Luxury sales to surge in India

26 November 2012

NEW DELHI: Luxury sales in India are expected to surpass $14bn in 2015, as the sector benefits from rising demand and greater interest from brands following regulatory reform.

According to a report from ASSOCHAM, the industry body, and Yes Bank, the financial services provider, category revenues should reach $14.7bn in 2015, versus $8.2bn in 2012 and $4.8bn in 2009.

More specifically, premium products are due to yield sales of $5.4bn by the end of the forecast period, compared with $2.9bn this year, and $1.5bn three years ago.

High-end services are anticipated to register returns of $1.5bn at the mid-point of the decade. This will mark an increase from a projected $1.1bn during 2012 and $770m in 2009.

Luxury assets, however, are likely to remain the largest segment throughout this timeframe, worth a total of $7.9bn in 2015, measured against $4.3bn in 2012 and $2.5bn in 2009.

These figures drew on a survey of 300 brand owners conducted to analyse changing attitudes after the Indian government decided to allow foreign companies to fully-own their Indian retail operations.

Previously, overseas corporations were limited to holding 51% stakes in joint ventures with indigenous partners, and the relaxation in regulation appears to have exerted a significant impact.

Upon discussing their preferred entry strategy for India, only 14% of executives thought wholly-owned local business units were the best way to progress before the reforms, a score now standing at 25%.

Such ratings reached 31% and 21% respectively for licensing or distribution agreements, and hit 26% and 20% in turn with reference to trading in India on a franchise basis.

Interest in forming joint ventures rose from 30% to 33% after the new rules were introduced, suggesting that many multinationals still see the advantage of having a domestic ally with market knowledge.

"Most brands prefer to stick to Indian partners because of the knowledge that Indian partner brings in terms of understanding the consumer demographic and preferences of the Indian luxury consumer," Sanjay Kapoor, managing director at Genesis Luxury, said.

One obstacle is the stipulation to try and source 30% of materials from Indian firms. Some 26% of the panel argued this would impact product quality, while 23% pointed to bureaucracy and infrastructure issues, and 16% cited a lack of key skilled labour.

"The heritage of a luxury brand built on decades of craftsmanship makes the 30% local sourcing clause a 'no go' area," said Anand Rai, financial controller, India and Turkey, for Christian Dior, the fashion and beauty group.

Data sourced from Economic Times; additional content by Warc staff