What Ails Luxury Retailing in India?

While external investors have much to cheer about growth across most sectors in India, the one sector that's really taking a while to take off is the luxury goods sector. The only exception being luxury cars which are having a dream run even in the smaller Tier II cities.  Five years ago, analysts estimated that the Indian luxury goods market would witness a significant boom; which spurred the interest of several luxury retailers who came to set shop here. Today, India enjoys only 1% to 2% of the global luxury market and trails well behind other emerging nations - Brazil and Poland. China on the other hand, with its new found riches is leading ahead with a 30% share of the global luxury goods market. 

What impedes the sale of personal luxury effects such as watches, handbags and clothing in India, especially when neighbouring China with a near-similar demographic profile has now earned a lion's share of the global luxury goods market? And why is it that the urban Indian of today - who works hard and plays hard, so "luxury shy"?

Insiders in the luxury retail industry indicate several challenges in winning over the Indian market, but they broadly stem from two fronts - policy and infrastructure, and the Indian mindset. 

Policy and Infrastructure - Government policy in India has long discouraged luxury goods consumption according it low priority and high import duties.  Further, lack of adequate infrastructure - such as luxury malls built to international standards, has deterred global luxury brands from setting shop in the country. They prefer to retail through franchise outlets that unfortunately do not create the same service standards or the shopping ambience that a seasoned luxury shopper would be used to. 

Indian Mindset - The Indian customer is highly value conscious. Even the super-rich Indian expects to have a cost split on every item - say, stones, metal and other accessories, when buying a luxury jewellery watch, and carefully evaluates the true worth of the product before buying it. Being cost-driven, rich Indians also flock to countries abroad - where import taxes and excise duties are much less, to shop for their luxury goods.  And then, there is also the degree of cautiousness and reserve that Indians have in flaunting their wealth - especially over perceived frivolities such as shoes, watches and handbags.

But then, retailers are aware that like with most things, customers respond to habit in their buying behaviour. They are optimistic that creating the presence and being visible to today's young shopper will eventually bring in the results. As Gayatri Ruia, Development Director of Palladium, the Mumbai-based luxury mall observes - "An 18-year-old buying Mango, will want to buy Armani when she's 24, but she needs to see it when she goes shopping at 18."


About the author: Lakshmipriya Somasundaram is a Contributing Editor for TradeBriefs. She can be reached at lpsom@hotmail.com