The Indian luxury consumption market

Dr B K Mukhopadhyay

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

The speeding chariot of Indian luxury market is led by the rising income of the middle-class population. Be it wearing Gucci or spraying its Gardenia, flaunting a Chanel's tote bag or Balenciaga's clutch in a weekend party, luxury goods have invaded the middle class' indulgent wardrobe. Indian luxury market is projected to grow from the current US $ 40 billion to US $ 180 billion by 2025. Although, in terms of its share in the global luxury market our country is nowhere near to the Chinese (particularly, generation Z) who dominates this particular industry segment, globally. While newer brands are targeting specific income and age groups, tactically while embracing new-age fashion technologies, the older luxury giants are more reluctant to do so.

Peter Drucker once said, "Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketingandinnovation." The trend of luxury indulgence and consumption in India has shown how incoming western brands have invented new products tailored tospecific tastes and wants of Indian customers. One classic example would be when Mercedes Benz introduced their compact luxury hatch back A class, specifically for Indian buyers. And now with AI, companies are digging into customers' future wants and desire trajectory of luxury segments. The brands, however, need to equally focus on committed service as the Indian consumers are not typically of the same demographic or psychographic profile as the Chinese or Singaporeans.

Luxury is a way of life. The concept of luxury is subjective and is dependent on various personal and interpersonal motives. The word luxury has been derived from the Latin words luxus and luxuria. Luxury means extravagance and opulence. Luxury goods are typically exclusive products which are not so commonly owned and possess some uniqueness either in function or structure. They are mainly branded goods which are bought so that they can satisfy the psychological needs of the consumer and also lead to an increase of self- esteem. Such products are purchased primarily for social and individual needs over functional needs. Various research suggests that selected groups of luxury buyers think that brands define their social and self-image.

By 2030, India is estimated to have around 370 million Gen Z consumers (those born after 1997, succeeding the millennial generation) between the ages 10-25. In that digitally dominant time, customers will embrace tech-driven consumption models. The origins of which have already begun to show signs. In India, internet users are expected to increase from the current 627 million to around 1.1 billion by 2030, as per a recent report by the World Economic Forum.

E-commerce will clearly play a major role in bringing luxury in the forefront. It is already very visible in China where nobody carries cash or wallet while going to take a cab, watch a movie, eating out, book a massage, shop clothes, book an event, order a delivery – everything in one 'super app' on phone. In India, research shows that most international brands choose major metropolitan cities to open their outlets, prior toother tier-I locations, like Bangalore, Chennai, Kolkata, Hyderabad and Pune. With increased digital use and customer analytics, luxury companies will soon start operating, or enhance their distribution channels, in smaller towns and cities beyond the metros.

The core target of the luxury brands remains the youth. Young working Indians, with increased digital literacy and usage, overseas travel, western exposure through media and outsourcing opportunities, and increasing incomes are experimental and demanding. To entice this group of customers, companies promise bespoke experience with digital presence for marketing and PR purposes. It is common to see how every single advertisement by a brand is followed by their twitter, Facebook, YouTube or Instagram trails.

Let us also understand some of the underlying customer wants and perception of luxury consumption in India. Indians are highly value-conscious buyers (although not very keen to support domestic industries). Typically, these well-travelled and educated luxury buyers or prospects want a full product mix, having a variety platter, easy payment options, with detailed product or service information. Luxury marketers in India typically hire opinion leaders, influencers or Bollywood stars to promote these brands.Online shopping IS the way now. "If your product is not on a phone screen, you don't exist in the market". The use of ROPO - research online, purchase offlineor vice versa applies to several product segments and across markets. A recent McKinsey report projects that one-fifth of luxury sales globally will take place Online by 2025. E-commerce is here to stay and it has been exponentially rising in India.

Indian consumers, particularly millennials are increasingly becoming environment conscious. Organizations understand the value in meeting the triple bottom line, but specifically in this context luxury brands have understood the importance that conscious customers put on sustainability, and therefore their product lines are shaped for reuse, share, rent or recycle. There is a visible shift from 'conspicuous buyers' to ethical or responsible buyers. Today, consumers are conscious of environment and also fair-trade considerations when shopping. Many luxury firms are redefining their supply chain processes and striving to reduce social and ecological problems through the use of sustainable technologies. Lately, brands like Gucci, Burberry and Stella McCartney have pledged to be fur free. A recent study by Mastercard revealed that about 70% of buyers in India give importance to 'green' and 'ethical' as buying motivators.

Going forward, some of the challenges for the luxury industry and consumption in India face are firstly, a continuum of foreign direct investment restrictions keepssome major brands (or some of their popular product lines) out of India. While fifty-one per cent foreign ownership is the limit, one hundred percent is allowed, but only with 30 per cent local sourcing of materials, with which many brands refuse to comply. The big names fear dilution of their name and harming their long-term business models. Secondly, the super intimidating import duties (Trump recently said India is the 'king of duties and tariff') that average between 30 per cent and 40 per cent on luxury goods brought from overseas for local retail. This coupled with the high transportation costs causes simple price parity and margin issues for retailers. Thirdly, retail infrastructure is non-existent and street-level environments are often unkempt. This forces luxury brands to generally launch boutiques in luxury malls or hotels through joint ventures with local distributors. This is a significant difference when we compare our country with neighbours like China or Singapore. Fourth point is availability of workers who actually understand and appreciate retail value as well as the customised need of luxury customers. A buyer's experience in the market would show that those working in luxury stores are often under-competent while highly overpaid. Perhaps the business schools with increased student intake/ marketing claims for hospitality management could tap into this need of training and developing workers suitable for luxury markets specifically.

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