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 subcontinent. 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 that Private Final Consumption Expenditure (PFCE) stands at Rs. 26,07,584 crores in 20072008 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.
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India Retail Report - 2008

Table 1 Growth of Indian Retail

Growth of Indian Retail

20000 V alue (INR Billions) 15000 10000 5000 0 2004 2005 2006 2007 2008 2009 2010 Year
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 consumptiondriven. 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.

Organised Retail Retail Market

Table 2 Organized v/s Total Retail in India - 2007

Organized v/s Total Retail in India

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

Percentage

Indian Retail Organised Retail

lo th in g

LUXURY GOODS MARKET IN INDIA India has more consumers for luxury goods than the adult population of several countries. A recent study , 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
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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
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KSA Techopak, India Luxury Trends 2006

/F F as oo hi d on & Ac Gr ce oc e O sso r y O H ries E L Foo nt e d er is ta ur in e Je me w nt H ea W elle lth a ry & Fo tch P B o e C h e t s M on arm au wea ob s a ty r ile um ce ca s er u re & D tic Ac u al ce rab s ss le o s Fu rie rn s itu re
Category

Source : India Retail Report 2008

forecasts made by KSA Technopak (Table 5). Table 3 Growth of HNWI Population

HNWI population Growth (in %)

Growth of HNWI Population

25.0% 22.7% 20.0% 15.0% 10.0% 5.0% 0.0%
In di a na a In do ne sia Sl ov ak ia Si ng ap or e ep ub l ic Ru ss ia l Br az i Ko re Ch i UA E Ch e ch

20.3% 19.1%

18.9%

16.8% 16.0%

15.3% 15.3% 15.1% 14.4%

Source : Capgemini Lorenz curve Analysis, 2008 Table 4 - HNWI Population Growth Growth (in %) India China Brazil S Korea Indonesia Slovakia Singapore UAE Czech Republic Russia 15.1% 14.4% 17 136 26 204 45 349 22.7% 20.3% 19.1% 18.9% 16.8% 16.0% 15.3% 15.3% Population (in millions) 2007 123 415 143 118 23 4 77 78 Population (in millions) 2010 227 723 242 198 37 6 118 120 Population (in millions) - 2015 515 1513 486 396 68 11 209 211

Source : Marketing Whitebook, 2007 - 2008

Table 5 HNWI Market Growth

HNWI Market Growth

Luxury 60 50 40 30 20 10 0 2007 2012 * 2017 * 2 18 4 8 35 Luxury & Premium 56

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
Wine & Liquor Table wear Intimate wear Gourmet Foods Crystal ware Perfumes Accessories Footwear Cosmetic & Skin care Timewear Digital Accessories Designer wear Jewellery 0 0.05 0.1 0.15 0.2 0.25 0.01 0.01 0.02 0.02 0.04 0.06 0.06 0.08 0.08 0.13 0.16 0.27 0.3 0.06

Table 7 Personal Luxury spending (2004 2005) Category Amount (INR crores) Jewellery Designer wear Digital accessories Timewear Cosmetic & Skin care 17,576 10,183 8,244 5,386 4,897 Amount (US$ millions) 4,088 2,368 1,917 1,253 1,139 27.61 15.99 12.95 8.46 7.69 %age of total

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) Mobiles, PDAs & iPODs Designer wear Wines & Liquor Timewear Footwear 5,285 5,148 3,707 3,218 2,420 Amount (US$ millions) 1,229 1,197 862 748 563 23.19 22.59 16.27 14.12 10.62 %age of total

Table9 Personal Luxury spending among women (2004 2005) Category Amount (INR crores) Jewellery Designer wear Cosmetic & Skin care Mobile Timewear 17,576 5,035 4,897 2,959 2,168 Amount (US$ millions) 4088 1171 1139 688 504 43.14 12.36 12.02 7.26 5.32 %age of total

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 Higherend automobiles Entertainment electronics Home Lifestyle improvement products

Over the next 23 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 highend merchants having miniscule interest in India to more than a handful of luxury brands operating in India (although from boutiques located in 5star 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 nearcritical 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. 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 the purchasing power of their European and American counterparts".
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says Younger Indians from wealthier families increasingly match (and sometimes even eclipse)

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A study done by Hewitt Associates Priya Sunder is Director of PeakAlpha, a Bangalorebased financialplanning 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 preset 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 oneoff piece was designed by Ravi Chawla . 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 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 OnetoOne, 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 takeitorleaveit 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, Tiffanys, Kimaya, Tods, Versace, Ferragamo, Paul Smith and Jimmy Choo are having a presence at these places.
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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 payoff in this market. Global brands must remember to be prepared to invest for

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Ravi Chawla is creator of Ravissant, Indias oldest luxury retail brand Chief Executive of NY based Luxury Institute

several years before payoff can really begin. Tarun Joshi says that In the first 3 years, any 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 prerequisite 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, even 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 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 be recognition or functional 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 will switch to 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 seek the Ive 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 metoo product.
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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 with his roots while at 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 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