets. India is sooner going to be Starwood’s third largest market from the present fourth

position.

3.2.4.3 Growth in Indian Luxry Asset Segment

The luxury car segment has attracted the attention of the global players over the past years and is

the only segment which is surging at rapid rates among the India’s automobile market Affluent

consumers are riding the waves for the luxury car makers. Despite slow economic growth and

high fuel prices in the financial year 2013, the healthy demand for luxury cars is encouraging

companies to strategically plan their future expansions and new launches. The luxury car market

has grown at 6 per cent and recorded the sale of 30,158 units in the calender year 2013-2014.

The analysts are of opinion that fiscal year 2014 is expected to record sales vol. of 35,000 units

or more.

Tatas and Infosys are spreading their wings across the globe so as to acquire auto marquees like

Jaguar and Land Rover. The global revered brands such as - Aston Martin, Ferrari, Bugatti,

Benz, BMW, Audi, Maserati and Porsche has entered the Indian market space. Luxury

carmakers Mercedes and Audi are targeting younger and upward mobile consumer segment and

thus able to record shooting sales in 2013-2014. Mercedes has sold 9,548 units in 2013-2014 as

compared to 6,491 units in the last year. The German brand Audi, has recorded the five-figure

sale of 10,126 units in the same financial year.8

According to the Chief Executive Officer and Managing Director of Mercedes India, Mr.

Eberhard Kern, “Affluent consumers of India are keeping the overall trends positive as their

aspirational level are growing and thus keeping us bullish about the long-term growth potential

of the luxury car segment.”

The luxury bike players named Harley Davidson and Duncan has finally kicked the Indian

luxury space into the next gear. Iconic British motorcycle brand Triumph has entered India in

November 2013 and is presently selling its 11 models under various segments namely super

sports, adventure, cruisers, classics and between price range of Rs. 5.5 lakh to Rs. 22 lakh. The

Managing Director, Mr. Vimal Sumbly, Triumph motorcycles India, added to Business Standard

that since their launch in the country thesy have recorded the sale of 350 bikes. Further he added

that the brand is working on the objective of acheveing the sale of 1,000 units and 1,500 units

respectively. The brand is also planning to open more dealerships across the cities in India.

In 2013-14, Japanese bike maker Kawasaki introduced its best selling models in India after

sitting aside for many years. The brand Polaris brought its marquee ‘Indian’ motorcycle brand to

India. Harley Davidson, the giant bike-maker had taken the most significant move of going

beyond the ‘super’ or ‘1,000 cc plus category’ and launched ita all new range of 750 cc cruiser

and a smaller sibling of 500 cc. Various Indian players with their foreign collaboration are

affecting the luxury bike market such as TVS Motors in collaboration with BMW AG is looking

to develop premium motorcycles with engine up to 500 cc etc.

8 Rich Indians drive luxury car business (2014, April 04), The Economic Times.

In the press release by ASSOCHAM it is reported that various luxury players has performed

convincingly in 2013 such as Hidesign, Reliance Brands, Da Milano Leathers, Starwood Asia

Pacific Hotels and Resorts, The Bauers Hotels, Geetanjali Group, The SPA Group, The Phoenix

Mills, Judith Leiber, LVHM India, L’Oreal Luxe India, Canali India, Ocean Style Yachts, Louis

Vuitton, Christian Dior, GUCCI and others. In 2012-13, approximately fifty luxury stores (Car

showrooms and product stores) are added to two hundred that already exists.

India’s rich fashion history including stunning jewellery, elegant embroidery, exotic saris, bright

bollywood colours are becoming an inspiration for designers around the world.

Homegrown players are more aware about Indian environment and has capitalized on India’s

traditional strengths such as textiles, leather, jewellery, personal care. They are able to gain

popularity in India as well as in abroad. The luxury players are capitalizing on traditional

craftsmanship, unique aesthetics or heritage value to identify with consumers. Sabyasachi,

Fabindia, Global Desi, Shahnaz Hussain, Dastkar, Gaurang, Ritu Kumar, Goodearth, Forest

Essentials, Craft House, Nalli, Mother Earth etc. have earned the name now only in India but

around the globe.

Designers like Ritu Kumar, Anita Dongre, Tarun Tahiliani, Gaurang, Gaurav Gupta, Rohit and

Rahul Gandhi, Manish Arora, Rohit Bal, Sabyasachi Mukherjee, Anuradha Vakil and many more

fashion designers rely on Indian textile craft and heritage to bring forth fashion statements on the

ramp. They closely work with craftsmen to produce the offerings for high-end domestic as well

as international markets. Taj, Oberoi and ITC in hospitality segment are serving India as well as

other countries.

3.2.5 Latest Government Policy: Easier Landscape

The introduction of easy foreign direct investment (FDI) policies have further spelled boom for

the country’s economy. The government of India has announced an increase in FDI cap in multi-

brand retail to 51 per cent and single brand retail to 100 per cent and this have caused some

excitement among the players who are waiting for the several years without any success in 2013.

So as to tap the speedily expanding luxury retail market in India, the foreign retail brands

without any wastage of time are quickly responding to this growth. After the government FDI

announcement, arrays of retailers have already declared their plan of actions to move into the

Indian market. Foreign lifestyle brands such as Tommy Hilfiger, Versace, Zara, Chanel, Cartier

and several others are already serving the Indian customers, and have entered the market either

through joint ventures or franchises with 51 per cent holdings or less. It is believed by industry

experts that this move by the government is going to open the doors for many global brands, who

wants 100 per cent control on their destiny and thus are not inquisitive in a partnership mode to

get into the market space of India.

In 2011, the government has approved 100 per cent foreign direct investment in single-brand

retailing but with the conditional term of 30 per cent sourcing from small and medium

enterprises within India. The world’s biggest brands wanted to invest in India but this conditional

term of 30 per cent sourcing is acting as a deal breaker for India. The Department of Industrial

Policy and Promotion (DIPP) is considering and planning to eliminate this clause. The DIPP

officials are taking into consideration the amount of FDI inflows and employment generation

opportunity in the country with this move keeping the fact that in past two years there is an

investment of Rs. 300 crores in single-brand retail in the country. According to DIPP officials,

“It is not possible for the luxury brands to source 30 per cent from India. So, we are working on

making the single-brand retail investment policies liberal and allow foreign brands to invest in

India.”

The Ambassador and Head Delegation of European Union, Mr. Joao Cravinho, mentioned that

even when the present situations are not positive but in the longer period there is a lot to be

achieved. In India import taxes are as high as 30 per cent - 40 per cent plus at the state levels,

taxes are almost prohibitive.

Mr. K.P. Krishnan, India’s additional Finance Secretary, told in the conference co-organised by

CII and The Economic Times that there was a need of the hour to look at stabilising the rupee,

creating conducive policies and taxation environment and address the issue of infrastructure so

as to put India on the global luxury map.

3.2.6 Challenges of Indian Luxury Market

There is no doubt that opportunities comes up with accompanying difficulties and Indian market

is also not different. In spite of this fact, luxury players are looking towards India with a mix of

hope and caution by innovating with their confines. Many luxury players who have taken the

bold, market making moves have started reaping the rewards from the market. Of all the

challenges listed below, most of the progress has been done in the consumer awareness front.

The Chief Executive Officer, Aditya Birla Retail and the Chairman, Mr. Thomas Varghese, CII

National Committee on Retail added that, the challenges encountered by the players in the Indian

market are related to understanding the psyche of the Indian luxury buyers as well as segmenting

them. This knowledge directly drives the business models, formats and type of product and

service offerings. On one hand, there is the need to promote try-outs, educate and enhance

awareness with regard to luxury branded products and services at appropriate price points among

the budding buyers emerging from middle class strata of the society having high disposable

income but, may not spend high. Secondly, there is also strong requirement to fulfil the

customers’ expectations with regard to the availability of appropriate range and freshness of

merchandise. In addition to this, suitable employee skill sets, fiscal incentives, regulatory

framework (Especially FDI) and infrastructure development are also challenges.

There are several challenges still continue to plague the Indian luxury market. Some of them are

discussed in detail below: -

•••• Lack of Infrastructure, Quality Luxury Space and Environment

For players to grow, presence of superior quality real estate at the appropriate prices will remain

a prime concern. The five stared hotels have gradually lost their place from the luxury players

list of preferred luxury destination. The luxury brand managers are struggling to get the space in

the high-end malls as there is the lack of the new supply of malls and the quality real estate.

There is a slowdown in the mall activities in 2009 due to which limited new space was available

on the immediate basis. With this, luxury players have to either wait for the developers as to

what they will offer or come together to build luxury properties or they have the option of wait

and watch. Sky-rocketing rental costs for opening and setting up of stores in high streets affects

luxury player’s profits.

•••• Catering the Target Consumers

With the increase in the supply awareness and aspirational level of the Indian consumers have

gone up. 20 per cent - 25 per cent upgraded grow is experienced by brands in the same store,

however, the new store openings are limited due to the availability of space. One of the big

concerns of luxury players is scattered nature of the target population. India is hugely populated

country and market penetration in this country is not an easy task. Luxury players are giving the

clear indication of their willingness to go beyond their zone of comfort with their entry in cities

like Chandigarh, Pune, Ludhiana, Surat etc. There is no doubt that penetration of brands has

grown across the country in the past years. CII – A.T. Kearney report, (2011) addresses that

many Chief Executive Officers that we has a word with agreed that the most difficult task is

probably to reach small and medium entrepreneurs group of customers. They added that micro-

segmentation of the market is important, although the lack of data indicates the requirement of

focussed efforts. So as to create buzz of luxury in the market, word of mouth still considered as

the most suitable method by the experts.

•••• Regulatory Structure Constraints

The government regulation policies have largely remained the reason for the slow growth of

luxury sector in India. Policies and regulations are not friendly to luxury retailer in spite of

strong presence and potential demand. Import duties in India are ranging from 20 per cent to 150

per cent, which are relatively higher. As the result, luxury brands have no option but to sell at

prices 30 to 40 per cent higher than some of the other markets. This resists the players from

framing aggressive growth plans for India. The government has announced the 100 per cent

foreign direct investment cap in multi and single-brand retailing but with the conditional term of

30 per cent sourcing from within India. Various reports added that the conditional term of 30 per

cent sourcing can become a difficulty for luxury players. Neelesh Hundekari, partner at A.T.

Kearney consultancy says, “Many luxury players are not entering India due to this particular

clause.”

•••• Lack of Skilled and Trained Talent

There is the shortage of the high quality skilled talent and also there is very little improvement

on this front. Players require greater discretion and knowledge on part of salespersons. Luxury

players are facing high personnel cost due to continued increases in attrition rate. The main

reason of this attrition is the footprint expansion by majority of brands and entrance of new

brands in the market. There is no or little improvement in the education ecosystem to provide

adequate quality and quantity to the luxury industry. Many players have in-house training

systems to build trained staff. They are provided training on aspects such as etiquette, visual

merchandising and knowledge.

•••• Supply Constraints

The party is much larger in China and South East Asia for international brands compared to India

as these are much easier markets. The presence of growth prospective in other markets such as

South East Asia and China and also due to the above mentioned factors, the Indian market has

remained a supply constrained. Product distribution and store footprints are still low in India.

Product range and width in Indian stores is limited as well as a new seasonal collection takes

longer time to make their presence felt here. Even the expansion in the hubs of the luxury - Delhi

and Mumbai is low as compared to other markets. It is believed by the experts that the industry

should look at the luxury car segment to know about the potential in India. This segment has

shown the growth above the projections on a continuing basis even when roads are pathetic, the

ticket prices and duty on cars are highest and cars are not driven by rich consumers on their own.

Even then this segment shows highest penetration of luxury car dealership in India which

indicated the latent demand scattered around the country.

•••• Countering the Counterfeits

KPMG-ASSOCHAM “Indian Luxury Summit 2014” reported that “Around INR 25 billion

counterfeits present a considerable share of 5 per cent of the Indian market of luxury products.

Plus, the market of counterfeit has been growing at a rate almost double to genuine products.

These products include the lower ticket items such as apparels, perfumes and accessories which

can be easily placed in the gray channels. Legal loopholes related to intellectual property rights,

inadequate ways to look at various emerging channels, growing online portals are some of the

supply side issues faced by luxury players in India. At India Luxury Summit 2012, Mr. Armando

Branchini, President, ECCIA and Executive Director, Fondazione Altagamma said that IP laws

of India are considered among the best laws, but the country is also importing fake products in

large quantities from China. Thus, there is the need for the strong enforcement of these laws in

India because if these fake products are not stopped, they will also ruin the domestic brands.

•••• Right Pricing

The right pricing is emerging as a new challenge for luxury players. Pricing is one the important

dimension in marketing which will remain a critical area of decision for luxury players when

they strategically plan to expand their footprints in Indian market. Canali Chief Executive

Officer, Mr. Stefano Canali said at the CII - ET Dialogue Luxury 2013, “Luxury brands cannot

bring down the prices and made their offering affordable only to attract more customers.

Premium pricing is an important factor that is attracted to luxury brand's exclusivity.” He added

that to become more an important part of the luxury market, India has to make its policies

conducive. High import duties and infrastructure cost are becoming greatest hurdle in the Indian

luxury market growth. Right pricing is very important for Indian consumers to hit them in the

right way.

In addition to above, ensuring brand loyalty from customers is also the next challenge for luxury

players, according to BMW Group India President Mr. Phillip Von Sahr. Another big barrier in

India is ‘service’. In order to compete with other countries' companies need to make great strides

in terms of customer services, Mr. Vispi Patel, Group Representative, LVMH India in India

Luxury Summit 2012. Political and regulatory landscape, imposition of caveats, exchange rate

volatility, red-tapism, bureaucratic delays, varying tax structures are some of the other noticeable

challenges confronted by the luxury players in India.

On the whole, these challenges are hitting the luxury market of India and the solutions to these

challenges are not probably being found easily in coming years. The global players might lose

interest and patience and decide to back out from the market and re-enter later when the market

become free from these challenges or easy to deal with. It is worthwhile remembering that India

is still just an option for growth available to global luxury brand players when other markets such

as China and South East Asia are not only providing these players with lucrative but also with

fast growing markets. Global luxury players may decide to rest back and opt for wait and watch

option for India.

3.3 OUTLOOK ON THE RISING LUXURY MARKET IN SMALL CITIES

OF INDIA AND EMERGING CONSUMER DEMAND

3.3.1 Growing Luxury Space in Tier-2 and Tier-3 Cities of India

Luxury industry in India is just a decade old. Luxury brands have eyed towards India with great

optimism and caution. Rich heritage, complex politics and India’s demographic diversity, make

it a paradox. Until 2010, the inheritors of wealth mainly drove the luxury market of India, but

this decade will see a shift to new money, as per the report titled “Small Ain’t Beautiful” March

2013 Bain and Company.

With the ray of changes in the Indian luxury market no one can say that the luxury dwells only

on high streets and exclusive malls in metros. It has found a new destination in India. Luxury is

not confined to metros only. The Indian small cities are increasingly emerging as the latest

luxury market destination. These cities do not have high streets or glitzy malls or high-flying

shopping destinations, but people in these cities have money to spend on luxury brands and also,

they are aware of the high-end labels found otherwise in big metro cities.

The major metro cities such as Delhi, Mumbai, Chennai and Kolkata generate 55 per cent of the

total revenue, according to recent Kotak report. Bengaluru, Ahmedabad, Pune, Nagpur,

Hyderabad and Ludhiana are the other top locations that are contributing 16 per cent of the sales

to the rising sales figures. The other 7 per cent of the revenue is generated by second tier cities

including Surat, Kanpur, Lucknow, Jaipur, Indore, Vadodara and many other such cities. The

remaining regions contribute approximately 22 per cent of the sales towards luxury segment.

According to an ASSOCHAM survey, the one-third of the retailers at shopping malls in big

cities such as Delhi-NCR, Mumbai, Kolkata, Bengaluru and Chennai are moving towards tier-2

and tier-3 cities due to high rental cost in metro cities as well as because of lower footfalls. The

smaller cities and towns are the golden opportunities for the luxury players and thus brands are

planning their strategies to move in these small cities. Non-metro regions are home to nearly half

of the country’s ultra HNHs and thus provide lucrative growth opportunities for luxury players.

The radical shift in consumption patterns has been witnessed in smaller cities and towns. The

people in these cities are moving beyond necessities, buying and making use of products that

were earlier used to be sold only in urban metro areas. The consumer here is wealthy, has the

desire to experience luxury and more importantly urge to spend on luxury. This has resulted in

building the new space for luxury players. Luxury revolution can be seen in the smaller cities,

with many established businessmen, budding entrepreneurs and upcoming highly paid

professionals. The number of first time luxury consumers is rising in the small city and most of

them belong to the demographic profile of youth.

The enhancement in consumer spending across the country is foreseen as well as beyond the

metro cities as mentioned by the above studies. In tier-2 and tier-3 cities the buying power of the

upper middle strata of the society in India is increasing drastically where destination weddings,

exotic holidays, jewellery, luxury bikes and cars are no more new. Brand awareness amongst the

youth is increasing exponentially, says D.S.Rawat. As the result of such statistics shown by these

small cities of India, several luxury brand companies have establish their business in India to

take benefit of country’s flourishing economy as well as to cash the budding wealthy consumer

segment who is fascinated with luxury brands and can buy and willing to pay premium price as

well to acquire luxury brands. Players with long term objectives have already started investing to

connect with these consumers. Non-metro cities like Surat, Ludhiana, Jammu, Indore and

Chandigarh are becoming the new destinations of luxury retailers.

Some major factors that are inducing the players to move to these cities are availability of prime

locations at reasonable prices, brand conscious consumers who are ready to buy luxury brands

and lack of competition. It is because of the potential seen in these small cities, most of the

Indian brands and retailers are playing their cards on the tier-2, tier-3 cities and now even top end

luxury brands are shifting their attention towards smaller cities. The consumers of these cities are

well-educated, well-travelled and exposed to the global and domestic luxury brands. Today, the

consumer behaviour in smaller cities are driven by high disposable incomes, increasing brand

and quality consciousness, increase in nuclear families, increase in education levels, increase in

technology as a source of information etc. Consumer has become more conscious about the

ongoing global trends and has become less focussed to logo-driven brands.

The consumers in the metros or urban cities spend lavishly on food, shopping and entertainment

and the same is reported among the small city’s consumers. The people of small cities and towns

are travelling all the way to the urban areas so as to shop for branded and quality products.

Luxury retailers in the metros are increasingly witnessing the footfall of buyers from the smaller

cities and reported that about 30 per cent of their business is coming from these buyers from the

smaller cities. The people of these cities either purchase from the trunk shows that are organised

in their cities or travel to Mumbai and Delhi to buy luxury brands. It is seen that consumers’

from the neighbouring mining city of Bellary go for shopping in UB City in Bangalore, similarly

quarterly trips are made by buyers from Jalandhar and Ludhiana to buy brands like Gucci,

Armani suits or Porsche watches. About 18 per cent of the buyers were from small towns nearby

Delhi that have reached in the Delhi, DLF Emporio Mall at a luxury shopping festival. The Vice

President, Mr. Dinaz Madhukar, DLF Emporio said, “DLF has advertised the festival in

Lucknow, Jalandhar, Ludhiana and Chandigarh deliberately.” The non-metro customers are

displaying their strong preference for luxury brands. About 65 per cent of respondents in the

survey so done by ASSOCHAM and Yes Bank accepted that ‘ladder to luxury’ is the ideal

strategy of marketing in addition to the e-retail route in order to creep into tier-2 cities of India

and also these cities are ready to become the new consumption centres for luxury brands

(ASSOCHAM and Yes Bank Survey).

South India is becoming the primary driver of India’s luxury market. Population of south India is

considered as open-minded that accepts new thing easily thus new flavours and products are

easily accepted by them as compared to other parts of the country. In north India, demand for

imported and premium goods has witnessed exponential growth in metros as well as in tier-2

plus tier-3 cities. Surat, Jaipur, Kanpur, Nagpur, Bhopal, Coimbatore, Lucknow has witnessed

prominent growth in income distribution in the last few years. The growth of high-income

households in tier-2 plus tier-3 cities is around 20 per cent annually as compared to 13 per cent in

metro cities.

3.3.2 Brands in Smaller Cities and Bigger Returns

Players have launched entry level luxury brands to cater to this potential and help these

consumers to trade up. Many players have customised the shopping experience and services

according to Indian consumers, who often experience the luxury for first time. These moves have

helped players to get first mover advantage and build strong connect with consumers to reap

long-term benefits as consumers evolve. Today scenario is such that luxury cars are bought more

in small cities than metros. One should not be surprised to learn that till date Big Bazaar’s single

largest bill comes from its store in a little town in Maharashtra, Sangli instead from metro cities

like Delhi and Mumbai. Whether its personal care segment or apparels or watches in every

category these small cities are showing the signs of growth.

Marketers of luxury goods are concentrating on pricing, superior craftsmanship, quality

materials, aesthetics and brand to meet the consumer demand by transforming every object into

status symbols. Luxury players are educating potential consumers and positioning their brands as

relevant for consumers.

Various high-end fashion magazines in India have driven awareness and consumption among the

middle-class India. Elle, L’Officiel, Vogue, Harper’s Bazaar are the magazines which have

raised the fashion and lifestyle aspirations among the Indian small city consumer’s. Editorial

Director of Robb Report India, Mr. Jamal Shaikh, added that he is of the thought that luxury

magazines have exposed what was traditionally considered obnoxious spending to the people

who were of the believe that being frugal was the only way to live. He also added that the ‘Robb

Report’ responsibility is not only put out luxury, but developing and curating taste. There is a

drastic change in the consumer perception for luxury. Today, luxury is perceived as high in

experience dimension unlike a mere material possession as perceived traditionally.

The Managing Director of Genesis Luxury, Mr. Sanjay kapoor, representing brands like Bottega

Veneta, Jimmy Choo and Canali says that the huge potential exist in tier-2 and tier-3 cities,

providing potential markets for the branded luxury products to grow. He added that there is a

large scale nascent market waiting to burst. He says that 15 per cent of sales of their brands come

from small city buyers.”

Businessman Mr. Sanjiv Goenka had built a seven sq. ft. mall in Kolkata and Louis Vuitton has

planned to share space in this mall. Jimmy Choo, Porsche Design, Rolex, Burberry, Bally,

Bottega Veneta has already taken space on lease. It is reported by the Managing Director of

Retail Services, Mr. Pankaj Renjhen, at property consultant Jones Lang LaSalle that this mall is

not going to attract footfall from entire East India but also from Bangladesh. Gucci is also

planning to enter Kolkata.

A luxury leather brand, Hidesign is planning to take its brand in tier-2 cities. Currently the brand

is present in approximately 32 cities in the country and entering tier-2 cities through the

franchise model by opening stores in leading malls and high streets. The brand offers handbags,

clutches, briefcases, laptop bags, wallets and belts and know for its quality, ecological values and

personalized services. Hidesign wanted to reach out the aspiring targeted consumers of second

tier cities so that they can check out Hidesign’s latest collection and experience the brand, Mr.

Narresh Mehtta , Chief Operating Officer, Hidesign.

Huge store of Tommy Hilfiger situated in the midst of the Deorali Street of Gangtok is more

likely to catch attention. Mr. Shailesh Chaturvedi, Chief Executive Officer and Director, Tommy

Hilfiger Apparels India, told to Business and Economy about their latest strategies to increase

their presence in India that, ‘Tommy Hilfiger as a brand now be expanding more in tier-2 cities.

The company is aiming to become a pan-India luxury brand by 2010 and already planned to

enter other tier-2 cities such as Ahmedabad, Pune, Ludhiana, et al. Similarly, other brands such

as United Colors of Benetton (UCB), Hidesign and Zara are developing their footprints in tier-2

and tier-3 cities. UCB has a two storey store in Siliguri, West Bengal and Hidesign have entered

Jaipur. Brands like Armani, Burberry and Canali are looking for right real estate options to take

these labels beyond Delhi and Mumbai.

Luxury watches brands recognize the importance of tier-2 city consumers. Mr. Manish Sanwal,

General Manger, LVHM Watch and Jewellery India, says that “For us, smaller cities in India are

growing at 30 per cent - 40 per cent where as a growth of 25 per cent year on year basis is shown

by metros.” Tag-Heuer a luxury watchmaker brand reported that there 30 per cent of sales in

India comes from non-metros where they sell through multi-brand outlet format. The companies

are making the tie-ups with the local jewellers to sell their watches. The Omega’s Vice President

and Head of Product Development, Mr. Jean-claude Monachon, said that Indian customers are

among the best-educated customers and luxury watches has occupied the wrists of small town

consumers. Omega, Swiss luxury watch manufacturer has enhanced its visibility by opening

stores in cities such as Ahmedabad and Visakhapatnam. Tag Heuer has launched its stores in

Ludhiana, Surat and other tier-2 cities. Mr. Matthias Breschan, Chief Executive Officer, Rado

has emphasized that the South India market is very important for their brand. Ahmedabad, Pune

are the cities where Rado is opening its new stores. Luxury brand manufacturers are using

conventional advertising so as to create awareness among tier-2 plus tier-3 consumers. Brands

are signing Indian celebrities as their brand ambassadors. According to Harminder Sahni,

Founder and Managing Director of retail consultancy Wazir Advisors, “Stars as brand

ambassadors are like a stamp of approval for the brand. The small city consumers have money

but people are less exposed to and aware of luxury brands as such and celebrities help to bridge

this gap.” “The brand is able to attract potential customers from smaller cities of India and they

do not readily go through publications related to English lifestyle”, said by Franck Dardenne,

General Manger India, LVMH Watch and Jewellery. He also added that LVMH is now focussing

on more broadbased news and regional publications to advise its brands in these cities. Kerala’s

Malayala Manorama and Gujarat-based Chitralekha group are some publications in which Tag

Heuer is advertising. Rado, on the other hand is associated with and co-sponsor of reality show

broadcasted on NDTV Good Times on TV ‘Band, Baja, Bride’.

Xander Group Inc. has sponsored a retail real estate asset platform, Virtuous Retail, has built a

luxury mall in Surat. The area for half a dozen outlets has already being by Genesis in this mall.

Gensis is also finding the space in Jaipur, Ludhiana and Chandigarh. Armani, Burberry, Tumi

and Crabtree and Evelyn are expected to enter Surat. The Managing Director of Virtuous Retail,

Mr. Anupam Yog, also said that Surat is becoming an attraction point for luxury retailers and

among the top 10 markets on the company’s list. The households with annual income of greater

than 3 lakhs consist of 32 per cent and among five million population 73 per cent of it is below

35 years highlighting massive consumption potential in the city. The Leela Palace, a luxury hotel

in Surat has kept aside around 8000 sq. ft. of area for luxury brands retail, focusing mainly on

jewellery and watches.

American menswear brand Brooks Brothers (BB) has been bought in India by a part of Reliance

Industries Ltd named as Reliance Brands. BB has been eyeing for flagship store in Chandigarh.

Consequently, luxury brands are responding towards these changes in Indian market by

enhancing awareness through exhibitors and events, local partnership and innovative marketing

campaigns. For example, Judith Leiber planned to conduct an exclusive trunk show in Indore in

partnership with HI Diamonds, to tap into India’s mushrooming middle class of tier-2 cities and

a luxury handbag brand, was able to sell round about 30 bags in one event ranged from USD 500

to over USD 6,000, when the brand is able to sell about 300 bags in a year in India. HI

Daimonds, founder Mr. Harshvardhan Bhatia said that for the buyers here it was a unique and

different experience and this has worked well for the brand. Judith Leiber is an example of

luxury brand which finds innovative ways to reach the new pockets of small cities where people

have a taste for luxury and money to spend on luxury.

It is not just the trunk shows that are used as the innovative marketing strategy to increase

awareness. Luxury brands have realized that the strategy of operating through five stared hotels

are not the way to go today and thus moving out of the five-star hotels and making them

available in ‘hybrid’ malls. These hybrid malls are the mixture of non-luxury and luxury branded

outlets with tailored services. This effort has made the brand reach a much wider audience.

The aspiring consumers of second tier cities are also showing increasing interest for premium

makeup and skin-care products. The Body Shop as well as L’Occitane are entering directly in

these cities whereas many other brands are trying to find places for themselves in departmental

stores and large retail chains. L’Oreal, Revlon, VLCC, Lakme, Wella Professionals and many

others have widely offered their product range in tier-2 cities.

Talking about the automobile sector, tier-2 and tier-3 cities are not behind. 50 per cent car

dealership is in the cities outside the metros (Mumbai, Bangalore, Hyderabad, Pune, Delhi) – in

Surat, Raipur, Pune, Ludhiana, Kolkata, Kochi, Jaipur, Guwahati, Goa, Coimbatore, Chandigarh,

Bhubaneshwar and Ahmedabad. It was reported that a group of wealthy businessman of

Aurangabad bought 115 Mercedes Benz cars. Ludhiana is now nick named as ‘Benz city’ as

majority of Mercedes Benz sales coming from this city. Audi is looking forward to tier-2 cities to

make its presence visible in these cities.

Regardless, of the economic downfall in the sale of automobile, the luxury car segment has made

a remarkable improvement and has grown from 2008 to 2012 at an impressive compound annual

growth rate (CAGR) of 30 per cent to 40 per cent and has largely managed to retain its

momentum. Debashis Mitra, Marketing director, Mercedes Benz India, told India

Knowledge@Wharton that, Mumbai and Delhi recorded for about 70 per cent of our sales two to

three years ago. However presently, this percentage has reduced to 50 per cent and the remaining

sales come from tier-2 cities.

Mr. Gaurav Bhatia, Director at Bird Automotive, a BMW dealer said, “We interact with school

and college students in cities like Faridabad, Karnal, Meerut and Agra to popularise German

luxury car brands.” These cities have huge demand for luxury cars. In order to motivate the

students the programmes for brand connect are organised for with a long-term objective to

convert these potential consumers into actual buyers in the near future. He added that educating

the customers of these cities is the key to succeed in these markets. BMW has also introduced a

new concept of mobile showrooms in tier-2 cities with the motive of providing target shoppers

with a chance to experience the cars plus test-drive vechicles. In addition to this, through mobile

showrroms the consumers can interact with product experts and know about promotio offer as

well. Till now this concept is planned for cities like Nashik in Maharashtra, Jamshedpur in

Jharkhand, Dehradun in Uttarakhand, Agra in Uttar Pradesh and karnal in Haryana.

Rolls-Royce Motor Car Ltd. is also looking towards the massive opportunity provided by tier-2

and tier-3 cities in India. The company has bought its entire portfolio of luxury cars to India such

as Phantom, Ghost and Wraith. According to the experts around 30,000 luxury cars are sold in

India in a year and of which 30 per cent to 40 per cent are sold only tier-2 and tier-3 buyers.

The two British luxury car brands – Jaguar and Land Rover are now owned by Tata Motors. The

Jaguar Land Rover India, Head, Premier Car Division, Mr. Rohit Suri, commented on the

expansion strategies for JLR and said, ‘The rapid growth can be seen in the tier-2 cities of India.

The company is planning to extend dealership across the country from 15 to 20 and majorly

targeting tier-2 cities like Banglore, Surat and Aurangabad for its new expansion plans.

Sony India, Godrej Interio (Office and home furniture retail business of Boyce Manufacturing

Co. and Godrej) and HandR Johnson (Tile maker) are making huge investments to develop their

networks in tier-2 cities. The cities namely Faridabad near New Delhi, Virar and Dombivali near

Mumbai, Jalandhar, Hubli, Bharuch, Rajkot, Kolhapur, Bellary, Wrangal and Sambalpur are

becoming the target cities of their activities.

The Senior General Manager Sales, Mr. Sunil Nayyar, Sony India has reported that brand

recorded higher participation from tier-2 plus tier-3 cities of 56.50 per cent as compared to 40.80

per cent from tier-1 cities. He also added that with growng disposable income and rising

aspirations to own quality products, tier-2 cities are becoming future growth drivers for our

company.

In jewellery segment, the big retailers like Gitanjali, PC Jewellers and Tanishq are penetrating

into cities such as Meerut and Dehradun to tap growing demand in these cities. Trendy gold and

diamond designs, quality assurance certificates and celebrity brand ambassadors which are

making the product aspirational. Mr. Vikram Raizada, Executive Director and Chief Executive

Officer of Mumbai-based Tara Jewels Ltd. said while Mint interviewed him that, there is no trust

deficit with traditional jewellers in the small cities, but consumers in these cities are demanding

quality. The customers of these cities have aspiration and money that is encouraging jewellery

retailers to tap growing demand. The cities like Dehradun (Uttarakhand), Ajmer (Rajasthan),

Bilaspur (Chhatisgarh), Indore (Madhya Pradesh), Begusarai (Bihar), Solapur (Maharashtra),

Gwalior (Madhya Pradesh), Satna (Madhya Pradesh), Jharsuguda (Orissa) are on radar of

organized jewellery retailers due to the fact that consumers are moving from traditional or family

‘mom and pop stores towards organised retailers.’ Customer service and localisation of design

will play a big role in selling to small city consumers as consumer of Kolkata is different from

consumer of Midnapore, added by Ms. Rachna Nath, Leader and Executive Director of retail and

consumer of PricewaterhouseCoopers.

In addition to product and asset segment, service sector is also growing in tier-2 cities. Starwood

Hotels and Resorts, a leading leisure and hotel company of the world, is expanding its mid-

market brands such as Aloft and Four Points by Sheraton to accelerate its expansion plans in tier-

2 cities of India. The international brand has reached Coimbatore, Chandigarh, Dehradun,

Ahmedabad, Mysore and Amritsar. The Regional Vice President South Asia and Managing

Director India, Mr. Dilip Puri, added that, ‘We believe in the opportunities provided by tier-2

markets and we have seen that new hotels in new markets create their decisive and self-oriented

demand. Further, as these cities will evolve and the urban India landscape continues to

transform, tier-2 markets will continue to provide opportunities for both upper upscale and for

mid-market brands.’

3.3.3 Online Luxury Space in Emerging Markets

E-commerce, the buzz word of today has contributed a lot in the spread of the luxury market in

smaller cities. With boom in internet and cosmopolitan culture, group of consumers who want to

own lifestyle brands are increasing in tier-2 cities of India. According to the Euromonitor India

Factfile, the internet users in India are increasing tremendously on the year to year basis. The

internet users (‘000) have increased from 176,097.6 in 2013 to 200,778.2 in 2014. It was

reported that around 36 per cent of the 300 responding Chief Executive Officers of luxury brands

are making the use of social media platform as brand connect strategy and 38 per cent said that

they are making the use of e-commerce to reach out these markets. E-retailers in India are

witnessing a large percentage of their clientele from smaller cities opting for high-end products

like watches, jewellery, clothes, bags and exclusive experiences, like spas and cars.

Most of the buyers in emerging markets are advancing rapidly, and social media is also

contributing to this, as per Group Representative, Mr. Vispi Patel, LVMH India. According to

Senior VP, Mr. Piero Braga, Gucci – Middle East and India, “We are very confident in

ecommerce. It remained a successful experiment in the other markets as we got a very good

response. Once the customers’ are aware of the brand and the buyers have the answer of what

they need to buy, online buying become more desirable option. He also added that the digital

media will be extensively used to keep the customers updated as to what we are doing.” L’Oreal

Luxe Director, Mr. Marco Riggio, India says, “If one has good ecommerce experience then this

platform can be a simplest way in order to serve the buyers of cities where company does not

have physical experience.”9

Today, a best fragrance, Armani suit, Versace, Gucci the high-end labels from the international

markets are only a mouse click apart from a customer sitting in Jodhpur, Raipur, or Chandigarh.

Online shopping is a blessing for glamour and fashion lovers in small cities. This real revolution

in tier-2 and tier-3 cities has led to the instant enhancement in the affordability and accessibility

of products in the luxury segment.

Chief Executive Officer and Founder of 99labels.com, Ishita Swarup added that there is a huge

potential in these cities. He added that their customer base comprise of both men and women

segments from far off places like Aizawl, Hazipur, Andaman Nicobar, Hazaribagh etc. Presently,

30 per cent of the total consumer base belongs to tier-2 plus tier-3 cities. Non-availability of

9 Jain S., (2012, December 29). India Luxury Summit 2012 – Analysing the Indian Luxury Market, Luxury facts.

brands in small cities namely Salem, Rourkela, Dimapur and many others make online sales a

worthwhile proposition.

Pearl Uppal, Founder and Chief Executive Officer of Fashionandyou.com added that brand

awareness in tier-2 plus tier-3 cities is same as in any other city in India. Fashionandyou.com

attract 40 per cent of its shoppers from other the top 10 cities in India. He also added that the

north and northeast states of India is showing an increasing interest in branded goods, followed

by cities in the southern India.

As per Uppal and Swarup, Victoria’s Secret, D&G, Neeta Lulla, Ritu Kumar, Boggi, Hugo Boss

and Calvin Klein are the particular brands which are more popular in the smaller cities. In terms

of category, luxury watches and fragrances are on the top on the selling ladder, followed by other

home furnishing, accessories plus apparels.

The online websites are able to offer the high- end brands at such heavy discounts because of the

savings in the real-estate and other related costs. Secondly, incredible bargains are possible

because of inventory liquidation. Many a times, these brands are present in three to five cities

which lead to overstock or slow moving inventory. Thus, online seller provides a platform for

luxury and fashion brands to sell their inventory and reach out the cities where they are not

physically present to serve the customers.

The Managing Director Benetton India, Mr. Sanjeev Mohanty, told to Business Economy that

there is a strong presence of fake products in small cities. So, in order to overcome these

challenges brands are opening up their own stores to save brand image and to take advantage of

the potential present in these cities. He also added that finding prime locations in tier-2 cities is

not as difficult as in metros.

In addition to the online presence there are various other ways used by luxury players to reach

and educate the target consumers. Luxury players are now a day’s using cinema halls, television,

DTH and mainstream newspapers to reach target audience rather than restricted themselves to

luxury magazines and airport billboards. The experts say that everyone watches films in India be

it a person who earns Rs. 5000 or a person who earns crores in a month. It is the way to reach a

larger set of potential buyers, but luxury players have to strategically decide what is to be shown

and where it is to be shown. Jaguar, Bentley and Rado have started reaching the buyers from

cinema halls and televisions.

Mr. Gautam Dutta, Chief Operating Officer at film exhibitor PVR says, ‘Seven years back

luxury players are non-existence for cinema halls. Today, luxury players are contributing 20 per

cent to the income from advertising and this share is increasing continuously.’ He says that the

person who is spending Rs. 1500 to watch a movie is the right audience for the luxury players.

Forest Essentials (FE), one of the leading Indian luxury personal care brands has already

launched television commercial. FE has also taken the sponsorship on high-definition TV

channels of three programmes for its upcoming campaign. Mr. Samrath Bedi, Executive Director

of FE added that today TV has a variety of quality content that offers right value to luxury

brands.

A multi-brand retail store chain, The Collective (Sells around 100 premium and luxury

merchandise brands in India) is tying up with DTH services providers to put out ads through

digital video recorders. Mr. Amit Pandey, Marketing Head for The Collective says that it an

interesting way to reach the target audience who are not aware about the brand.

3.4 Chapter summary

The present chapter provides the evidence of the expansion of the Indian luxury industry. The

chapter discusses in detail the luxury market size in the past seven years and projected growth

estimates, new luxury consumer segments and latest government policies. Further, it provides the

clear picture about growth in tier-2 and tier-3 cities of India and the evolving consumer base in

these cities.

This chapter was included in the thesis so as assist the readers and to provide

validity to the fact the Indian luxury industry is growing and tier-2 and tier-3 cities

are becoming the growth drivers for the industry.