Lack of luxury spaces restricting luxury’s growth

Wednesday, 23 April 2014
Lack of quality luxury space, environment and dearth of high street/super premium malls are the prime reasons for restricted presence of luxury brands in India. And thus there is a dire need for modernised and dedicated luxury retail areas in protected vicinities such as airports, says a new study by Assocham and KPMG.

“Setting up stores in high streets affects luxury retailers' profitability due to sky-rocketing rental costs; moreover, high streets are very cluttered, crowded and are unsuitable due to the absence of the exclusive ambience that luxury retail demands,” the study says.

High demand, low quality spaces

India’s luxury market grew at a healthy 30 per cent to reach 8.5 billion dollars (Rs 51,221 crores) in 2013 and is likely to continue growing at a healthy pace of about 20 per cent to reach 14 billion dollars (Rs 84,364 crores) by 2016 owing to rising number of wealthy people, growing middle class, affluent young consumers and other related factors.

Though, India currently enjoys just 1-2 per cent share in the global luxury market but it is the fifth most attractive market for international retailers. No wonder several high-end foreign brands are planning to enter the country, either on their own, through joint ventures or ecommerce. With Indian consumers waking up to luxury brands, along with already established labels like Hermes, Louis Vuitton and Gucci, even Fendi, Burberry, Bottega Veneta, Paul Smith, Jimmy Choo and Roberto Cavalli have created a niche in the market.

India lacks hi-street destinations like New York's Fifth Avenue and Madison Avenue or London’s Bond Street, so they have to go an extra mile to look for a retail place that would attract enough eye-balls. The reason behind the new trend is cited as less number of high-end malls and low sales potential coupled with limited space at five-star hotels.

Other hurdles like regulatory FDI requirements, experts point out, are issues being faced by them. Experts say that luxury brands find it extremely difficult to meet 30 per cent mandatory souring norm under FDI policy because most brands’ USP revolves around the competitive advantage of its country of origin. Other issues like rising rentals, high import duties, different taxation structures across different states add to their woes.

 

Challenges and recommendations

Fragmented and diversified consumer base in India, as per the report, is another significant challenge being faced by luxury retailers in India as high net worth individual (HNI) consumers are not easy to reach. It suggested that luxury brands need to strategically design their growth plans to tap demand across three categories of HNIs, namely - the inheritors (traditionally wealthy) who are habitual spenders; the professional elite who are discerning spenders; a large segment of business giants (entrepreneurs, owners of small and medium enterprises) who have the money but lack appreciation for fine luxury goods because of no prior exposure to such products.

According to the study, luxury is no longer a 'status symbol' but is now a lifestyle and global brands need to fast evolve and learn ways to adapt within the local environment so that they can get accustomed to nuances of the market by understanding the cultural identity of Indian consumers.

The luxury market is poised to expand three fold in next three years and the number of millionaires expected to multiply three times in another five years. Increase in spending is anticipated across the country and beyond the walls of the metros, with increasing brand awareness among the youth and purchasing power of the upper class in Tier II and III cities in India where luxury cars, bikes and exotic holidays and destination weddings are no strangers.