Luxury market takes a hit but likely to regain its bling next year: CII-IMRB report

19 Nov,2013

By Vijaya Rathore

 

The Indian luxury market is expected to post a slight revival and grow about 17% next calendar year even as the industry faces serious growth challenges in the country, says a new report.

 

‘The Changing Face of Luxury in India’ report by industry chamber Confederation of Indian Industry (CII) and market research firm IMRB International pegs the luxury industry in the country at $7.58 billion, or about Rs 47,127 crore, in 2012.

 

The luxury market has grown at a compounded annual growth rate of nearly 15% in the last three years, powered mainly by luxury cars and other products that grew faster than luxury services and assets.

 

The report says that the economic slowdown has impacted the luxury market to a certain extent this year. “The industry, which until 2010 was poised to take off in a big way, has paused in its tracks to relook at financials, strategies and plan the way forward,” it says.

 

The luxury market had grown 20% year-on-year in 2010 before slowing down due to an overall dip in the consumer and market sentiment. Currently, returns for luxury brands are trickling in slower than anticipated and they face serious growth challenges. “There are multiple factors which are stunting growth of the market; government regulations, ambiguity in the FDI policy, lack of quality infrastructure, etc, often come up as some of the important contributors, but a key factor is perhaps the Indian consumers themselves,” the report says.

 

It expects mid-2014 to be a crucial period for the luxury market in the country owing to the general elections being held in the country. Factors such as high quality infrastructure, surge in luxury real estate space and renewed investor and consumer confidence will be key determinants of success.

 

Luxury real estate, which is currently stagnant, is expected to revive by the second half of 2014.

 

PRODUCTS OUTPACE SERVICES, ASSETS

IMRB research shows that over the last three years, the luxury products segment has grown faster than both services and assets segments with a CAGR of 21.8%, thanks to the entry of leading labels across categories, increase in their geographic footprint and rising aspirations among consumers not impacted by the market slowdown.

 

Products, including the ‘recession-proof’ categories such as apparel, accessories, personal care, wines & spirits, electronics, watches and home decor, are expected to account for 45% of the overall luxury pie by 2014, it says.

 

While luxury services grew at a CAGR of 15% in the past three yeas due to increase in inbound tourists availing luxury hotel services and upsurge in number of standalone high-end restaurants, assets have grown at a slower CAGR of 9.4%. “Primary contribution to the growth has come from the luxury cars segment. Luxury real estate segment is currently stagnant owing to weak investor sentiment, but is expected to revive during the second half of the 2014,” the report says.

 

EMERGENCE OF ‘CLOSET CONSUMERS’

What makes India a market with tremendous potential for luxury is that a new segment – ‘closet consumers’ – that does not typically fit into the boardroom definition of luxury consumers is staking claims to luxury products, brands and services.

 

But these closet consumers come into the market on their own terms as they are caught between rising incomes and traditional middle-class distaste for unabashed luxury.

 

“This inner conflict between a middle-class mindset and the globally rich income level, between conspicuous consumption and a level of luxury which is a reward for hard work, shapes what we call the closet consumer,” says the report.

 

These are consumers who may well have the capacity to spend on luxury in terms of income levels but due to an inherent conflict between their values and those that luxury brands are seen as espousing, their consumption of luxury is restricted or at a much lower level than potential.

 

“It is not the ability to afford that shapes their buying behaviour, but their values and their belief system towards money and luxury,” the report says. So besides infrastructure and government regulations, one of the biggest challenges for luxury players in the country is to change middle-class perception about luxury and bring ‘closet consumers’ out of the closet.

 

Source:The Economic Times

Copyright © 2013, Bennett, Coleman & Co. Ltd. All Rights Reserved

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