Indian luxury market to touch US $ 15 billion in next two years

Don’t get surprised if you find world-class limousines zip through in quick succession in busy and narrow lanes stacked with luxury residential apartments, as there will be a multi-fold increase in millionaires in India in another five years.  

Irrespective of the continued global economic slowdown, the luxury market in India is pegged to grow at 25% in 2013 till 2015 and likely to touch US$ 15 billion from the current level of US$ 8 billion, a combined study by ASSOCHAM-Yes Bank revealed.  

Indian luxury market is projected to reach USD 14.7 billion in 2015. The number of Ultra High Net worth Households, with a minimum net worth of INR 25 crore is expected to triple to 2.86 lakhs in next five years with a five-fold increase in their net worth to INR 235 trillion. And the HNIs will be double in number by 2015 to over 4 lakhs with a collective wealth of USD 2645 billion. 

While releasing the study ASSOCHAM Secretary General D S Rawat said,  “The luxury market is poised to expand three fold in next three years and the number of millionaires expected to multiply three times in another five years. Increase in spending is anticipated across the country and beyond the walls of the metros, with increasing brand awareness amongst the youth and purchasing power of the upper class in Tier II & III cities in India where luxury cars, bikes and exotic holidays and destination weddings are no strangers”.

Globally too consumer spending is on the rise, expected to reach USD 40 trillion by 2020 with an unprecedented growth of USD 12 trillion in a decade. Predictable consumer spending patterns beyond geographies and cultures unwrap possibilities of future growth in emerging markets like India where consumer spending is expected to grow four times to USD 3.6 trillion within this period, driven by increasing income and aspirations, adds the paper, the study said.

These projections along with the increasing price parity in the luxury products with other international destinations like Singapore or Hong Kong, and customized products offerings would indicate that the luxury market in India would evolve quickly, highlights the paper.

The Private Equity investments in the luxury sector for the last 3 years, i.e. Jan 2009 - Aug 2012 have been less than a billion USD, compared to the USD 35 billion total PE investments during this period. With the luxury market expected to grow at over 25% year on year, PE investments in the luxury segment are expected to increase and support the enhanced size of the Indian luxury market. There are a number of funds in India, which are focused on investing in consumer centric businesses, e.g. Everstone, L Capital and Avigo.

A number of others are also currently investing in the consumer space owing to lack of meaningful opportunities in other segments and some of these funds are expected to vet the luxury markets' appetite for capital. Would there be a fund dedicated to investing in the Indian luxury market by 2015 - maybe, maybe not, but the investing focus on the luxury market is unlikely to wane, said Mr. Rawat.

“India and China have shown their resilience to the global turmoil by exhibiting sustained growth and thus laying a solid foundation for future global economic recovery. A reflection of this can be seen in the potent demand being witnessed by global luxury brands from these emerging economies. As elite members of the BRIC club which currently accounts for 11% of the total world luxury sales (representing a combined retail value of over US $33 Bn in 2011-12), India and China are poised to undertake dominant positions in the global luxury market.

While China is on track to become the world’s second largest luxury market within the next five years, India too is not far behind. With positive regulations and policies for the retail industry being put in place by the government along with a burgeoning middle class which aspires to own and experience luxury goods and services, India is a market that can no longer be ignored by international brands.

While various estimates exists on the size and growth potential of the Indian luxury market; most estimates align on anticipated growth rates of ~20% given the tremendous potential waiting to be harnessed such products: Apparel and Accessories, Pens, Home Décor, Watches, Wines & Spirits & Jewelry, services: Spas, Concierge service, Travel & Tourism, Fine Dining & Hotels and assets: Yachts, Fine Art, Automobiles & Real Estate.

The best returns would come from investing in luxury assets for the long term and luxury products in the short term. Cars have shown the highest growth rate in luxury assets i.e. ~40% p.a. from 2006 driven by a wider choice of brands, availability of cars in the small and mid segment as well as rapid increase in millionaires in Tier I & II cities. It is estimated that luxury assets are going to grow to US $7.9 Bn in 2015 versus US $4.31 Bn currently.

Luxury products are projected to grow to US $5.38 Bn in 2015 versus a current US $2.85 Bn. Jewelry is believed to be the largest contributor (31%) for this sub-sector driven the investment mentality of Indians in jewelry which leads to low consumer price elasticity.

“Recent trends indicate a shift in the perception of luxury as an overall experience versus a mere material possession. This is evident from data on the Indian luxury services market which has shown resilience in the face of a global slowdown. The sector is expected to grow to US $ 1.45 Bn in 2015 from US $ 1.05 Bn currently. Hotels are the largest growth contributor to this sector followed by travel, tourism & bespoke concierge services”, added Rawat.

Indian luxury market is a potential gold mine for international luxury brands. However, with every opportunity comes the accompanying challenges and India is no different. With thorough market research, prudent marketing strategies and the right local partner, global luxury players can unearth the sea of opportunities that India represents.