India seems to be the perfect market for luxury retail that is looking for new areas for growth. On paper, the figures are just right. The economy is growing at 9% year on year the total wealth of high net with individuals who are worth more than $5 million is a whopping $1 trillion and increasing fast enough to cross the $5 trillion mark in the next five years. The number of millionaires in India is greater than all other countries except US and China. Still the surprising part is that the sales generated by the luxury brands in India are just half a percent of the global luxury market at $846 million.
Major luxury brands have initiated plans to penetrate the Indian market but the going has been tough for them for various reasons. The regulations in terms of import duties are steep at 30% and works as a deterrent. The real estate regulations and lack of luxury retail infrastructure also come in the way of rapid growth of the sector. Because of the higher operational costs the prices in India are generally higher that encourages the wealthy buyers to shop for luxury overseas. The mindset of the Indian consumer is another thing that the brands are battling against.
The rich Indians don’t mind spending on expensive things as you can see the volumes of luxury car sales in India increasing steadily but they are not brand conscious and see no value in it. In Japan or China a young executive would also prefer having a branded bag but in India, even a rich businessman would hesitate in going for a branded suit as he feels it is a waste of money. The trend for immediate term are not very encouraging either as Indians purchase more luxury products overseas than in India. Bain & Co a consulting and research firm has projected a conservative growth figure of 5 to 10% over the next two years. The figures look worse when you see the projection for China where the luxury segment is expected to grow at the rate of 25 to 30% on a much larger base.