Bangalore/New Delhi: India will overtake China as the world’s fastest-growing market for luxury goods in 2012, driven by an explosion in the number of rich people, an October report by Euromonitor said.
The world’s second-most populous country will grow at a average rate of 22% a year over the next five years, it said.
India will reach $7 billion in value by 2017, while China will grow by 15% over the same time, the report said. In 2011, China grew 25.5%, faster than India’s 16.4% increase.
The value of luxury goods sold in India was $2.18 billion in 2011, much lower than China’s $17.94 billion, according to Euromonitor data. The US was the most valuable market at $72.12 billion.
“The main reason why India is such a hot destination for luxury goods is because of India’s growing number of high networth individuals,” said Manjunath Reddy, analyst for Euromonitor International Asia Pacific. The number of the wealthy grew by 35% between 2008 and 2012 to about 170,000 and that number will increase to 450,000 by 2015, he said in an emailed note.
“Global luxury brands are also increasing their presence in large and well established malls across India (not necessarily luxury malls) to increase their reach to the Indian consumer,” Reddy said.
LVMH, maker of Louis Vuitton bags, was the leading firm in India with a 6.6% share, followed by Swiss watch maker Richemont, Gucci owner PPR, Britain’s Burberry and Hermes.
“What we are seeing is more consumer acceptance in the market and services spreading through to more cities across the country,” said Shital Mehta, chief operating officer, international brands and retail, Madura Fashion and Lifestyle, which operates four premium multi-brand retail stores called The Collective. Madura also recently bought into British men’s clothing brand Hackett.
However, luxury retail hasn’t thrived in India yet. Many Indians prefer to shop abroad for expensive goods such as leather bags, designer wear and watches even if the same things are available in the country. Most foreign luxury good peddlers in India operate through joint ventures which are unable to replicate the shopping experience in mature markets such as the US, according to analysts.
“The real game changer will be when the middle class will become active luxury consumers and we will have the infrastructure to develop and open new stores,” said Tikka Shatrujit Singh, who advises the chairman of Louis Vuitton. “The tariffs have to go down, and retail development for luxury brands needs to shape up. We won’t be China, but India will continue to be a strategic market for all luxury brands globally.”
India recently allowed 100% foreign investment in single-brand retail and 51% foreign investment in multi-brand retail, with the provision that 30% of the raw materials have to be sourced from local firms.
“The India luxury market is at least 10 years behind China’s. We will see an increase but not in the immediate future,” said Abheek Singhi, partner at the Boston Consulting Group.