October 2010 Confederation of Indian Business The Mantosh Sondhi Centre 23, Institutional Space Lodi Street New Delhi – 110003 India Tel: + 91 11 24629994-7 Fax: + 91 11 24626149 Contact: Amita Sarkar, Senior Director (amita. [email protected] in) Jaya Gupta, Deputy Director (jaya. [email protected] in) A. T. Kearney Restricted 1st Flooring, Future Capital Home Peninsula Company Park Ganpatrao Kadam Marg Decrease Parel (W) Mumbai 400 013. India Tel:+91-22 – 4097 0700 Fax:+91-22 – 4097 0725 Contact: Neelesh Hundekari, Principal (neelesh. [email protected]);
Hemant Kalbag, Vice-President (hemant. [email protected] com); Pameela Pattabiraman, Supervisor (pameela. [email protected] com) Subhendu Roy, Supervisor (subhendu. [email protected] com) This report has been collectively produced by Confederation of Indian Business and A. T. Kearney Restricted, the contents of that are meant just for data function of the reader. Readers are suggested to conduct their very own investigation and Assessment of any data contained on this report, and never depend on the knowledge contained on this report for any function.
Neither Confederation of Indian Business, nor A. T. Kearney make any illustration concerning the accuracy or completeness of such data and expressly disclaim all or any liabilities primarily based on such data or any omission thereof.
No a part of this report could also be reproduced or distributed with out the prior written consent of Confederation of Indian Business and A. T. Kearney Restricted. Copyright: CONFEDERATION OF INDIAN INDUSTRY. 2010, and A. T. KEARNEY, INC. 2010 iv FOREWORD The Luxury trade in India is not a brand new comer.
Like many different industries in India, it’s of nice curiosity to each worldwide and Indian gamers. Worldwide manufacturers see India as an rising luxurious market which may turn out to be a big a part of their portfolio tomorrow. Indian firms additionally see the expansion on the high finish of the market as a chance to introduce premium choices. This enthusiasm was mirrored within the first strikes of a number of iconic worldwide manufacturers within the final 5-7 years. Indian firms have additionally seen the chance and a handful of gamers are actually very energetic within the house.
Other than luxurious merchandise resembling watches, attire, equipment, massive Indian 5 star lodge chains, advantageous eating and spas, aside from luxurious homes, the most recent luxurious vehicles and yachts have expanded the definition of luxurious. The Confederation of Indian Business (CII) and A. T. Kearney have been energetic gamers within the luxurious house. CII by means of its Nationwide Committee on Retail has performed an energetic position in attempting to create an trade discussion board for gamers within the luxurious trade. CII introduced the trade collectively to Help set up the trade and create a discussion board for coping with problems with frequent curiosity.
A. T. Kearney, aside from serving purchasers within the luxurious trade has additionally contributed to offering a sturdy truth base and views on realizing the potential of the trade by means of their first research in 2007 (The Financial Occasions – A. T. Kearney India Luxury Evaluate 2007). Simply when the trade was displaying indicators of coming of age in 2007, from the third quarter of 2008, the worldwide recession dampened the hopes of the trade. The trade suffered internationally, and that acted as a brake on the emotional euphoria for a very good 9-12months in India as nicely.
A number of gamers used that point to consolidate their place, proper dimension their enterprise, restructure actual property offers and turn out to be fitter. A couple of others suffered. Now with optimistic indicators within the Indian financial system, optimism concerning the trade is on the rise, as demonstrated by heightened market exercise and client spending. Nevertheless, key points resembling a comparatively new market, duties, entry to high quality actual property and so on proceed to pose a problem to exponential worthwhile progress. A couple of key questions maintain bothering CEOs within the sector: The best way to make the luxurious enterprise a profitable proposition in India?
How massive is the market actually? When will the market be absolutely ripe? What working fashions work and do they should be personalized for India? Given this backdrop, CII and A. T. Kearney determined to workforce up and take inventory of the trade and handle key questions that present gamers, potential entrants and different stakeholders have concerning the trade. Our want was to review and perceive the main adjustments within the trade within the final Three-Four years and the implications of those for the way forward for the trade.. With this finish in thoughts, over the past three months, we performed an exhaustive and complete analysis of the trade.
The A. T. Kearney workforce collated and analysed massive quantities of information, interviewed a number of trade leaders and luxurious customers to develop all spherical insights on the trade. The report establishes the expansion trajectory for the trade over the past three years, takes inventory of the alternatives and the potential in addition to the persevering with challenges that it faces and estimates the seemingly potential over the following 5 years and recommends actions for trade gamers to undertake.
We consider that this report will function an necessary step within the trade’s v journey of progress. It clearly confirms that the hope within the potential of the Indian luxurious trade shouldn’t be misplaced, that there’s nonetheless an enormous latent demand out there and that India can be an necessary market and participant on the worldwide luxurious platform. Whereas the hope within the potential stays undaunted even after the recession, infrastructural and regulatory points proceed to impede the event. Like in all different sectors, although we’re assured that the Indian trade will uncover a uniquely Indian manner of changing them into alternatives.
We’re grateful to all of the trade leaders and customers who hung out with us in sharing their views and validating our hypotheses. We hope this research will act as a milestone within the evolution of the Indian luxurious trade and can take the collective understanding of the trade a couple of steps ahead. Confederation of Indian Business A. T. Kearney vi EXECUTIVE SUMMARY During the last twenty years, submit liberalization within the 90s, the brand new maharajahs of enterprise have created some critical wealth in India.
This new discovered prosperity has attracted luxurious manufacturers that had been on the lookout for new engines for progress to make up for gradual progress of their conventional markets. Whereas most industries are actually coasting alongside easily, the small and rising luxurious trade gamers haven’t stopped reflecting on the previous to ask some elementary questions concerning the market. This report makes an attempt to reply these questions by means of a large and deep protection of all segments of the luxurious market in India. To get probably the most credible solutions, we adopted a sturdy methodology with a big aspect of major interviews and in depth information assortment.
We collated information from a wide range of sources to dimension the market and perceive the expansion charges over the previous few years. Indian Luxury Shopper passport to the elite section of the society and conspicuous consumption is their manner of asserting it to the society. The kids are the larger spenders, having been educated overseas and therefore conversant in manufacturers and the luxurious way of life. Historically rich households/massive industrialists: This group contains two sub-segments – the primary is the historically rich households – who’ve been consuming luxurious for a number of many years and go for the finer issues in life.
The opposite sub section contains the promoters of some very massive companies which have come up within the final twenty years and have created a disproportionate quantity of wealth in a short time. Company executives: Senior executives of company India who’re paid in extra of INR 1 crore (USD 225,000) and bankers who earn massive bonuses epitomize this class. These executives are nicely traveled and are conscious of manufacturers. Most of this section consists of people who find themselves of their mid-late forties and signify a number of the brightest minds within the nation.
Lots of them although have come from center class backgrounds and therefore have a conservative method on conspicuous spending. Different segments embrace self employed professionals, younger professionals, expatriates, politicians and bureaucrats. A correlation between the scale of the luxurious market, the GDP/capita, variety of HNIs and HNI wealth over time 2004-2009 exhibits that when it comes to significance the variety of excessive internet price people is an important driver. Interviews with main luxurious manufacturers in India level to the truth that household wealth is a stronger determinant of spending than family earnings.
The masstige phenomenon will also be noticed very clearly in India. Luxury merchandise in India are interesting to, and bought by, middle-class customers that don’t match the standard profile of an elite client section. Whereas Indian customers speak about exclusivity, uniqueness and enchantment to private style, the vast majority of the market continues to be far-off from this and model/brand/badge worth drive luxurious purchases very clearly. That mentioned, conventional attributes resembling prime quality, heritage, longevity, the “tales” related to manufacturers are starting to emerge as drivers of buy.
The mindset continues to be that of an “aspirer” not that of a “connoisseur”. The Indian luxurious client is younger – 30-45 years outdated. Whereas the typical Indian luxurious buyer values Excessive High quality, Exclusivity and Social Attraction as key drivers of luxurious buy, they’re additionally very Value Aware and infrequently straddled with a “middle-class mindset”. The segments are composed primarily of: Medium dimension enterprise homeowners: That is the most important section when it comes to quantity – these are usually the medium enterprise homeowners – industrialists and merchants who run companies with revenues upwards of 50 cr. Their wealth is their vii
The distribution of the rupee millionaires is an efficient indicator of the luxurious client distribution within the nation. Whereas Delhi and Mumbai proceed to be the mainstay markets for luxurious consumption, there are a number of different cities with a big base of potential luxurious customers. We consider within the subsequent 57 years, a minimum of 5-7 new cities will get added on the luxurious map of India. We additionally consider that the potential in Delhi and Mumbai has not been absolutely exploited and that there exists a couple of extra micro markets inside these cities that should be tapped. Luxury Market 2007-2009 watches and jewelry as nicely wines, spirits and high-end electronics.
This market has been estimated to be USD 1. 5 billion in 2009. Most luxurious product classes have witnessed over 15% progress over the previous 2 years – efficiency of classes like Electronics, Wines and Spirits, Attire and Jewelry has been exceptionally robust. The Indian luxurious companies market was severely hit by the recession over the previous 2 years. Nonetheless, the India Luxury Providers trade is taken into account to be among the finest on the planet. Shopper interviews revealed that buyers desire Indian lodge chains just like the Taj, Oberoi or ITC even when Worldwide chains just like the Hyatt, Hilton or 4 Seasons have entered the nation.
The present Indian luxurious property market is estimated at USD 2. 45 billion. The expansion of the Luxury Property market is pushed primarily by the exceptional progress of the Actual Property and Car sectors. Latent Demand and Future Potential Our endeavor on this research has been to offer strong information on the scale and progress of the Indian luxurious marketplace for stakeholders to think about, debate and if it is smart to base their selections upon. For sizing the market, Product, Value and (the place potential model additionally) filters are utilized to isolate the luxurious from the non-luxury in all segments.
We err on the aspect of conservatism i. e.solely pure luxurious is included. Based mostly on a class sensible build-up, the scale of the Indian luxurious trade in 2009 is estimated at USD Four. 76 billion (at retail costs). This consists of all luxurious merchandise, luxurious companies and luxurious property bought in India. The full luxurious market has grown at a CAGR of 13% between 2007-09, with luxurious merchandise rising at 22%, companies degrowing at 5% and property rising at 18%. Luxury market in India The Indian luxurious market continues to be very small in comparison with world requirements. Whereas India has one of many highest GDPs on the planet, its luxurious consumption, in absolute phrases, continues to be very small.
We consider that there exists a big latent demand in India, constrained by each demand aspect and provide aspect elements. On the demand aspect, there are a number of potential customers in India who both don’t purchase luxurious in any respect or don’t purchase sufficient of it from the native market. As we had talked about, Rupee millionaires with incomes between INR 10-30 lakhs do probably not spend on luxurious. On the opposite aspect, provide of most luxurious merchandise in India is current is usually current Mumbai, Delhi or Bangalore. Nevertheless, wealth creation within the nation is now not restricted to those cities.
It’s happening at a speedy price in Tier I and Tier II cities like Ahmedabad, Pune and Hyderabad. The present market dimension for luxurious merchandise within the nation is round USD 1. 5 billion. A regression primarily based on India’s GDP per capita and Variety of HNIs, signifies that the scale of the Indian luxurious merchandise market ought to have been round USD Three-Three. 5 billion. This means that there’s a latent demand of just about USD 1. 5-2 billion. As share of the present market dimension, India’s latent demand is estimated at 120-150% whereas for China it’s estimated at solely 10-15%.
We’ve got estimated the anticipated progress within the luxurious items market utilizing a lot of strategies. Regression of the mar- Supply: A. T. Kearney analysis and Assessment Essentially the most seen section of the luxurious trade is the luxurious merchandise section. This consists of probably the most seen style luxurious segments resembling attire, equipment, private care, viii Nation comparability primarily based on GDP and # of HNIs 1. 2. Three. Supply: Altagamma, A. T. Kearney analysis and Assessment, Merrill Lynch Capgemini world wealth studies ket dimension for luxurious merchandise towards the variety of HNIs ends in a progress estimate of 18%.
Based mostly on quite a few interviews with luxurious firm CEOs, executives and trade consultants in addition to secondary analysis, a bottom-up construct up of class sensible progress charges results in a median of 21%. Given this and contemplating the large latent demand, we consider that India’s total Luxury Market will develop 21% to turn out to be nearly Three instances its present dimension by 2015. Projected progress of luxurious market in India Four. Problem in reaching the goal client: The scattered nature of the goal inhabitants and absence of essential mass in India is an enormous concern for the trade.
Whereas luxurious magazines have elevated in maturity and volumes, they nonetheless attain solely a small fraction of the prevailing customers and a a lot smaller fraction of recent customers. Value of attain is excessive, outcomes unsure and phrase of mouth continues to be finest methodology to create a “buzz”. Shopper reservations about luxurious purchases: India is confronted with a low luxurious penetration, with many of the rupee millionaires with earnings between INR 1030 lakh section having the capability however not the propensity to spend on luxurious items and companies.
Moreover, there are reservations towards shopping for lesser recognized manufacturers in addition to purchasing in India. Infrastructure and regulatory constraints: Corporations should wrestle with lack of credible actual property choices, underdeveloped again finish infrastructure like warehouses and logistics in addition to regulatory restrictions on FDI and excessive import duties. Lack of expertise: Absence of expert manpower has hindered luxurious gamers from with the ability to present the identical customer support expertise as that in worldwide places. Nevertheless, there are a number of concepts that might be used to deal with these challenges.
To transform potential prospects, who’ve the monetary wherewithal, to luxurious customers, gamers ought to take a look at micro-segmentation of the inhabitants to determine particular “excessive potential” professions. As soon as recognized, targeted communication could be wanted to succeed in out to them and persuade them of the providing. Gamers additionally want to have a look at efficient media automobiles to succeed in their goal customers. Shopper perceptions and reservations about searching for luxurious items in India will be addressed by breaking the parable, getting excessive recall manufacturers and bringing in “ladder manufacturers”.
To handle the infrastructure and regulatory challenges, gamers can use smaller retail codecs to extend retailer densities far above the worldwide benchmarks as a way to drive larger gross sales productiveness. A multi-brand setting would additionally Help gamers appeal to a essential mass of customers and in addition decrease the burden on every model when it comes to working prices. Different choices embrace mini excessive streets, collaborative efforts with competitors for each retail and provide chain and airport retailing. Indian firms can capitalize on the regulatory.
Supply: A. T. Kearney analysis and Assessment Luxury Business Challenges Basically there are 4 key challenges that any luxurious participant faces in India. ix restrictions imposed by the Indian authorities to reinforce their presence out there. The useful resource crunch must be addressed by means of the creation of a parallel training ecosystem – just like what has occurred within the IT, ITES, airways and style trade. Vital Success Elements There isn’t any instantaneous system for achievement within the Indian luxurious market.
Every thing about our nation is totally different – the patron, the challenges and in addition alternatives for luxurious gamers. The Indian client is in a state of flux – evolving quickly, however maybe alongside a path that’s inherently totally different from that taken by different growing economies. A number of luxurious gamers have managed to grab alternatives out there early. We consider that the essential elements for achievement on this market embrace exploring codecs that allow gamers to draw footfalls; getting the pricing proper to encourage Indians to buy regionally;
Offering a world class expertise e.g. atmosphere and repair; bringing in iconic manufacturers as Indians nonetheless purchase luxurious merchandise for model worth and to not make a style assertion; getting the associated fee construction proper by guaranteeing the associated fee base is justified by the gross sales realized; gaining access to native experience to get the perfect actual property offers; experimenting with new codecs resembling a luxurious discounter (liquidation channel) that may Help open the market by getting customers uncovered to final 12 months’s collections at enticing costs and Help them transfer up the ladder.
Whereas we consider there’s a clear alternative to make an affect on this market, a scientific, good and cautious method is what is going to differentiate the winners from the losers in the long term. x.
