NEW DELHI — Luxury is growing fast in India’s cities, with the top eight cities accounting for 60 percent of wealthy households, according to a new report, “Indian Luxury Review 2011,” by the Confederation of Indian Industries and consulting firm A.T. Kearney.
Among the largest cities, in addition to New Delhi and Mumbai, are Pune, Hyderabad, Chennai, Bangalore, Ludhiana and Kolkata.
The report was released at an event here last week in which some of the heads of global brands met for a dialogue including Michael Norsa, chief executive of Salvatore Ferragamo; Angela Ahrendts, ceo of Burberry; Joshua Schulman, ceo, Jimmy Choo, and Armando Branchini, executive director of Altagamma.
“The Indian luxury market grew 20 percent in 2010 and was estimated at $5.75 billion,” said Neelesh Hundekari, principal at A.T. Kearney. The segments of apparel, personal care, accessories and watches have been growing at by about 24 to 30 percent. The market for luxury apparel and accessories is now worth $270 million.
Indian customers are “accepting and adopting international customs and trends at a much faster pace than anticipated,” the report noted.
Ahrendts said China and India contributed more than a third of Burberry’s revenues. “India is one of the fastest growing markets for us. The next couple of years are going to be the most fascinating times for the luxury industry here,” she said.
While Burberry has seven stores in India, she said the plan was to grow fast in India. “Being a British brand, and with the history of the two countries, we’ve got to be moving first to gain the advantage,” she said.
Schulman shared a similar sentiment. “India is critical to growth as wealth is drifting towards this region,” he said. “The statistics reveal that India has the second highest number of high net individuals after the U.S.,” he said.
New Delhi and Mumbai have been the first targets for many of these brands since they have an estimated 40 percent of wealthy households.
However, the pitfalls of the Indian luxury market were also discussed, including the inability to truly define the Indian luxury consumer. High customs duties and a government policy on foreign direct investment, which does not allow more than 51 percent ownership in single brand, retail are among the top problems. As Norsa pointed out, there are also disproportionately high rents and the fact that stores in India rely largely on sales to local customers, unlike in most other countries where the majority of customers are tourists and expatriates. Yet, he mentioned that there was a “huge opportunity for luxury products in India” and the brand had not seen any sign of a slowdown. Ferragamo has four stores in India and plans to open six more in the next three to five years.
Sanjay Kapoor, managing director of Genesis Luxury and chairman of the Confederation of Indian Industries Task Force on Luxury & Lifestyle, pointed out that “the need of the hour was for the government to rethink its luxury tax structure.” Genesis Luxury has been a partner for several luxury brands. Kapoor said that the luxury industry is at a “tipping point.”
The dialogue brought out various points of view — not only of the international brands but also an important assurance from Anand Sharma, commerce and industry minister, who said that the government wanted to encourage luxury brands to expand in India and was “seriously considering raising the 51 percent FDI cap in single-brand retail business,”
India is expected to have 400,000 millionaires by 2015. According to another report this week, the “Global Wealth Report” by Credit Suisse Research Institute, India is the sixth highest contributor of global wealth growth. India’s total wealth increased by $1.3 trillion between January 2010 and June 2011, to reach $4.1 trillion, according to the report. This will more than double to $8.9 trillion in the next five years, the report said, with the emerging market of dollar millionaires growing by 150 percent by 2016.
The report said India accounted for 15 percent of the total high net worth population in the Asian region, second to China, which contributes 44 percent.
But as Bertrand Michaud, regional managing director for Hermès, India, Middle East and South East Asia, pointed out, the propensity for luxury is “not new” for India, and is an old tradition from the reign of kings. It is just that brands need to look at it in a long term perspective as modern luxury takes shape with newer malls and possible locations on high streets, as Hermès has done with its new store in Mumbai.
He looks at the Indian market within a time frame of 10 years for maturity and believes that the investment will be worth the wait. “It’s not that money is not important to me,” he said. “But we have to look at it in the long term, over a period of time. It is not that you put your toes in the Indian market and then leave in confusion like some brands have. It must be a long term commitment.”
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