Thursday, February 14, 2013

With consumer spending expected to grow four times, 
international brands can't ignore India, says study

Irrespective of the global economic slowdown, the luxury market in India is pegged to grow at 25% on a year-on-year basis between 2013 and 2015. And it may be worth Rs 82,500 crore ($15 billion) from the current level of Rs 44,000 ($8 billion), reveals the Assocham-Yes Bank study. 
“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.
Globally also consumer spending is rising, and is expected to reach Rs 2,200 lakh crore ($40 trillion) by 2020 with an unprecedented growth of Rs 660 lakh crore ($12 trillion) in a decade.
Predictable consumer spending patterns beyond geographies and cultures unwrap possibilities of future growth in emerging markets like India where consumer spending is expected to grow four times to Rs 198 lakh crore ($3.6 trillion) within this period, driven by increasing income and aspirations, adds the paper.
Indian luxury market is projected to reach Rs 808.50 lakh crore ($14.7 billion) in 2015. The number of Ultra High Networth Households, with a minimum net worth of Rs 25 crore is expected to triple to 2.86 lakh in next five years with a five-fold increase in their net worth to Rs 235 trillion. And the HNIs will be double in number by 2015 to over 4 lakh.
The Private Equity (PE) investments in the luxury sector for the last three years, that is, January 2009 - August 2012 have been less than Rs 5,500 crore ($1 billion) compared to the Rs 1,925 crore ($35 billion) total PE investments during this period. With the luxury market expected to grow, PE investments in the segment are also expected to increase. There are a number of funds in India, which are focussed on investing in consumer centric businesses, from Everstone, L Capital and Avigo.
India and China have shown their resilience to the global turmoil by exhibiting sustained growth and thus laying a solid foundation for future global economic recovery. A reflection of this can be seen in the potent demand being witnessed by global luxury brands from these emerging economies. As elite members of the BRIC club, which currently accounts for 11% of the total world luxury sales, India and China are poised to take dominant positions in the global luxury market.
While China is on track to become the world’s second largest luxury market within the next five years, India too is not far behind.
While various estimates exist on the size and growth potential of the Indian luxury market -  most estimates align on anticipated growth rates of 20% given the tremendous potential waiting to be harnessed by such products: Apparel and Accessories, Pens, Home Décor, Watches, Wines & Spirits & Jewelry, services: Spas, Concierge service, Travel & Tourism, Fine Dining & Hotels and assets: Yachts, Fine Art, Automobiles & Real Estate.
The best returns would come from investing in luxury assets for the long term and luxury products in the short term. Cars have shown the highest growth rate in luxury assets of 40% a year from 2006, driven by a wider choice of brands, availability of cars in the small and mid segment as well as rapid increase in millionaires in Tier I & II cities. It is estimated that luxury assets are going to grow to Rs 43,450 crore ($7.9 billion) in 2015 compared to Rs 23,705 crore ($4.31 billion) currently.
Luxury products are projected to grow to Rs 29,590 crore ($5.38 billion) in 2015 against the current Rs 15,675 crore $2.85 billion). Jewellery is believed to be the largest contributor (31%) for this sub-sector, driven by the investment mentality of Indians in jewellery which leads to low consumer price elasticity.
“Recent trends indicate a shift in the perception of luxury as an overall experience versus a mere material possession. This is evident from data on the Indian luxury services market which has shown resilience in the face of a global slowdown. The sector is expected to grow to Rs 7,975 crore ($1.45 billion) in 2015 from Rs 5,775 crore ($1.05 billion) currently. Hotels are the largest growth contributor.
Indian luxury market is a potential gold mine for international luxury brands. However, with every opportunity comes the accompanying challenges and India is no different. With thorough market research, prudent marketing strategies and the right local partner, global luxury players can unearth the sea of opportunities that India represents.