A Word from the Associate Dean: Luxury in India: Impediments to Growth

Adapted from a presentation given at the Mint Luxury Conference in India

For a nation to succeed in an industry, four elements are at play: the demand within the market, related and supporting industries, firms that rival and compete within this structure to create innovations, and the environmental (political, legal, economical, social, technological) conditions necessary for the industry. These include infrastructure, high duties, varying tax structures, bureaucratic delays, etc. With these four conditions to consider, the role of the State is also key to making it successful.

The first condition is demand. Is there a demand for luxury goods in India? Data from studies done by  Bain & Co., McKinsey, AT Kearney, Credit Suisse, KPMG, ASSOCHAM-YES Bank indicate yes, and that this demand will grow exponentially between now and 2015 and 2030. Users of luxury goods will consume in India and/or abroad. Very few people buy luxury goods every day. Luxury buying is not a rational behavior. A woman will buy a dress the same day, not wait and take a plane to buy it later to save some money. A man in love wants to buy a solitaire ring; he will not wait for months to buy it during his next travels, to save some money. Demand exists.

The second condition is the growth of related, supported, and upstream industries which help, provide, and feed the luxury industry. It is not a secret that India supplies a considerable proportion of materials and ideas that go into the creation of luxury goods. The watches and jewelry sector is the leader here, followed by leather and accessories, perfumes and cosmetics, and consumer wines and spirits. For example, in March of 2013 French firm Pernod Ricard[1], which sells brands such as Chivas Regal, Absolut Vodka, Malibu Rum, Ballentine, etc., became the No. 1 most profitable firm in India. According to Alexander Ricard, Chairman and CEO, this is a result of meticulously following a “trading-up” or premiumization and innovation strategy aimed at the emerging middle class. If a French company can understand how to take advantage of the supporting and related industries such as tourism, hotels, and the needs of the growing middle class, it might not be so difficult after all.

The third condition must incorporate oligopolistic firms that compete within this structure to create innovations. This condition is gathering momentum in India, for example with Genesis Colors and its tie-up with Jimmy Choo, Burberry, Canali-Armani, Etro, Paul Smith, Sephora, Reliance Brands with Paul & Shark, Zegna, Thomas Pink, DLF Brands with Salvatore Ferragamo, and a host of other players. Most of the French and Italian brands are present in India in some way. As both the brands and their partners compete for retails space, for loyal customers, for a product-pricing niche, and for access, innovations are bound to happen which will in turn create an ecosystem to bolster the luxury industry in India. A key question to keep in mind is the challenge of finding the “needles in a hay stack” customers early on, the loyal customers such as those found by LV in the wedding market Delhi-Haryana.

The fourth, environmental factor is still evolving and not so bleak. The single brand and multi-brand retail bill is on its way, and while there are impediments, it is a first step. What can happen in China cannot happen in India. It is the stark reality of the world’s largest democracy. India must hold on and understand that it will take time, also recognizing that here the State has a role to play. On the other hand, India has always outshone and gone ahead with its entrepreneurs (IT industry, family groups…). What in China has always been accomplished with the State, India has shown through history that it can innovate despite the State. Of course, a proactive role from the government always helps as a catalyst.

By the way of conclusion my key takeaways are as follows:

  • The crystal ball shows that within the four main (demand conditions, upstream industries, oligopolistic behvaior and environmental factor) which India needs to tackle – three of them are positive.

  • The fourth factor condition of environment will always take time and we need to be patient.

  • A proactive role from the Government always helps as a catalyst.

[1] The maker of Absolut Vodka and Chivas Regal Scotch whisky crossed the $1-billion sales mark in the country in 2011-12 when its sales rose 34% to Rs 5,941 crore, making India the fourth-largest market for Pernod Ricard. Its net profit soared 77% to Rs 593 crore during the period, according to the Registrar of Companies, where it filed the financial results in January, making India the fifth-largest contributor to the French firm's worldwide profits.

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