MARKETING OF LUXURY GOODS IN INDIA – WHAT AN IDEA !! Abstract The paper examines the current trend and growth of the retail industry in India. The focus is more on the organized retail and its performance. It also looks at the luxury goods market, and how the goods sold are different for men and women. Considering the increasing numbers of HNWIs in India, this market is poised to grow at a phenomenal rate. The key drivers of this growth are evaluated and discussed, with pointers on how some of the luxury goods are being sold. The authors then try to draw lessons for marketers of luxury goods in India, in light of the cultural difference in the Indian sub–continent. Keywords : Retail, Luxury Goods, HNWI, Luxury Brands INDIAN RETAIL MARKET India offers a dynamic retail landscape, which is very attractive to the retail companies. It has the potential to become a strategic retail hub. Given the huge population of India, a burgeoning middle class, which is getting more and more affluent, and a changing lifestyle, it is a literal haven for retail companies. Retail spending in India has been growing at a double digit figure. It is estimated 1 that Private Final Consumption Expenditure (PFCE) stands at Rs. 26,07,584 crores in 2007–2008 as compared to the previous year when it was Rs. 23,12,105 crores. This makes it a growth of 12.8% in just a year. Table 1 below shows the growth of the Indian Retail market as well as the growth of the Organized Retail market. Table 2 shows the share of organized and unorganized retail market by various categories. The Indian Retail market stands at Rs. 13,30,000 crores of which the Organized Retail market is just Rs. 78,300 crores. This shows that organized retail is still in a nascent stage in India. The silver lining, however, is that this organized segment grew at 42.4% in 2007 and is expected to maintain an even faster growth in the following 3 years. This would mean that organized retail is likely to touch Rs. 2,30,000 crores by 2010 (at constant prices), which would constitute roughly 13% of the total retail in India. 1 India Retail Report - 2008 Table 1 – Growth of Indian Retail Growth of Indian Retail 0 5000 10000 15000 20000 2004 2005 2006 2007 2008 2009 2010 Year Value (INR Billions) Organised Retail Retail Market Source : India Retail Report – 2008 India has more than 15 million retail outlets, of which a major number is the small ‘kirana’ store, that we are all familiar with. Yet there seems to be no major conflict between these two formats, as the Indian economy is seen as consumption–driven. In fact, over the last decade or so, retail industry has undergone a transformation, especially in understanding the right scalable and profitable models that will work in Indian conditions. Table 2 – Organized v/s Total Retail in India - 2007 Organized v/s Total Retail in India 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 Fo o d & Gro cer y Cl o th in g / F a shio n A cce ssorie s OO H Fo od Leisu re Ent e r t a i n m ent Jewellery W a tch e s Fo o twea r Hea lth & Beau t y ca r e Pharmaceuticals Consu mer D urables Mo b il e s & Accesso r ie s Furnit u r e Category Percentage Indian Retail Organised Retail Source : India Retail Report – 2008 LUXURY GOODS MARKET IN INDIA India has more consumers for luxury goods than the adult population of several countries. A recent study 2 , on the luxury goods sector shows that, there could well be more than 1 million consumers. The projections are that it will treble by 2010. India is leading the demographics in terms of the growth of HNWIs, as shown in Table 3 below. With an impressive 22.7% growth on a base figure of 123 million (in 2007), as shown in Table 4 below, it is clear that India will continue to remain a destination of choice for sale of luxury goods. The Luxury Goods market can be divided into • Luxury Goods • Luxury & Premium Goods Both markets (Luxury Goods and Luxury & Premium Goods) markets in India are growing at a phenomenal rate. If we look at the projected figures for 2012 and 2017, we see an impressive growth CAGR of 14.87% for Luxury Goods and 14.23% for Luxury & Premium Goods, based on 2 KSA Techopak, India Luxury Trends 2006 forecasts made by KSA Technopak (Table 5). Table 3 – Growth of HNWI Population Growth of HNWI Population 22.7% 20.3% 19.1% 18.9% 16.8% 16.0% 15.3%15.3% 15.1% 14.4% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Indi a China Brazil S Kore a I nd on es i a Slov a kia Singapo r e UAE Che c h R e public Russia HNWI population Growth (in %) Source : Capgemini Lorenz curve Analysis, 2008 Table 4 - HNWI Population Growth Growth (in %) Population (in millions) – 2007 Population (in millions) – 2010 Population (in millions) - 2015 India 22.7% 123 227 515 China 20.3% 415 723 1513 Brazil 19.1% 143 242 486 S Korea 18.9% 118 198 396 Indonesia 16.8% 23 37 68 Slovakia 16.0% 4 6 11 Singapore 15.3% 77 118 209 UAE 15.3% 78 120 211 Czech Republic 15.1% 17 26 45 Russia 14.4% 136 204 349 Source : Marketing Whitebook, 2007 - 2008 Table 5 – HNWI Market Growth HNWI Market Growth 2 4 8 18 35 56 0 10 20 30 40 50 60 2007 2012 * 2017 * Luxury Luxury & Premium Source : KSA Technopak The personal spending (Table 6) in the luxury goods market is close to INR 63,655 crores (US$ 14,804 millions) with a per capita household spend of INR 397,822 (US$ 9,252). A detailed look at the spending shows that almost 72.7% is spent on the top 5 categories is shown in Table 7. Table 6– Personal Luxury spending (2004 – 2005) Personal Luxury spending 0.27 0.16 0.13 0.08 0.08 0.06 0.06 0.04 0.02 0.02 0.01 0.01 0.06 0 0.05 0.1 0.15 0.2 0.25 0.3 Jewellery Designer wear Digital Accessories Timewear Cosmetic & Skin care Footwear Accessories Perfumes Crystal ware Gourmet Foods Intimate wear Table wear Wine & Liquor Table 7 – Personal Luxury spending (2004 – 2005) Category Amount (INR crores) Amount (US$ millions) %age of total Jewellery 17,576 4,088 27.61 Designer wear 10,183 2,368 15.99 Digital accessories 8,244 1,917 12.95 Timewear 5,386 1,253 8.46 Cosmetic & Skin care 4,897 1,139 7.69 The break-up of the above spends for men (INR 22,784 crores) and women (INR 40,734 crores) differs slightly, both in terms of the spending as well as the category on which it is spent. These figures are shown in Tables 8 and 9. Table 8 – Personal Luxury spending among men (2004 – 2005) Category Amount (INR crores) Amount (US$ millions) %age of total Mobiles, PDAs & iPODs 5,285 1,229 23.19 Designer wear 5,148 1,197 22.59 Wines & Liquor 3,707 862 16.27 Timewear 3,218 748 14.12 Footwear 2,420 563 10.62 Table9 – Personal Luxury spending among women (2004 – 2005) Category Amount (INR crores) Amount (US$ millions) %age of total Jewellery 17,576 4088 43.14 Designer wear 5,035 1171 12.36 Cosmetic & Skin care 4,897 1139 12.02 Mobile 2,959 688 7.26 Timewear 2,168 504 5.32 Source : Marketing Whitebook 2007 - 2008 For most part, the immediate priorities for many consumers for luxury goods fall into the categories of • Housing • Travel • Education • Higher–end automobiles • Entertainment electronics • Home Lifestyle improvement products Over the next 2–3 years, the market for luxury goods is likely to boom in the categories of • Men's clothing • Women's jewellery • Women's accessories (including handbags and footwear) • Watches • Gourmet food and wines. From a few high–end merchants having miniscule interest in India to more than a handful of luxury brands operating in India (although from boutiques located in 5–star hotels, let us examine what has happened to change the situation. The key driver in this change has been India's demographic makeup, as the nation's booming economy rapidly adds to the near–critical mass of newly affluent consumers. The average salary of Indians has grown 14% (those of IT professionals have grown by 18%), which is probably the highest wage growth in Asia. 3 There are now about 1.6 million Indian households that spend an average of $9,000 (Rs. 4,50,000) a year on luxury goods, according to The Knowledge Company, a management-consulting firm in New Delhi. Mr. Thakran of LVMH says "With multi-income families and increasing international exposure through travel and the Internet, the attitude is changing from the traditional [emphasis on] savings to a spending approach”. There are strong indications that the expense basket is shifting from necessity to lifestyle products. Priya Sunder 4 says “Younger Indians from wealthier families increasingly match (and sometimes even eclipse) the purchasing power of their European and American counterparts". 3 A study done by Hewitt Associates 4 Priya Sunder is Director of PeakAlpha, a Bangalore–based financial–planning company that advises IT professionals on their investments Source : “Growth at the high end of the market in India”, AT Kearney 2006 The luxury goods market seems to have its consumers divided into 4 categories as shown in the diagram below. 1. Luxuriented 2. New Rich 3. Getting There 4. Mid Affluents Source : “India Luxury Goods Sector 2006”, Technopak Consulting 2006 Today, luxury goods makers have started descending on India, and surprisingly, the nation's wealthy are enjoying indulgence not seen since the time of the maharajahs. The old rich have, of course, always been rich. But something in Indian culture has inhibited ostentatious displays of wealth. That coyness seems to have vanished. Retail consultancy firm KSA Technopak estimates that India's luxury market is growing at 20% a year. The market for high-end clothing and accessories alone is estimated to be worth $US445 million ($A610 million). Yet, when luxury brands first came to India, many predicted their early demise. They were proven wrong because Louis Vuitton handbags sold out in minutes. MARKETING LUXURY GOODS – A DIFFERENT BALL GAME Marketing of luxury goods requires the same 4Ps of marketing mix. But their focus is different. We are all familiar with stated, unstated and hidden needs of a customer. In case of luxury goods, these needs have to be relooked at from a different perspective. Some live cases will help to understand how the companies have applied the 4Ps to the marketing mix, in a unique way.  Hospitality Industry – Four Seasons Hotel (Mumbai) From the frontage, one would not be able to make out that The Four Seasons is a super– luxury hotel in Mumbai. Located in mid – town, it does not have the aura of a location like Colaba, Nariman Point or a Juhu beach. The hotel realized that luxury is not merely offering a fantastic view of the Arabian Sea, but about a superb product – an irresistible combination of rooms, quiet lobby and a boutique hotel feel. The Four Seasons hotel, tried to redefine what luxury actually means by ensuring that a guest, at Mumbai, has the same experience as in any other Four Seasons property across the world. It tried to redefine luxury by adding a fleet of BMW 7 series cars, to transport its guests. They realized that the devil is in the detail. To take care of it, they took their staffers on a visit of Mumbai city so that they could learn and soak in the sights. This not only helped them to give authentic suggestions to guests, but also created a connect with the local food, shopping and community life. Realising that people were the key in delivering a consistent luxury service, they made sure that their employees carried no baggage (read that as not having pre–set ideas or mindsets). They even went to the extent of teaching the staffers ho to behave when a celebrity shopper was to be served.  Bespoke Production Bespoke (or custom made products) have always symbolized the epitome of luxury. It is quite common that a designer who has been successful in capturing the heart of a buyer is asked to make another bespoke piece. One such one–off piece was designed by Ravi Chawla 5 . He designed a 7 foot high idol of Srinathji, which was the result of several visits to the temple at Udaipur, thousands of hours of exquisite craftsmanship and the best of materials which gave the luxury look to the idol. The result – a proud owner family and a blank cheque. In case of bespoke products, Milton Pedraza 6 says “Exclusivity and uniqueness matter enormously to the wealthy. When luxury brands are widely available, sooner or later, they lose their cachet of exclusivity”. Another case in example is Ferrari, which has a programme called ‘One–to–One’, where with the help of a Ferrari advisor, a customer can modify virtually every part of the car, which does no affect reliability. To bring the story a little closer to home, Viren Bhagat, a jeweller from Mumbai, who specializes in bespoke pieces, believes in the take–it–or–leave–it attitude. He believes that allowing a customer to make changes to the design destroys the uniqueness of the price. He also insists that a customer visit his office to buy the price.  UB City, Bangalore There are just 2 luxury malls in India – Bangalore and Delhi. Bangalore boasts of a destination called UB City and Delhi has The Emporio Mall. The kind of outlets that they have would give the impression that the shopper was very much in Dubai, Singapore or Paris. Global brands such as Louis Vuitton, Gucci, Fendi, Dunhill, Rolex, Omega, Tiffany’s, Kimaya, Tod’s, Versace, Ferragamo, Paul Smith and Jimmy Choo are having a presence at these places. LESSONS FOR MARKETING LUXURY GOODS Experts say that there are a whole lot of differences in marketing of Luxury Goods. Patience is most likely to pay–off in this market. Global brands must remember to be prepared to invest for 5 Ravi Chawla is creator of Ravissant, India’s oldest luxury retail brand 6 Chief Executive of NY based Luxury Institute [...]... though many of the top executives of MNCs may be buyers of such goods, mainly because luxury shopping is never done after office hours The ambience must give the feeling of opulence Some of these lessons can be summed up as follows : 1 Luxury Goods brands must be “expansive” – it should be full of innovation opportunities for the marketer and in terms of satisfying the divergent needs of the luxury. .. the same time making efforts to achieve grandeur 10 Luxury brand Customers are very demanding – Any attempt to show the customer that he is too demanding will immediately lead to the customer looking at other brands His ego must not be scrapped If luxury goods can be marketed in India, with the above pointers in mind, it is likely to result in a huge demand being created for luxury goods The authors... pay–off can really begin Tarun Joshi says that In the first 3 years, any 8 sales you make are good” CBRE says that buying to luxury goods is done in a very different way as compared to other goods It puts the need for luxury high streets and luxury malls as a pre–requisite for luxury goods market to grow in India There is a need for buyers of luxury goods to be not located in places where there are offices,... Customers seek the “I’ve Made It” feeling which can only be achieved if a consumer has access to the luxury products before anyone else Others having access to those luxury goods, makes it a me–too product 7 8 Managing Director, Brandhouse Retail CB Richard Ellis 9 Luxury brands in India must include “Ethnic Chic” – A fusion of local and global goods through a blend with Indian culture, helps build a connect... use 4 Brand must align with consumers’ values – luxury items must project a form of expression or identification for the luxury consumer 5 Luxury brands must perform – whichever category the brand belongs to, a performance assurance is a must for the brand if it wishes to be in the evoked set of luxury consumers, considering the price being paid for luxury 6 Luxury brands must reflect Affluence – Customer... whichever brand that accentuates his affluence 7 Luxury brand must reflect “Nothing but the Best” – Because the buyer considers himself as the Best They want the best, be it in whichever category because it helps them relate to the feeling of being the best in their fields, thus completing their sense of accomplishment 8 Luxury brands must bring the world to the fingertips of its customers – Customers... divergent needs of the luxury consumer 2 Luxury brands must tell a story – a story of either heritage or performance or other aspects that goes on to build the aura of a brand over time The story must accentuate the identity of the brand 3 Luxury brands must be relevant to the consumers’ needs – especially the mindset of the luxury class It is imperative that the brand satisfies those needs, whether it... in a huge demand being created for luxury goods The authors are sure that this idea will definitely appeal to all manufacturers and marketers of luxury goods Authors : 1 Prof Sunil Pevekar Marketing Professor IBS, Bangalore Ph : +91-9845697246 email : pevexs@gmail.com 2 Ms Manasi Lothe Final Year Student (2007 – 2009) IBS, Bangalore . MARKETING OF LUXURY GOODS IN INDIA – WHAT AN IDEA !! Abstract The paper examines the current trend and growth of the retail industry in India. The focus is more on the organized retail and. (including handbags and footwear) • Watches • Gourmet food and wines. From a few high–end merchants having miniscule interest in India to more than a handful of luxury brands operating in. Accesso r ie s Furnit u r e Category Percentage Indian Retail Organised Retail Source : India Retail Report – 2008 LUXURY GOODS MARKET IN INDIA India has more consumers for luxury goods than the adult population of several