With a population of 1.3 billion, making it the world’s second-most populous country, India is a potential luxury behemoth. But the emerging middle-class has yet to accrue the wealth to pivot to luxury purchases, and the sector remains small, valued at around $6 billion, according to Boston Consulting Group (BCG).
Modern international luxury brands didn’t widely reach India until liberalisation in the mid-1990s when it became open to foreign investment.
Modern retailing is dominated by Reliance Brands Limited, a subsidiary of Reliance Industries Limited owned by the country’s richest man, Mukesh Ambani. The group, which operates stores via joint ventures and licensees for brands like Bottega Veneta, Ermenegildo Zegna and Giorgio Armani, bought out local player Genesis Luxury, which started as a brand distributor in 2007. Other smaller local players include Murjani Group, an apparel producer, who was behind the development and launch of Tommy Hilfiger in 1986 and also brought brands like Jimmy Choo to India; Aditya Birla Group, a store owner and distributor of brands like Ralph Lauren; and Ashok Wadhwa’s Luxury Goods Retail, who runs a joint venture with Gucci.
Indian consumers prefer to shop in air-conditioned malls for premium and luxury goods because main shopping streets lack infrastructure and suffer from heavy traffic, while malls have turned into social destinations with restaurants and movie theatres. Even so, there are only around 10 malls dedicated to luxury in the country, a few monobrand stores and some in high-profile hotels like the Taj Mahal Palace in Mumbai and New Delhi’s Oberoi. International brands have mostly entered through local partners, licenses and franchisees to test the market, but few have gained momentum to directly own their stores and build large portfolios. (Hermès has two stores in New Delhi and Mumbai, Chanel has one in New Delhi and Louis Vuitton has three stores in Mumbai, New Delhi and Bengaluru.) That’s mostly down to domestic shoppers’ preference for local designers, styles and jewellers over international brands. Still, there are bright spots in bridal, a growing Gen Z shopper base and a potential emerging middle-class.
There are signs of interest. Next year, Balenciaga and Valentino plan on opening their first stores in the region. LVMH was one of the first to enter the market in 2003, following early support by then CEO Yves Carcelle, who in 2010 pushed for Louis Vuitton’s first India-inspired collection, which remade 40 pieces from two collections using traditional fabrics sourced from India. This early investment paid off: Louis Vuitton is one of the most well-known international brands in the country, and it reported a net profit jump of 24.5 per cent to Rs 16.17 crore ($2.25million) last year. Gucci launched in India in 2005 is second followed by Fendi and Burberry, according to BCG.
Brands’ momentum to expand into India was hampered by local rules and taxes, high rental costs and low returns, all of which are sources of frustration, says Tikka Shatrujit Singh, a luxury brand advisor and former Asia representative of LVMH. “I blame the government and the private sector for not being in sync with each other,” says Singh. A dialogue between the brands and the government would facilitate smooth entry and encourage investment, he says.
India’s 2020 projected real GDP is expected to decline by 4.5 per cent in the aftermath of the Covid-19 outbreak, according to the International Monetary Fund. Given the economic environment, “brands that are not global leaders like Hermès, Louis Vuitton, Omega and Cartier find it difficult to sustain that love and keep investing,” says Ravi Thakran, group chairman of LVMH, South Asia, Southeast Asia and the Middle East. India’s growth potential is at the same juncture as China was 12-13 years ago, he says.
A repeat performance of China’s middle-class growth is expected to take some time. Currently, the middle-class is 27.4 per cent of the population, per Euromonitor International, but their wealth is hampered by economic slowdown, and the wealth gap remains significant. The World Inequality Lab indicates that the top 10 per cent of the Indian population owns 63 per cent of the total wealth. The top 1 per cent captures 30 per cent of total wealth.
Of the elite and affluent class, 60 per cent prefer to shop for luxury abroad due to lower prices and more variety (average price differential is 10 to 15 per cent). Cash payments are popular to avoid goods and services tax, but a 2016 law requiring customers spending over Rs 2lakhs (£2,050) to show their permanent account number (or tax number) stopped cash payments and hurt spending, insiders say. “Indians are a large market, but the market of operating in India is much smaller,” says Abheek Singhi, senior partner and managing director at BCG.
For the emerging middle-class, the priority is buying a house, car and education, says Alex Kuruvilla, managing director of Condé Nast India. They’re drawn to premium brands like Michael Kors and DKNY over luxury, says Ashwini Asokan, founder and CEO of Vue.ai, a retail and insights automation platform. For a typical high-net-worth Indian woman’s wardrobe, Kuruvilla says the majority of her clothes would be local designers with traditional saris, local jewellery, and only a few international luxury brands limited to handbags and shoes.
There is potential in e-commerce: India’s internet penetration is high, only second to China, and e-commerce is expected to grow to $85 billion by 2021. Sites like Ajio Gold and Tata Cliq have a select offering of premium brands, though luxury brands have largely not invested.
The bridal opportunity
The $50 billion wedding market is a testament to Indian consumers’ appetite for luxury. Culturally, weddings are an important, no-expense-spared event in an Indian’s life, and the preference for local designers is high. Most recently, Mukesh Ambani spent $100 million on his daughter’s wedding. “I don’t think budget is such a constraint,” when it comes to weddings, says Yash Dongre, business head of Anita Dongre, an Indian designer label whose annual turnover is approximately £77 million. When shopping for weddings, most Indians categorise this segment completely differently from luxury shopping, according to research from BCG, meaning a consumer may not hesitate to buy a Rs 1lakh ($1,300) sari, but would not do so for a ready-to-wear piece by an international label.
Although most ceremonies now include a westernised event that allows the wedding party to wear gowns and tuxedos, tradition remains at the core of an Indian wedding, making Indian attire the go-to choice for most. The typical share of foreign brands like Louis Vuitton, Dior, Hermès, Chanel and Gucci will be 80 per cent in accessories, 5 per cent in jewellery and 2 per cent in attire, according to LVMH’s Thakran. If it weren’t for lack of local luxury shoemakers and bags, Thakran says “that share occupied by international brands would also be pretty low”.
India’s most coveted bridal designer is Sabyasachi Mukherjee, whose designs have been worn by the likes of Priyanka Chopra, Isha Ambani and Deepika Padukone. Typically, an outfit from an Indian designer can cost anywhere between $4,000 to $1.5 million, not including jewellery from local jewellers (the biggest expense), followed by handbags and shoes by international labels, says BCG. Given jewellery’s importance and cost, many Indian fashion designers are expanding into the segment once they establish a local presence. Mukherjee launched jewellery in 2019 and his exhibition earlier this year at New York’s Bergdorf Goodman brought him sales of $2 million. Tiffany also launched in India last year.
Some foreign brands are tapping the bridal market: Christian Louboutin’s only wedding salon is in his Mumbai store and last year, Louis Vuitton partnered with Vogue India’s Wedding Show with an exclusive trunk show catering to the affluent bride-to-be with a selection of trunks, beauty cases, as well as gifting options such as their tie and perfume box, watch trunk, Boite Jeu De Poker (poker case) and Boite Champagne, the champagne trunk.
Gen Z potential
But India’s potential lies beyond just bridal. With a population of over 440 million millennials, the consumer face of India is changing. Kuruvilla believes it’s the younger audience who are well-travelled, have studied abroad and have an awareness of international trends that brands need to invest in, “because the 18-year-old today will be their customers tomorrow”. India’s Gen Z is coming of age in an era of international brands. Already they are more inclined to buy Western fashions than older generations, Kuruvilla says. Brands like Dior, Louis Vuitton and Bottega Veneta have sought to engage millennials by reaching them on social media with relationships with local Bollywood actors Alia Bhatt (49.3m followers) and Sonam Kapoor (30.3m followers), and influencers like Diipa Khosla (1.1m followers).
Today, the market is mostly newly minted tech billionaires in cities like Bengaluru who like the “badge value” of luxury brands, professional classes in tier 1 and tier 2 cities, returning non-resident Indians and very “old money” who prefer to shop abroad, Kuruvilla says.
“It’s not going to be a quick success here,” says Singh, long-term growth will require time and investment. However, without a strong economic strategy to bounce back from, the income levels of the middle class who can become luxury spenders will struggle to grow. “I hope the government gets on to its economic agenda. India does not have a solid middle class, Indian luxury is doomed to grow at an anaemic rate, and luxury brands will have to serve the consumer when they’re travelling,” says Thakran.
The Indian middle class
“Luxury in India has not taken off because of a lack of the sizable middle class. China has already gone into the mix of a very large upper-middle and middle-middle income who have become big spenders. In my definition, the Indian middle class is tiny. India has a very good number of rich people on top although not massive in numbers and then there is a very large lower middle-class. The definition of various economists says the Indian middle class is anywhere between 50-80 million.”
“India has remained for brands like Nike, Levi’s, Apple and LVMH less than 1 per cent of their business and if you are not in the top 10 markets, you don’t get the attention of the boards of the company. Luxury will not grow in India unless a solid upper-middle-class emerges. Even when it comes to millennials, although they are spending, they indulge in the lower-end of luxury.”
“The whole narrative of buying abroad and price consciousness leads to a very tiny customer base you capture in India who are primarily either nouveau rich and have not been exposed to buying outside or are the rich who are buying because of the sheer convenience. But the throughput overall is small and unfortunately, [luxury] has gone backwards.”
“Unless India’s market development gets to the level of 7.5 per cent growth for a decade, we are not going to see a big middle class emerging. Until that happens, you’re not going to see a big luxury market developing. Luxury will remain like it is: through a combination of a few malls and hotels that are primarily in a couple of cities.”
“I would say Indianness is a very important component. When Indian royalty was still relevant, brands like luxury chandelier label Osler would get a design from India made in wood and then replicate it in crystal and send it back to India to be displayed in palaces. Similarly, big watchmakers or Louis Vuitton would go to the Maharajas and ask for their design. There was always an Indian element in that of either the use of the Indian motifs or style.”
“LVMH is not luxury enough for India. In India, if you are indulging in luxury, you would buy Indian. The majority of the luxury purchase is Indian: Indian art, Indian saris, Indian jewellery. The bags and shoes will be international brands.”
“In present times, could luxury brands not infuse Indianness in their offering and thereby marry this need with the products? The unfortunate part is that the market is small. Some brands have done it, Canali did the bandhgala (a formal jacket with a high collar), Cartier did India-inspired watches, Hermès did a sari, but they’re few and far between and not of the scale that you would expect.”
Cost of being in India
“The problem is when you bring goods to India, the duty is very high (almost 30-35 per cent). You can send it with a lower margin to India, and the retail price can differ to a certain extent, but because the customer is price-conscious the MRP (retail price) can’t be too high. Then there is the cost of opening a single-brand store in a mall. Louis Vuitton and Dior are used to paying very little rent internationally. [In India] malls are very costly to build primarily because of land costs and hence charge high rentals. Add to that your throughput, which is not very high because the middle-class is not paying. Eventually, therefore when you draw all these, they may be low, but as a percentage of revenue, it is still much higher. As a result, you don’t make money.”
“Today, amongst luxury brands, not more than 10 brands in India would make money. Large brands that are very popular will still make money, but the problem with the luxury brands is simply the throughput of India is too small to open up a store for Louis Vuitton, Hermès or Chanel beyond it already has. If you don’t make money, how do you expect to open a second store?”
Reliance Industries Limited is set to launch a luxury complex called Jioworld consisting of residences, a performing art theatre, serviced apartments, rooftop drive-in, convention centre and two malls in Mumbai next year.
The retail destinations, called Jiowold Drive and Jioworld Centre will offer shoppers an array of brands from its subsidiary RBL’s premium licensee and joint ventures and others. Mehta believes that as mall owners, they will understand the pain and requirements of tenants well “because we sit on both sides”.
Reliance Brands Limited has 750 stores across a portfolio of 46 exclusive international partner brands. It is a subsidiary of Reliance Retail (which has over 11,000 stores across grocery, cash and carry, electronics, premium clothing and luxury).
Reliance retail turnover: Rs 1,62,936 crore ($22 billion)
Retail sales growth: 24.8%
Reliance Brands Instagram: @reliancebrandsltd (7,817 followers)
Malls are the way forward
“Simply put the mall culture in India boils down to a few things: one is the lack of open spaces in urban India, our ambient temperatures are constantly very warm bordering on too hot, an increasing amount of private vehicle ownership as compared to mostly little or no parking spaces and to a certain extent security.”
“If you look at the evolution in China, Louis Vuitton and Ermenegildo Zegna were the first two luxury brands to launch there, a decade before they arrived in India. They chose to open at the Peninsula Hotel in China, and in India, they opened at The Oberoi in Delhi and the Taj Mahal Palace hotel in Mumbai. When there was a big mall development in Shanghai called Plaza 66, most of the luxury brands started leaving hotels to enter malls. Similarly in India, when DLF Emporio Mall launched in Delhi in 2008, most luxury brands moved there. The malls provide the same kind of ambience, security, parking and the ease of entry and exit, but most importantly, both hotels and malls allow luxury brands to control adjacents.”
“While Indian luxury brands look for the same factors when opening their stores, the difference lies in the fact that they have managed to create their own environment. They have moved in a bit of a cohort whether it comes to a Malcha Marg in New Delhi or Kala Ghoda in Mumbai, where 25 years ago there was only one multi-designer boutique called Ensemble. In the past decade, Sabyasachi opened in the same neighbourhood, followed by designers like Gaurav Gupta, Rahul Mishra and Rajesh Pratap Singh, and before you know, it became an eclectic mix of art galleries and cafes creating a shopping environment. These are Indian luxury brands that are expensive and luxury by any standard. Would a Louis Vuitton or a Dior do the same? Not yet.”
Malls vs high street
“There have been some attempts by international brands, whether it’s a Zara at one end and Hermès at the other, to try and create a high street. Hermès and Christian Louboutin tried to go to the high street hoping that there will be a street [that] will develop: Horniman Circle is still very pretty, but it’s crowded with Western banks and insurance companies, Starbucks came, and there is a Raymond store there. The problem in India is on high streets you can’t control its adjacents, because the next-door store could be an H&M store or it could be a petticoat store.”
“Around 10 June, malls in Delhi opened up, and in the last two months, the trend has grown. Within a controlled environment, like a mall, [there is] the ability to practise social distancing and health and safety, whether it is thermal scanning, contact tracing.”
“Only post 9/11 there was a scanning system in every hotel, mall and airport and we feel safer inside because every bag and person is scanned. The health check will become a layer and just become part of the new normal.”
Once mooted as having the growth potential of China, India’s luxury market is still quite small at $6 billion, limited to a handful of monobrand stores and luxury malls. There is growth in the bridal sector, mostly by local players, and overall high-net-worth Indians have a preference for local over international brands. But as Gen Z and millennials mature, and their willingness to adopt global fashion trends like casual wear over the current preference for saris and more traditional clothing grows, there is a potential for international luxury brands, especially as local real estate developers build more luxury malls. Still, much depends on economic growth and wealth of the middle class.