India much behind in the luxury race: Bain

NEW DELHI: As the just-released Bain Global Luxury Goods Study forecasts a 10% increase in luxury goods sales worldwide in 2010 (showing that the industry has turned the corner after last year’s 8% decline), it may not be unusual to see people in Paris, Milan, New York and London brushing up on their Chinese and looking eastwards very hopefully indeed.

India, while nearly equalling China in the billion-plus headcount, is still far behind in the luxury race. With its modest e800 million market size, it promises to clock a healthy 4-5% growth in the segment this fiscal, according to Bain.

With a e9.2 billion market size, China decisively bucked the worldwide recessive trend with 30% year-on-year growth in 2008, 20% in 2009, and is forecast to clock 30% for 2010. It’s not surprising that Bain sees the target customer for the luxury business hailing from that part of the world.

Indicatively, last month a Capgemini and Merrill Lynch report estimated that India has around 1.27 lakh US dollar millionaires; China has nearly 9 lakh such millionaires. China’s big promise for the luxury segment probably hinges on the statistic brought out in a McKinsey report last year: that 80% of China's wealthy are between the ages of 18 and 45 .
But with most luxury brands still unwilling to move beyond the exclusive malls and hotels of Delhi and Mumbai, the gamechanger in India for them may lie in another factoid in the Bain report: that luxury sales online are over-performing overall web sales, and will grow at 20% in 2010, to e4.2 billion. In that segment, off-price sales account for 30% of online, versus 70% online purchases at full price.

The widely quoted case of the revival of the British brand Burberry thanks to its focus on technology to reach out to well-heeled audiences in farflung areas, could be the key factor to spur growth in markets like India, where cities may not have the infrastructure or the critical numbers to support a retail store.

Bain links the luxury market rebound in 2010 — and a projected 3-5% growth in 2011 — not only to China (luxury behemoth LVMH attributes its 24% rise in Q3 sales partly because of its expansion there, for instance) and a revival in the US, but also to the 20% spurt in sales at direct-owned stores and strong demand for leather, shoes, and accessories. In fact, accessories are now nearly on par with the hitherto star of the luxury stable, apparel.

The new factor in the Bain report is the focus on the male customer — Chinese or otherwise. It points out that many ‘female brands’ are entering the male luxury market, there are more stores opening dedicated to men accompanied by targetted communication campaigns. The experience of several international brands in India echo Bain’s finding, with certain cities like Hyderabad showing more male buyers of luxury goods, particularly shoes and ‘hard’ luxury like watches and pens.

The summing up by Claudia D’ Arpizio, lead author of the Bain report is telling: "The luxury shopper of this decade is more likely to be Chinese, more likely to be male, and more likely to be young. Brands that meet the needs of these new segments will be in the best position to keep growing in a new decade."