Mumbai: E-commerce start-ups targeted at buyers of luxury products are expanding and diversifying their product range as they try to attract more customers to a still nascent market.
India has at least 80 online retailers selling jewellery, luxury goods and accessories, according to comScore Inc., a digital marketing research firm. The number has grown from less than 10 in 2010 and close to 60 in 2011.
The overall Indian luxury goods market was valued at $2.18 billion (nearly Rs.11,950 crore today) in 2011, much smaller than China’s $17.94 billion market, according to an October report by global research firm Euromonitor.
As online retailers seek to tap the niche market, they are widening their product portfolios by adding premium brands and increasing the number of segments to include luxury accessories, home and lifestyle products, and sporting goods.
“The definition of luxury in India is different from that in the West. It also differs in different parts of the country,” said Praveen Khanna, co-founder of jabong.com, an e-commerce site that sells popular clothing brands such as Ed Hardy, Izod, DKNY, Chemistry and Tantra.
In the company’s consumer surveys it was found that premium brands are considered luxury, particularly in the smaller cities and towns, Khanna said. The smaller cities are the fastest growing markets for jabong.
In a country with 100 million Internet users, the number of visitors to luxury e-commerce stores in India is just a fraction of those logging into popular websites such as jabong that sell mass-market and popular brands.
For instance, excluzen.com, which bills itself as India’s premier luxury lifestyle destination, has signed up over 50,000 members since it began operations early this year. Elitify.com, launched in October, gets 50,000-60,000 visitors per month.
Another luxury website, strapsandstrings.com, which has been selling lingerie and swimwear from various international brands such as Lise Charmel , Simone Perele , Damaris and Chantelle for two years now, has just 14,000 visitors.
Jabong, launched in January, attracts anywhere between 600,000 and 800,000 visitors per day. The conversion rate for most of these sites is the same—between 0.7% and 3.5% of the visits result in a sale, experts say.
At excluzen, Apple Inc. products and Rolex or Omega watches are the most popular purchases. “I don’t see much traction in apparel. It’s mostly gadgets, phones and laptops that are popular on our site along with watches,” said Urvashi Sahay, founder of excluzen, which sells everything from spa bookings to travel and sailing lessons online.
Likewise, elitify, which specializes in premium and luxury goods for men, has 70% of its sales coming from accessories and 30% from apparel, said Amit Rawal, one of the three co-founders of Lavida Luxe Lifestyle Solutions Pvt. Ltd that operates the site. Lavida Luxe is in the process of launching a women’s site, too, as it looks at better utilization of its resources.
Even jabong, which got investor funding within three months of starting the business, now sells products across nine categories, including home and living, sports and accessories. It had started with only two categories. “It is the same set of customers and we know what they want,” explained Khanna.
To be sure, the e-commerce market for luxury products is still in its infancy and will take time to develop critical mass.
“E-commerce in fashion will take off in India, but I am not sure whether it will happen in the next 24 months. It could be in the next three-five years,” said Darshan Mehta, chief executive officer of Reliance Brands Ltd, a subsidiary of Reliance Industries Ltd, that sells retails brands such as Steve Madden, Diesel, Zegna and Timberland.
Besides being a tiny niche market, India is also a complex market given the complicated taxation, warehousing and supply chain issues, Mehta said.
“The online pure luxury market is a tiny fraction of the overall market,” said Neelesh Hundekari, principal and head of luxury and lifestyle practice at AT Kearney India, explaining that the hype around the sector is larger than the business that most sites might be doing.
E-commerce is now just about 1% of the overall retail market. “The sector will be driven by youth making low- and mid-value purchases. Pure luxury purchases online will take time,” said Gaurav Gupta, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd.
Selling online has its own set of challenges. For instance, one of the most popular services provided by e-commerce sites is free delivery and returns. However, as per the rules, couriers are not allowed to carry merchandise.
Besides, the tax structure is different in different states. So, if the warehouse is in Bangalore and the order originates in Maharashtra, there are issues on how the transaction will be processed.
Besides, if a consumer returns the goods ordered, the return (of goods purchased) is to be filed as a separate sales transaction and the company has to pay sales tax once again on this transaction.
“Currently, most online companies are burning cash in customer acquisition as the costs of servicing an order and acquiring a customer are higher than the average bill value,” said Mehta of Reliance Brands.
In a slowing economy, the frenzy to launch operations in the online luxury space tapered off in the second half of 2012. “There was a flurry in the space a few months ago. Now it’s back to normal,” said Akhilesh Tuteja, a partner at KPMG Advisory Services Pvt. Ltd.
“There will be a few acquisitions, a few burnouts as some companies run out of money,” said Gupta of Deloitte.
Companies are, however, hopeful of growth. At excluzen, the average transaction cost per user has doubled from Rs.10,000 last year to Rs.20,000 this year. The site has seen an increase of 15-20% in sales this year.
“I think for any luxury product to do well, it has to be unique. Though traction is a lot lesser, it is growing steadily. The market for this segment is very small, with a niche audience. Initially, we had customers making orders worth Rs.5,000; this has now gone up to Rs.40,000-60,000,” said Saurabh Dadu, co-founder of strapsandstrings.
“There is an improvement in user perception, though it’s not substantial, but there is a positive trend to venture on to the Internet and make high-value transactions,” said Sahay of excluzen.