The Luxury story in India

The roots of the luxury goods industry in India date long back in time. The land of Rajas and Maharajas, India was renowned for its opulence. Jacques Cartier visited India in 1911 in pursuit of fine pearls and persuaded a number of Maharajas to reset their jewels using Cartier designs. However, with unrest in the country, the market for luxury goods almost ceased to exist post independence. During the License Raj, when Income Tax rates were as high as 90%, anyone who could own high-end luxury products was perceived as devil.

Today, India with 126,000 HNIs (High Networth Individuals) and another 3 million households earning above 10 lakhs, is truly ready to consume luxury. The base is huge and the market promising, according to Confederation of Indian Industry (CII). The highly uneven distribution of income in India means that wealth is concentrated in small pockets- with the wealth held by the 100 richest Indians being comparable to that held by the 400 richest in mainland China.

The luxury market in India, despite the high potential remains surprisingly small. While China, makes up 10% of the global luxury market while India accounts for less than 1% according to data by Altagamma.

With the issue not on the demand side, it is the high import tariffs (30%-40%) and restrictions on FDI that keep several foreign luxury retailers off India shores and constrain supply.

Another constraining factor has been a lack of upmarket spaces where luxury boutiques may set shop. Decades ago, when luxury brands forayed into the Indian territory they had to make do with the five star hotels’ shopping arcades due to lack of decent luxury retail infrastructure in the country. While this problem has been resolved partly with the set up of two dedicated locations for luxury products — the DLF Emporio mall in Delhi and the UB City Mall in Bangalore —there is nothing akin to a New York’s Fifth Avenue or a London’s Bond Street in the country.

Making matters worse, while brands pay exhorbitant rentals for a retail space at luxury malls, their sales remain low as they get many customers who visit the shops simply to get a feel of the luxury products without an intention to make a purchase. This is because many of the elite Indian choose to shop abroad to escape the custom duties, while foreign visitors stick to shopping arcades in five star hotels.

For most brands today, meeting immediate sales targets is not the objective. Most of them are here with long-term plans, hoping that conditions will get more favourable over time and they will be able to capitalize to the Indian Growth Story. However, whether India does go the China way, remains to be seen.