That’s what the road ahead is likely to be for luxury brands in India. While there are indications that the market is mature enough to register a sharp growth, there are several impediments along the way. 

The Indian luxury market has grown by about 20 percent in the past four years, particularly in segments like jewelry, electronics, fine dining and automobiles, which have experienced a growth rate of 30 to 40 per cent. Apparel, accessories, wine and spirits have also continued on a steady growth path of around 25 to 30 per cent.

Interestingly, these aren’t traditional luxury sectors as we know of the industry in Europe, where luxury consists of five main categories – fashion and leather, watches and jewelry, wines and spirits, perfumes and cosmetics, and selective retail. In their point-of-view on the India Luxury market in 2013, Bain & Co. reported that traditional luxury goods grew at 10 to 20 per cent year on year and is estimated to be a 6bn USD business, while luxury cars grew at 20 to 25 per cent and has a market size of about 2bn USD.

Having said that let me also state two paradoxes. Buying luxury good is not rational behavior. The left brain (logical, analytical and objective way of thinking) has to match the decision with the right brain (the intuitive, thoughtful and subjective way of thinking) to come to a decision at the moment of spending. The buying behaviors of different consumers across the globe are different where this is concerned.

The second paradox relates to the desirability and accessibility of brands. The more desirable the brand becomes, the more it sells, but the more it sells, the less desirable it becomes. In emerging markets such as the BRICS countries, the potential size is worthy of mentioning if one goes by the increasing numbers of high net worth individuals (who possess over 1mn USD in onshore liquid assets) in these countries. For example, the HNIs in India increased from 46,000 in 2006 to a conservative estimate of 132,000 – a rise of 200 per cent. Wealthy and affluent households (with annual disposable income over 100,000 USD) increased from 700,000 in 2006 to 1,100,000 in 2013.

Going by the above conservative estimates, many would believe that the luxury market in India is set to explode. Some points in favor of the growth potential, then.

• India enjoys a demographic dividend. The young will be a force to reckon with and Generation Z’s buying behavior is not like those of Generation X.
• The rise of the single woman (and man) means that individuals have more disposable income and there is less pressure on family-related savings.
• Continuous trading-up, with buoyancy in spending, fuelled by continuous real income growth with the rise of the middleclass.
• More than 60 per cent of the revenues of French and Italian luxury brands come from Asia (around 30 per cent from China) and about 70 to 80 per cent of it is from countries other than their home countries, including foreign tourists. With the Chinese market reaching a saturation point there is no where else for luxury brands to go.

However, there are challenges. Unlike Chinese consumers, the Indian consumer is value conscious rather than brand conscious. They still spend most of their disposable income on Indian branded and non-branded jewelry. Next in line are watches, a segment which is 15 times smaller than the Chinese market and dominated by the grey market. The deterrents to the growth of the Indian luxury market could include:

• Misunderstanding amongst luxury brands about the Indian government’s policy of 30 per cent local sourcing. Most heritage luxury brands feel that this criterion cannot be accepted.
• Finding the right quality infrastructure. Space has been the biggest impediment to growth, as India does not have a luxury high-street or even luxury malls in adequate numbers. For example, Louis Vuitton has only five stores in India compared to 40 in China.
• ndian custom duties vary between regions but are uniformly exorbitant at 100 to 300 per cent. Thus HNI consumers prefer to shop abroad in Dubai, Singapore, HK or Paris, London or Milan.
• There is a serious lack of skilled services. A considerable number of luxury companies are concerned about the shortage of skilled people who understandthe heritage and legacy of a brand as well as the specificities involved in the manufacturing process.

Due to these reasons, the travelling pool of haves and HNIs will be lured to buy luxury goods abroad. Market development, education and penetration will be a slow and gradual process in India, but no one denies or the sector is optimistically waiting for a time-warp.