Tuesday, December 24, 2019

Luxury Retailing - Retail 2020 (Article #3)

I started my career in Retail in 1997 scooping ice-cream at Baskin Robbins’ second outlet in India and first in Chennai (then, Madras). As the current decade comes to an end and an exciting one unfolds, I am writing a series of 20 articles over 20 days (10 in Dec ’19 starting 22/12 and 10 in Jan ’20) on the various Retail developments I have personally witnessed since 2001 onwards. Today, I have written about the Luxury Retailing Industry which is pegged at US $ 1.3 Trillion globally and growing at a CAGR of 12%.


Many years before when I was responsible for setting up India’s first ever retail arena at India’s first private airport at Bangalore in 2006, I had a special focus on creating a luxury retail zone. When I approached global brands like Apple, GAP, Omega and many others in India and abroad, they didn’t evince much interest. For India was not even a budding Luxury market then. Mont Blanc writing instruments, which is among the Top Brands sold across Airports worldwide didn’t have a presence in India at the time with a standalone store and we were keen to bring them on board at the Airport with an exclusive store, but the principals politely declined the offer. I have a long list of such disappointments from my tenure at BIAL. 

Today, things are different. The global luxury market is pegged at US $1.3 Trillion annually (including services such as Travel, Resorts and Hospitality) and India alone has an estimated market size of $6 billion growing at 9% CAGR since 2012 – across various categories ranging from Watches to Clothes, Automobiles to Cigars, Wines to Writing Instruments and so on. Incidentally, the Luxury Market size of China is pegged at $25 Billion and growing twice as fast as that of India. USA remains the largest contributor to global luxury retailing at over US $85 billion followed by Europe at an estimated US $65 billion. 



Much of the luxury consumption in India is attributed to two budding customer segments – HNIs and their families living in Tier 2/3 markets and HENRYs – High Earning Not Rich Yet Individuals. Apart from these, the core segment remains eminent business families, celebrities in Sports and Arts and professionals in Industries such as Banking, Manufacturing, etc. to name a few. A “Titan Watch” and a “Raymond” Suit were the preferred gifts for the bride and groom at most middleclass households (including yours truly) two decade back. But things are much different today. Most Indians who consume luxury brands neither have an idea why the brand is luxury (rather, priced so high) nor do they appreciate the craftsmanship of the product. As the saying goes – Aim for the sky and you would end up at the roof, I was eyeing a Patek Phillippe for over 3 years but finally ended up with a Longines Limited Edition a decade ago (which happens to be my last luxury catch @ Rs. 1.40 lakhs then!). It was a lot of hard-earned money coupled with dreams and ambitions built over time (Miles2Go). But when I see the GenZ & Millenials sporting luxury brands today, be it a shoulder bag from Prada or a pair of sneakers from Nike meant for trained athletes, they do not appreciate the purpose of the luxurious product beyond the “badge value” it adds to their self-esteem and prestige. 

Same is the case with electronic products, especially from brands like Apple or Bang & Olufsen. Apple fanboys (and fangirls) stand in Q all night to buy their coveted new launches since they mostly appreciate the features the product offers. Unlike in India, where the latest iPhone is more a symbol of prestige in the society and the associated benefits (like getting a table faster at a restaurant – I am not kidding!). While brands like Bose remained “luxury” and niche until a few years ago in India, thanks to deep discounting and presence on e-commerce websites, they are now competing with local and Chinese imports in their respective categories. 


Having said that, Luxury Retailing in India is still in its infancy. Even if the market grows at 10% CAGR for the next five years, we would still be less than 5-8% of the global market. No wonder Indian discerning consumers prefer to make a trip to Singapore or Dubai to shop for clothes and watches every few months. That they fly Business Class and stay at Mandarin Oriental or The Palms Jumeira is adding up to the global market size anyway.

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