CONSUMER DYNAMICS Luxury in India

May/June 2006

Understanding the INDIAN LUXURY CONSUMER

The Indian luxury market will almost quadruple over the next decade, and brands will have a major opportunity to target the fast-growing numbers of brand-savvy, aspiring consumers. In a fascinating address at the recent India Duty Free Workshop, King Power Group Travel Retail Managing Director Sunil Tuli delivered his assessment of the market today. Dermot Davitt reports.

he luxury goods market in India is one of the worlds most diverse and exciting and a challenging one for brands seeking to gain a presence there. Brands and retailers that want to capture a share of this fast-paced business need to learn and adapt, or risk missing one of the great untapped opportunities for the luxury business. That was the message delivered by King Power Group Travel Retail Managing Director Sunil Tuli in an illuminating presentation at the India Duty Free Workshop in Cochin (February 2123). Addressing the theme The New Indian Luxury Consumer, Tuli said that around 1.7 million Indians qualify as rich (sub-definitions are Super Rich, Sheer Rich, Clear Rich and Near Rich) a figure that is set to more than double in the next five years. In sharp contrast to consumers in more mature markets, the spending power of Indians earning between US$20,000 and US$40,000 still puts them on the countrys rich list and makes them well worth targeting by brands keen to secure an Indian market presence. Drawing on a Merrill Lynch report on the worldwide luxury goods industry, Tuli said that Indians account for under 1% of all luxury goods sales but sales to Indians, and their share of the global market, is set to increase. The size of the market in 2004 was estimated at about INR48.1 billion in sales, a figure expected to almost quadruple in the next ten years. India is still a virgin market for

global luxury players, said Tuli. Companies like LVMH, Swatch Group and Chanel are the only ones represented, in a limited way. Others, like Aigner, Montblanc and Cartier, are present through licensee agreements. But despite the immaturity of the market, there are already clear trends developing particularly in the penetration rates of luxury brands into the mens and womens sectors. Luxury clothing, fragrances, premium footwear, home electronics and high-end watches have achieved good penetration among male Indian consumers, but items such as cufflinks, belts, wallets, luxury wines, Champagnes and cigars still rate low on the wish-lists of many Indian men seeking luxury brands. Among women, jewellery, cosmetics and skincare can already boast high levels of awareness, followed by categories such as underwear, handbags and mobile phones. Low-penetration sectors that have yet to make an impact include gourmet food, tableware and imported furniture.

The Indian wealth league: How many Indians and households qualify?
Category
Super rich Sheer rich Clear rich Near rich Total

Annual income (INR)

10 million+ 510 million 25 million 12 million

Annual income (US$)

>200,000 100200,000 40100,000 2040,000

Est HH* 2005/06

53,000 103,000 454,000 1,122,000 1,732,000

Est HH* 2009/10

141,000 255,000 1,037,000 2,373,000 3,806,000

Source: NCAER MISH Survey 2004

*HH = number of households

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CONSUMER DYNAMICS Luxury in India

Show me the money Wealth definitions
International definition
Rich Affluent

May/June 2006

Av. annual income

$390,000 (INR17,600,000) $153,000 (INR6,890,000)

Av. luxury goods spend

$81,000 (INR3,650,000)
21% of annual income

I Most are educated to post-graduate level I Incidence of foreign travel is 53%, 44% travelling abroad for holidays at least once a year. Tuli also drew on the KSA study to categorise luxury households into segments according to their attitudes to luxury goods purchasing: I The Arrived: This is the most affluent group, comprising 49% of the target audience of luxury goods companies. I The Actualised Ascetic: This group comprises largely self-made men, professionals or businesspeople who are in their late 40s or early 50s. This is the smallest group (15% of the target audience). I The Climbers: As the name suggests, this group wants to project a lifestyle image that will gain them acceptance into the higher echelons of society, yet many lack the discernment that comes with exposure to luxury brands and wealth over a long period. These are 19% of the target universe for luxury brands, says the study. I The Laggards: Although well-heeled and targeted by luxury brands, this group remains nonchalant about luxury goods consumption. This group comprises a high proportion of college drop-outs and graduates who are in business or work as office executives. This group is 17% of the target consumer base. Yet these categories will prove subject to great change as Indias economy expands and personal wealth increases. Tuli touched on five key forces that are shaping todays luxury mindset: I Growing incomes coupled with optimism about the future. I An expanding upper class, creating large peer groups and reference groups for aspiring consumers. The new Indian mindset is deeply rooted in social hierarchy, said Tuli, with those who want to make the leap into the higher strata of society imitating the prestige purchases of those they imagine are above them in the hierarchy. I Money, wealth and consumerism are emerging as the undisputed measures of success and a life well lived. I First-hand exposure to products and lifestyles overseas. Over 6 million Indians travelled overseas in 2004: 22% to the US, 24% to Europe and 34% to southeast Asia I The influence of the media, coupled with the greater availability of lifestyle products and services in the last five years. In short, said Tuli, the new Indian luxury consumer is pursuing a lifestyle based on ostentation, impressing others with wealth and power, owning exclusive items and owning them first. I
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$27,000 (INR1,220,000)
18% of annual income

Source: American Express

For consumers who are already brand-savvy, luxury names come under one of two distinct titles, said Tuli: classic brands and high fashion brands. Classic names include Chanel, Gucci, Salvatore Ferragamo, Balenciaga, Christian Dior, Louis Vuitton and Prada names that suggest enduring value. Among the contemporary brands that command consumers attention are names like Armani, Versace, D&G, Moschino, Calvin Klein, Hugo Boss and Ralph Lauren.

The luxury consumer in profile

Tuli delivered a fascinating profile of the Indian luxury consumer, leaning on the latest study by research group KSA Tecnopak: I Primarily resident in urban India I Lives in a household earning more than about INR800,000 (US$18,000) a year, where the chief wage earner is male, average age 3637 I Owns a premium/luxury saloon car such as a Honda Accord, a Vectra, a Skoda Octavia etc. I Among women consumers, 65% are housewives

Luxury goods sales by nationality 2004

1% 23% 11%

4% 3% 1%

86 billion US$110 billion

26%

25%
I Chinese I Korean I Japanese I Middle East I Russian I European

6%
I American I Others I Indian

Source: KSA Tecnopak Luxury Study

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