The Indian Luxury Consumer: Rapidly maturing and looking for more Any study of the luxury market needs to conclusively address core questions around the luxury customer – Who, What and Where. To fully understand answers to these questions, we interviewed existing and prospective customers across various locations, income and age groups. We also interviewed industry leaders across all luxury categories on the Indian consumer and the changes that they have observed over the last few years. In this section, we shall provide answers to three basic questions: 1. What constitutes luxury in India? 2. Who is the luxury consumer?
What has changed in the last 2-3 years? 3. How is the behavior of the luxury consumer changing? 4. What are their specific tastes and preferences? 5. Where do they make their purchase? Luxury in India – more aspirational luxury than ultimate luxury Industry leaders across categories believe that luxury is not only determined by price. Exclusivity is a far more important parameter for a product or service to be called luxury. As such customization, uniqueness, and even understatement is important. Design, use of exquisite materials, presentation and personalized service all contribute to luxury.
Consumers also talk about exclusivity, uniqueness and appeal to personal taste. This is not as yet corroborated by increased sales of “ultimate and subtle” luxury products. The majority of the market is still far away from this definition and brand/logo/badge value drive luxury purchases very clearly. Size, flashiness, clearly visible logos, well known brand are the key considerations in the purchase. That said, traditional attributes such as high quality, heritage, longevity, the “stories” associated with brands are beginning to emerge as drivers of purchase.
Bulk of the Indian market is still dominated by the more accessible and aspirational luxury products. Status – announcing your arrival into the elite segment of the society – is the biggest motivation still. The mindset is still that of an “aspirer” not that of a “connoisseur”. The Indian luxury consumer – new insights The Indian luxury consumer has been studied a few times now. Various segments have been identiofied by earlier studies. The old money/new money/gold cuffs/.. (Luxury Brands) and Industrialist/Corporate/Professional/ (Economic Times – A.
T. Kearney India Luxury Review 2007). The focus of our consumer research was to find out how the consumer has evolved in the last 3-4 years. The accepted wisdom is that industrialists and traditionally wealthy families is the largest segment, senior corporate executives are a smaller but emerging segment and young professionals are entering the market. Our research has shown that by and large the consumer segments that constitute the bulk of the market have not changed significantly, although finer sub-segments are now more apparent:
Medium size enterprise owners: This is the largest segment in terms of number – these are typically the medium enterprise owners – industrialists and traders who run businesses with revenues upwards of 50 cr. The source of their spending is the surpluses generated by the business. Many of these have grown as the economy grew rapidly in the last twenty years. Their wealth is their passport to the elite segment of the society and conspicuous consumption is their way of announcing it to the society.
The children who tend to be second or third generation are the bigger spenders, having been educated abroad and hence familiar with brands and the luxury way of living. They are now educating and enticing their more conservative elder generation into spending. Interviews also reveal that those who generate cash need to necessarily spend it and luxury goods are a good avenue for spending. These are very frequent luxury consumers and consume the entire gamut of products and services and some assets like cars and real estate. These consumers shop around for deals and bargains, including international travel.
Traditionally wealthy families / large industrialists: This group comprises two sub-segments – the first is the traditionally wealthy families – who have been consuming luxury for several decades and go for the finer things in life. The largest business houses in the country and historically wealthy Marwari, Gujarati, Parsi, Punjabi families epitomize this class. The other sub segment comprises the promoters of some very large businesses which have come up in the last two decades and have created disproportionate wealth very quickly.
Builders, miners, diamond merchants, stock brokers, new age enterprise owners fall in this category. Many of them have migrated to the highest ladder of luxury consumption very quickly by acquiring yachts, jets, houses and really expensive cars. Corporate executives: Senior executives of corporate India who are paid in excess of Rs. 1 crore and bankers who earn big bonuses epitomize this category. These executives are well traveled and are aware of brands. Most of these are in their mid-late forties and represent some of the brightest minds in the country.
Many of them though have come from middle class backgrounds and hence have a conservative approach on conspicuous spending. While they can well afford to spend, their propensity to spend is low. A gradual change is being seen as they see more and more of their compatriots spend. These consumers spend on some luxury products such as watches, accessories, select apparel, fine dining, international and domestic travel and high end cars. They also tend to shop on their frequent international trips to get the best deals.
Self employed professionals: These comprise of professionals such as lawyers, doctors and architects: A small but niche segment, comprising the top stars in their profession, who have made it big. While many of these come from middle class backgrounds, they use their new found wealth to live a good life. They shop for the entire range of products and services although are found less often at the absolute top end of the ladder. Young professionals: Working in service industries – these earn the least compared to the others, but since they don’t have family responsibilities, the disposable part of the income is high.
They are in tune with the latest fashion trends, travel abroad once in a while and believe in spending on what they fancy. They tend to consume entry level products and are infrequent consumers. Other segments: Expatriates: Expatriates in the country are growing and they are staying for longer periods: These are on expatriate packages and are accustomed to luxury consumption in other parts of the world. However most of these fly back very frequently and stack up on their luxury products need on these trips. Luxury services and assets (mostly cars) are influenced in a small way by this segment.
The segment is definitely driving the increasing awareness and need for luxury products Politicians and bureaucrats: Interviews reveal that politicians and bureaucrats are a large segment for all luxury products, but have a much more pronounced preference for jewellery, watches, cars and real estate. Contrary to the popular perception that is generated by the flashy lifestyles of film and television actors, they are not large spenders by themselves and collectively it is still not a large segment. Luxury consumption of film and TV stars is paid for by the producers.
They alsoi shop abroad a lot. Many celebrities belong to rich business families and owe their luxury consumption to their family wealth or get a lot of luxury products as gifts. Citywise sub-segments: There are sub-segments in each city that drive most of the purchases: * Mumbai – stock brokers, diamond merchants/exporters * Delhi – industrialists, traditionally wealthy, politicians, bureaucrats * Chennai – traditionally rich, industrialists * Bangalore – builders, IT top brass * Kolkata – traditionally wealthy Marwari businessmen, traders Age profile.
The average consumer is still young – between 30-45. This is in line with the overall demographics and is expected to stay that way for some time. It is thus a young luxury market in contrast with some of the mature markets like Europe and the USA where the average consumer is much older (need some data here). Consumer Behavior We found that while the average Indian luxury customer values High Quality, Exclusivity and Social Appeal as key drivers of luxury purchase, they are also very Price Conscious and often straddled with a “middle-class mindset”.
Corporate Professionals in particular tend to be more price sensitive than the Traditionally Wealthy and Business Owners. This is also due to the fact that the average “fashion consciousness” of Indian consumers is still quite low – most consumers prefer “well known” brands and make luxury purchases for “brand value” and not “fashion value”. The table below summarises the typical behavior patterns of the consumers in each of the segments | Medium Size Enterprise Owners| Traditionally Wealthy Families & Large Industrialists| Corporate Executives| Self Employed Professionals| Young Professionals| Average Age| | | | | |.
Awareness| Low| High| High| Medium| High| Fashion consciousness ( apparel and accessories)| Low| High| Low| Low| High| Price Consciousness| High| Low| High| Very High| Very High| Badge Consciousness| High| Medium-Low| High| High| Very High| Propensity to buy overseas| High| High| High| High| High| Greater awareness – rapidly increasing and the entry of brands, development of malls and magazines has helped. Compared to three-four years ago, the number of people who can correctly pronounce Chanel and Gucci correctly has increased dramatically, although there is still a long way to go.
What is interesting to note is that the Indian luxury customer is maturing rapidly and brand awareness has increased significantly over the past 3-5 years. Brands are beginning to see loyal customers who have their preferred set of brands. Among brands, the pedigree of a brand is very important. There is a heritage value with luxury brands – customer typically put more value on brands that have been around for many years. When it came to Indian brands, there is clearly a mixed perception. While most customers were willing to purchase luxury services from Indian players, the luxury products market still has a long way to go.
Specifically in services, Indian service quality is considered to be at par with the best in the world. Within products, the categories that customer preferred have a high class value attached to it. Hence very select categories like jewellery and Indian designer apparel products are considered ‘luxury’. Fashion consciousness – changing very fast, dressing for a look increasing in the metros – still a long way to go – in the words of one of the luxury fashion CEOs – Indians are “sartorially challenged”.
The younger members of the rich families and the young professionals are leading are leading the pack. Badge consciousness – continuing, no doubt. A logo is probably the most important thing about a product. It is easier to sell a pair of sunglasses or a polo shirt where the logo is clearly visible than a shirt where it is not so obvious. Price consciousness – here to stay.
The entire industry acknowledges this and both the principals and the Indian parties strive hard to match prices to make it price neutral for the Indian consumer who would not mind taking a flight to Singapore or Dubai or ask someone to get it, if the difference is more than 3-5%. The economics is simple – its costs 15-20,000 for a return trip (economy of course! ) to Dubai or Singapore. On a product costing upwards of Rs. 200,000, this is less than 10% of the product price. That puts a limit on the amount of premium that anyone will be willing to pay for products that can be easily purchased overseas and carried back. The grey market will willingly carry products for a fraction of the cost of a return trip.
The only exception is cars – where it is not possible to bring it in – either legitimately or smuggled. Propensity to buy overseas – reducing but still very significant. One interesting observation is that Indian luxury customers are not averse to buying from India, just that they feel there are better avenues abroad. One of the key challenges is to provide luxury shopping destinations that offer a variety of brands under one roof. While most of them purchased from boutiques in New York or Malls in Dubai, in India there are not many avenues for luxury purchase.
While most consumers also make luxury purchases in India, shopping abroad is still by far the preferred option. Consumers have certain perceptions about luxury shopping in India, that have held them back making large scale and frequent purchases in the local market. Interviews with industry leaders reveals that the consumer wants the same package here – merchandise (range, freshness), convenience (location), price and experience (ambience, service) – with an extra expectation of service, given that this is India, where labor is cheap.
The development of the Indian duty free has meant that Indians have an option of buying duty free products in India when they arrive rather than carting it all the way from popular shopping destinations overseas. Consumers still believe that the widest, most recent range is not available here and that prices are more expensive here, though at least two of these clearly are myths that need to be broken. In fashion, collections are designed for the whole world once, no one creates separate collections for India and old collections are not available.
Width of range is a trade-off that has to be made depending on the depth of the market, so that is a possibility. Converting the overseas market is a big challenge for retailers. Propensity to buy from the grey market – by all accounts, this is reducing in established brands. Concerted efforts by players to bring in the latest merchandise, efforts by brands to supply products at lower prices to India and Indian retailers willing to work on thin margins has meant that the consumer now gets a good bargain. New brands which consumers want and are not available find their way through this channel.
Driver of Luxury consumption: Number of HNIs, HNI Wealth or Household Income? It is generally accepted that luxury market size is positively correlated to household income (GDP/capita), the number of high networth individuals and/or their wealth. Discussions on luxury are never complete without a reference to these parameters. A correlation between the size of the luxury market, the GDP/capita, number of HNIs and HNI wealth over the years 2004-2009 shows that in terms of importance the number of high networth individuals is the most important driver, followed closely by GDP/capita and HNI wealth.
Interviews with leading luxury brands in India points to the fact that family wealth is a very strong determinant of spending than household income. Consumer interviews with traditionally wealthy families indicates a very interesting pattern – they are habitual consumers of luxury and less price conscious. Some of the segments mentioned above would fall in the HNI category. However luxury consumption in India is not limited to only the HNIs.
The masstige phenomenon can be observed very clearly in India. Luxury products in India are appealing to, and purchased by, middle-class consumers that do not fit the typical profile of an elite consumer segment. For these shoppers, luxury represents status and prestige, a place in society that they fit into as a result of their purchase of high-end products. This phenomenon is observed even in the large mature markets such as UK, where a large number of individual consumers buy very small volumes.
Luxury goods companies develop products that re-enforce the “masstige” and drive volumes. As such it is very important to look at the other indicator of the market – the GDP/capita. In India given the fact that wealth is being created due to the rapid growth, growing household incomes are converting the middle class into emerging luxury consumers. As such there is a large segment (below the 1 cr income category) where while the wealth might be low, it is the incomes that are driving the consumption.
Measured in PPP terms, 25 -100 lakhs in India is equal to $ XX-YY,000 of income in the US or EUR AA-BB,000 in Europe, which is definitely a luxury consumer. The above two factors combine to make the consumer spectrum in India very broad. Our research shows that sporadic/ infrequent luxury consumption for products and services begins when annual household income goes upwards of Rs. 20 lakhs, becomes frequent when annual household income crosses the Rs. 1 crore mark and becomes habitual when the wealth crosses the HNI milestone ($1 mn in liquid assets).
For luxury assets, the markers are understandably much higher and even within assets, the ladder become quite steep as one goes higher. For example, consumer for private jets would be the top 200-400 richest families in the country – the billionaires, super rich families (the HNIs) – anywhere around 200-400 families – such as the private jets, yachts and the largest houses – earning anywhere upwards of 50 cr per annum or with family wealth in excess of 100 cr. The spectrum thus begins at rupee millionaires and goes all the way to real billionaires.
While the small traditionally super wealthy families who know what absolute or real exclusive luxury means, and can be called connoisseurs, bulk of the incremental wealth generation in India has been the the handiwork of new age businessmen/industrialists – who were not so wealthy a couple of generations ago. As the “new money” matures, one can expect that the tastes and preferences will also evolve. | | Rupee Millionaires| Near Millionaires| Real Millionaires| Category| Household Income| 10-25 lakhs| 25 lakhs – 1 cr| 1-5 cr| 5 cr+| | Networth/Wealth| | | | |.
Estimated number of households| 2,373,000| 1,292,000| 141,000| Typical Occupations| Service Industry professionals| Corporate Executives, Self Employed Professionals| Medium Enterprise OwnersTraditionally wealthyCompany CEOs, top bankers| Large IndustrialistsTraditionally wealthy| Luxury products| Low ticket value items such as leather accessories ties, cuff-links,Wines and spirits, personal care| Watches, some apparel, accessories| All| All| Luxury Services| Spas, Infrequent fine dining| Travel, frequent fine dining, hotels, spas| All| Luxury Assets| | | Cars, YachtsReal estate, Paintings| Private jets|.
Geographical distribution of consumers Luxury consumption in the country has so far been concentrated in Delhi and Mumbai with Bangalore being a distant third. Brands have been thinking of expanding their footprint beyond these cities and have been wondering about where their next store should be opened. We now believe that the distribution of the rupee millionaires is a good indicator of the luxury consumer distribution in the country. We also believe that for luxury consumption to take off a minimum critical mass is needed in a city.
While Delhi and Mumbai continue to be the mainstay markets for luxury consumption, there are several other cities with a large base of potential luxury consumers. A look at the figure below suggests that while Mumbai, Delhi and Bangalore are the top three cities, other cities also have significant potential for luxury consumption. Show a chart between the number of families (X-axis) and the growth 2006-2009 (Y-axis) and number of such households as the bubble size. Use the data below. Year| 2006-07| 2009-10| | Income Category| Annual income >Rs.
10,00,000/-| CAGR| Top 20 Cities ranked on the basis of Annual Market Size| Number of Households| Number of Households| | Delhi| 132,258 | 348,000| 38%| Mumbai| 98,164 | 347,000| 52%| Bangalore| 101,550 | 126,000| 7%| Thane| 69,658 | 137,000| 25%| Pune| 57,130 | 106,000| 23%| Chennai| 28,025 | 109,000| 57%| Ahmadabad| 45,224 | 91,000| 26%| Hyderabad| 26,670 | 69,000| 37%| Surat| 34,457 | 60,000| 20%| Coimbatore| 18,076 | 37,000| 27%| Salt Lake (Urban Areas in “North 24 Parganas” district)| 14,373 | 65,000| 65%| Kolkata| 15,790 | 94,000| 81%| Thiruvallur| 17,837 | 22,000| 7%| Lucknow| 20,654 | 29,000| 12%|.
Jaipur| 27,011 | 21,000| -8%| Vadodara| 22,911 | 53,000| 32%| Nagpur| 23,637 | 46,000| 25%| Kancheepuram| 13,920 | 24,000| 20%| | 767,345 | 1,784,000 | 32%| Source: Indicus Analytics| | | | Extrapolating the growth rates seen in these cities, over the next 3 years implies that several new cities will become potential centres of luxury consumption. Kolkata, Chennai, Hyderabad, Pune, Vadodara are high potential destinations to watch out for. A quick comparison with China shows that there are atleast 20 cities/towns where luxury brands are present. Comparison between luxury stores in India and China.
| LV| Burberry| Chanel| Hugo Boss| Beijing| 3| 2| 2| 9| Shanghai| 3| 2| 5| 5| Other Tier I| 6| 6| 0| 8| Tier II| 12| 10| 1| 22| Others| 11| 13| 0| 43| | LV| Burberry| Chanel| Hugo Boss| Mumbai| 2| 1| -| 1| Delhi| 2| 1| 1| 1| Bangalore| 1| 1| -| 1| Others| -| 1| -| -| We believe in the next 5-7 years, atleast 5-7 new towns will get added on the luxury map of India. We also believe that the potential in Delhi and Mumbai has not been fully exploited and that there exist a few more micro markets within these cities that need to be tapped. Pockets of wealth and good infrastructure could be the next big destinations.
In Mumbai, South Mumbai, Central Mumbai, Bandra/Juhu, Powai and Thane are micro markets which are far enough from each other, have concentration of wealthy families and decent infrastructure. In Delhi, similar micro markets could be South Delhi, Gurgaon, Saket, ….. In summary, while the Indian luxury market is evolving, so is the luxury customer. Understanding the nuances of the customer is extremely critical to succeed in this dynamic industry.