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Indian Luxury Market Difficult to IgnoreThe Mint Luxury Conference 2011 revealed that the Indian luxury market is growing at a phenomenal pace, and is expected to witness a tenfold jump from $3 billion at present to $30 billion by 2015. It’s no wonder then that India is on the radar of all global luxury brands. One-third of all luxury spending in India is on jewellery. The figures are so exciting that it is difficult to ignore them. Are Indian jewellers paying attention? Shanoo Bijlani and Regan Luis report.

he who’s who of the global luxury industry, top designers, and policy makers descended on Mumbai for the recent Mint

Luxury Conference held under the theme “Luxury: Triggers for growth”, at the Taj Mahal Hotel.

Solitaire focuses on two seminars relevant to the gem and jewellery industry. The first was a presentation by Laxman Narasimhan, director, McKinsey who spoke about ‘Luxury and the Indian

Consumer’. The other was a seminar on ‘Luxury Living – Jewels to Adorn You’ chaired by Duncan Mavin, life + style editor, Wall Street Journal Asia, who spoke to Maria Cristina Buccellati, image and communication manager, Buccellati Holding Italia, and Andrea Morante, chief executive officer, Pomellato.

India and the luxury marketIndia is poised to become the fifth-largest consumer market in less than 15

years – and that is not a long way off. Consumer shifts are already happening in a big way, throwing up plenty of growth opportunities and challenges for the Indian luxury sector.

Analysts at the luxury conference decoded the mindset and buying habits of the Indian consumer. In his enlightening presentation, Laxman Narasimhan of McKinsey revealed that “there is a major rebalance underway in the world, which is on the cusp of change. In 2030, India

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and China will be two of the top five economies in the world. There are some consumer shifts creating this Indian luxury opportunity. By 2015, the Indian economy will be about the size of Italy, while by 2025, it will equal the size of Germany.”

He noted that the Indian market is quite stratified and income is a big driver of this stratification. People in the first segment ‘Globals’ earn more than $36,000 a year, are well-educated, they travel overseas, are aspirational, are aware of brands, value quality and convenience, and their tastes are shaped by what is happening not just in India but abroad as well.

The second group of Indian consumers, whose incomes are in the range of $14,000 to $36,000 per year, are also well-educated, use a mix of brands some premium but very little luxury; they clearly have aspirations for things that are bigger and better, and are growing rapidly in terms of vertical mobility.

Below them, the ‘Seekers’ or ‘Aspirers’, with an annual income of $1,500, are not a target of the luxury industry at this point in time. Narasimhan informed, “This segment represents the middle class or the poor who mainly spend on essential commodities. What’s interesting is that looking at the

consumption picture, 60% of India’s GDP is driven by private consumption. These numbers are similar to the US, which is about 70%, or Japan which is around 57%, which is quite different from China which is 39% of domestic consumption.”

In 2008, Chinese luxury market accounted for 8% of the global luxury sales, and this figure will rise to 20% by 2015. India, which had about $2-3 billion of luxury sales in 2008, is all set to grow quite substantially to $30 billion by 2015. In comparison, China’s luxury consumption is pegged at $22 billion. “So, between India and China you are looking at a quarter of the global luxury market in 2015,” he said, adding, “Interestingly, the growth in India between 2015 and 2020 will actually become even larger, particularly as more people come into the consumption curve.”

This is exactly the case with China, where rising incomes have enabled more households to move up into the luxury consumption bracket.

Luxury landscapeThere is a lot of concentration of

wealthy households in both India and China. Half of China’s wealthy people live

Duncan Mavin (centre) flanked by Maria Cristina Buccellati and Andrea Morante.

India is rolling out the red carpet for international luxury brands.

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in the top 10 cities. For instance, four tier I cities – Beijing, Shanghai, Guanzhou, and Shenzhen – account for 31% of wealthy households.

Similarly in India, 43% of the wealthy households are in Delhi and Mumbai. And the top eight Indian cities, which include Pune, Hyderabad, Chennai, Bangalore, Ludhiana and Kolkata, make up 60% of wealthy households. Notably, wealth is more concentrated in India than it is in China, Narasimhan said.

In 2008, Shanghai had 240,000 households that were relevant to the luxury segment. In comparison, San Francisco had about 150,000 households, Beijing, about 140,000 households and Washington, DC had 100,000 households.

By 2015, Mumbai will be bigger in terms of the number of households in the target segment than Shanghai was in 2008. Similarly, Delhi in 2015 will be larger than Beijing today, he noted. Above all, Indians are brand-conscious, and they

want to try more foreign brands. The youth will drive growth in luxury

consumption. Today, almost half of China’s luxury consumers are between the ages of 18 and 34. This is quite remarkable as these people are exposed to brands at an early age and they are the ones who will want to buy luxury products, he said, adding, “Similarly, the youth of India, which constitute more than half of the entire population, will continue to drive luxury sales right until 2040.”

Jewellery driversLocal preferences continue to dictate the pattern of luxury consumption in both China and India. Some 26% of Chinese luxury consumption is in the ready-to-wear category, while 9% is in jewellery. By contrast, 30% of India’s luxury consumption is in jewellery, while 20% is in ready-to-wear. If this jewellery-buying trend continues, and with the Indian luxury market expected to touch $30

billion by 2015, jewellery’s share of the pie will be $9 billion.

Likewise, local tastes and local sensibilities do play an important role. For instance, in China, half of all jewellery sales are driven by weddings, 15% is driven by festivals, and then family occasions, gifts and impulse purchases account for the rest. In India, too, the scenario is the same as far as bridal sales are concerned. Over 50% of jewellery sales are wedding related. The other major drivers are festivals, including the ‘new found’ ones like Akshaya Tritiya and Pushyanakshatra, which have all of a sudden become big events and see a tremendous amount of gold consumption.

India retail challengesThe Indian luxury industry is facing four main challenges, the first is real estate. Indian luxury real estate (comprising luxury malls and stores in five-star hotels)

Maharashtra chief minister Prithviraj Chavan addressed the gathering.

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was estimated at 1.2 million sq ft in 2008, which worked to 3.8% of all retail space in India. “At that time, there was clearly a lot of excitement about what the future would look like, and estimates before the recession forecast that India’s luxury real estate in 2012 would be in the region of 3.1 million sq ft, or 2% of all available retail space,” Narasimhan said. Looking forward, it is now estimated that we will have about 1.6 million sq ft of luxury real estate in 2012, or 3% of all retail space.

The second challenge is reducing taxation and duties on luxury goods. The third challenge is infrastructure development. According to Narasimhan, the luxury industry is going to be driven by income-related growth and, to a greater extent, by GDP growth. So, investments in power, roads, bridges, railways, airports are essential for the economy to continue growing at 8-10%. However, we are way behind in several of these areas, he added.

The fourth challenge is continued local adaptation that is going to be important as consumers here go through a revolution. There could be a big role for brands to customise products to suit local tastes and deal with specific needs for local occasions.

Are you ready for India? With the gradual evolution of the Indian luxury market, global brands will require guidelines in order to be successful here. The Indian luxury market is big and will only get bigger. As economies like India’s go through their usual ups and downs, luxury firms will need very strong corporate commitment in order to ride it out and become central to this economy.

The second is the notion of ‘flexing to fit’; and companies will have to fine-tune offerings to meet Indian needs. The third point is finding ways to make a brand more relevant, particularly to the young population. Brands must look to reach the affluent young, who will be core consumers of luxury 10-15 years from now. They should try to get them into the fold soon, and ensure they remain loyal as they go through the cycle of growth.

The fourth is finding ways to merge

Indian crafts and skills with global products. The fifth tip is building brands and having a strong online presence as India is going through its digital explosion and the number of people connected to the internet will quadruple in the next five years.

Focus on luxury jewellery Maria Cristina Buccellati of the renowned Italian jewellery house Buccellati informed the audience that the firm, which is well known for its three signature styles – gold engraving, flexible lace jewellery, and engagement rings is willing to consider stepping into the Indian market. “We have several stores around the world and are open to launching stores in Mumbai and Delhi once we study the Indian market. I was quite shocked to see the interest in our products because I thought that nobody knew us here,” Buccellati said.

She added, “The main thing about our production is that it goes through generations; it’s timeless, and will never go out of fashion because we never follow any trends and retain our identity by following our own style. We also do a lot of museum shows among them the most important are the Smithsonian in Washington and at the Kremlin, Russia, which associates us with heritage and culture. We are a family-run company like most Italian jewellery firms, and we are proud to continue being a private company.”

Buccellati was started in the beginning of the 19th century, and every piece of jewellery is entirely handmade. Around 70% of the firm’s jewellery is one of a kind. “It’s completely designed by my grandfather, father and brother,” Buccellati said. “It takes a particular level of workmanship to impart preciousness to an object and a lot of research goes behind it. Everything is made by skilled artisans who have been trained for 20-30 years; and many of them are the descendants of the people who worked with my grandfather.”

Andrea Morante of Pomellato

informed that his firm was established in the late 1960s, and focuses on creating jewellery for everyday use, and develops a new collection each year. The average ticket items sell between €3,500 and €5,000, and its high-end products sell from €90,000 to €120,000.

Remarking that India is a very tough market for his company, Morante elaborates, “I have some hesitation in saying that I will open a store in India. I know I have to be in the minds of potential Indian consumers, but I cannot measure when to start. This is mainly because of the issue of infrastructure, which has to be sorted out before the retail network starts to kick in very seriously.”

Morante believed that in addition to poor infrastructural facilities, most global brands present here were not making enough profits, which prompted some of them to turn back. “India’s retail infrastructure alarms you. Until such time that it improves, it is very difficult to decide the retail location. If you want to be on the best street in Mumbai, then the high rental costs will deter you. And if you choose a multi-brand upscale mall, then you may find yourself next to other brands which are not of the same quality or level.

“The third reason is the historical tradition of wanting to buy jewellery from family jewellers you already know and trust. That tradition is long gone in places like Milan and Paris, but it still exists here and you have to face that reality,” he commented.

One of the issues facing the jewellery industry is branded goods versus non-branded products, Morante observed a shift towards branding, and even major fashion brands like Gucci, Prada, etc. are looking at producing jewellery. “I consider this a good sign as it will create an audience for branded jewellery and will increase the visibility of brands in India, thereby increasing the pie for everybody. It will be a positive development for the industry as a whole,” Morante concluded.

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