Indian luxury market: Challenges met by international luxury brands

Abstract

Indian luxury market is a very interesting market for all the foreigner companies which are looking for their expansion. According to a recent Bain & Co. study, Indian market is growing at 25 percent a year, while India makes up just 0.4 percent of global luxury good sales. There are 1.5 million households in India who could afford luxury goods, compare with 1.6 million households in China, according to McKinsey. The convergence of economic and sociological factors suggests that a significant demand towards this type of product is emerging. First, the purchasing power overall increases, Urbanization is near 30% rate. The influence of the Western model by means of travelling abroad and the exposition to international media like Fashion TV, Elle, the official or cosmopolitan increase. There is more and more sensitivity to brand and it goes hand in hand with the emergence of a consumption culture. Moreover, the number of women and young workers increases. And finally we can see a development of new (modes of consumption) consumer behaviors: the hedonism, people feel less guilty towards the purchase of luxury, and a more frequent resort to credits. The Indian supply is usually positioned on the down and midrange, so luxury products demand is satisfied by the imported international brands. Depending on the categories of products, the brand has more or less importance. Thus, in the watch industry, the leather goods and perfumes, big brands are already distributed and some of them have made the choice of establishing themselves. France takes the top of the table concerning perfumes imports and upscale leather accessories. On the other hand, jewelry, ready to wear and shoes are not yet invested by foreign companies. In the jewelry, the concept of brand is relatively recent (introduced in 1996 by the TATA group) and is not a major purchase criteria. Regarding feminine ready to wear, Western fashion grows gradually in the middle and higher classes, but Indian designers have acquired a high reputation in their country. Their creations, usually very colored and ornamented, have been obtained from a fusion between ethnic and Western style. One of the ambassadors of this movement is the famous stylist, Tarun Tahiliani. Regarding Men Fashion, the English and Italian brands like Daks London or Ermenegildo Zegna are particularly recognized on the upscale segment. Access the Indian market is not obvious, especially due to regulatory barriers intended to protect the local economy. Indeed, the customs duties are particularly high for certain categories of products: 35% on fashion accessories, watches, perfumes and cosmetics. However, the current economic and political climate is more favorable to the arrival of foreign brands. There is a tendency to the regulations relaxing: since 2006, 51% of the foreign direct investment (FDI) is allowed in the retail for the mono brand.