New Delhi: Luxury brands will be hit by the government’s decision to demonetize Rs500 and Rs1000 banknotes, as consumers are likely to postpone spending.
Industry experts said the move is only the latest to hit luxury retailers already under pressure from measures such customers having to show their PAN cards for cash transactions of more than Rs50,000 and any transactions over Rs2 lakh.
“There will be an impact on luxury retail in the short term, essentially because most of luxury sales in India constitute a large amount of cash, and consumers will put a hold on large spends,” said Dhanraj Bhagat, partner at consulting firm Grant Thornton India LLP.
“However, once the mindset changes, maybe after a period of six months or so, things will stabilize,” he added.
Dinaz Madhukar, senior vice president at DLF Luxury Retail, which operates luxury shopping mall DLF Emporio, agreed: “There will be impact. But it is too early to quantify the quantum. We have to wait and see how things streamline over the next couple of months.”
Such measures have a short term effect and do not impact the underlying demand for luxury products, said Pranav Saboo, co-founder of Ethos Watch Studios, who also recognises the positive effect of the move. “When the PAN-card rule came out in January, there was a short-term hit for three months. In this case, there will be an impact till 31 December. Things will shape up after that. I think it is a very fortunate and positive step because our biggest competition today is the black market in watches,” Saboo said.
Sanjay Kothari, vice-chairman of luxury gems and jewellery retailer KGK Group, also believes the government’s decision will have a positive impact on luxury retailers in the longer term.
“Initial disquiet is supremely temporary and that too for a particular group. But while following the global path, India has promisingly announced the channelized reformation, which ultimately leads to the survival of the fittest and that is delightfully commendable. Putting an end to lawbreaking formats will not only earn great benefits for luxury retail brands like Entice, but will determinedly augment the entire economy of the nation,” Kothari said.
“There could be some decline in cash sales because people won’t have liquidity,” said Rajesh Jain, managing director and chief executive of Sports and Leisure Apparel Ltd, which markets premium French brand Lacoste in India.
Jain also said that in the long run, the move would stabilize and benefit the economy on the whole.
“It is too early to comment but I believe it would take at least six months to a year to get things back to normal. There are withdrawal limits and people won’t have liquidity. For a premium brand like ours, there is need for liquidity on consumer’s end if they want to buy in cash,” he said.
The luxury goods market in India was projected to cross $18.3 billion by 2016, with an annual growth rate of 25%, according to a study by industry lobby Assocham.
With the measure to curb black money, it’s doubtful whether the industry would be able to meet those projections.
Globally, the luxury goods market has also been under pressure.
According to an October study by Italian luxury goods association Fondazione Altagamma and global consulting firm Bain & Co., the global luxury market is projected to grow 4% to an estimated €1.08 trillion in 2016.
OSL Luxury Collections Pvt. Ltd, which sells Versace’s commercial line Versace Collection, high-end menswear brands Corneliani, high-end cars such as BMW across some cities in India, declined to comment.
Arvind Lifestyle Brands Ltd that markets brands such as GAP, Arrow, Nautica and GANT in India did not respond to queries.