Mumbai: India has 4.5 million wealthy households, which earn more than $14,000 a year and are consumers of luxury products and services. About 42% of this market is concentrated in Mumbai and Delhi. The top eight Indian cities account for 60% of these households. Such concentration poses challenges and opportunities, said Laxman Narasimhan, director, McKinsey and Co., who runs its emerging markets consumer and shopper insights group. Narasimhan, one of the speakers at the Mint Luxury Conference in Mumbai on 25 March, has been with McKinsey for 18 years in various roles in the US, Japan and Canada. Edited excerpts from an interview:

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How much is luxury contributing to the overall retail market?

It is not very large. Luxury today is very small; it is in the range of $3 billion. There are 4.5 million relevant households in 2010 and that will double to nine million households by 2015. It can grow in the range of 18% to 25% because of the small base. But it depends on a lot of things.

Such as?

Target zone: Narasimhan says luxury customers, who include the super rich, are mostly concentrated in Delhi and Mumbai. Abhijit Bhatlekar/Mint

Who is the luxury consumer?

There are two segments in the target zone for luxury. We call them the globals. There is the super rich and the other rich. (These are households with income levels of $36,000.) They are very educated—post-graduate, senior management —and they buy multiple brands. Quality and convenience matter to them. Then there are the affluent, households with income of $14,000 to $36,000 per annum. They are also graduates, middle-upper management executives. They are selectively premium and are aware of the brands. Here they participate with may be a purchase of a perfume, a scarf, a tie, a wallet.

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This consumer is concentrated in just a few cities—42% of them are in Mumbai and Delhi and 60% in top eight cities. It is such an urban phenomenon; how you resolve the urbanization is an important part of how luxury market will play out. Because it gets back to space and space availability, who lives there? It gets back to GDP growth.

Global consumers are also known to buy luxury products outside of India in markets such as Hong Kong, Singapore. How do you appeal to them in India?

In China, Hermes has created a local brand Shang Xia. Are luxury marketers doing similar stuff in India to address local needs?

In jewellery and ready wear, there are companies who are trying to do it. But it is not yet there. This will happen. You are seeing it already in experiential products such as real estate and hotels. These are leading indicators to what might happen here. It is happening with collections having Indian flavours such as bandhgalas.

How can marketers address issues such as lack of quality real estate space?

It is a challenge, it is an important one—working with some of the major real estate developers, recognizing that this is, in fact, a real need, a real activity. The second thing is there are certain markets, certain occasions that really matter. How might you (address this) with wardrobe shows or with trunk shows that travel around, at least to the top eight cities.

The luxury market never took off as expected. Where are we in terms of evolution now?

You know, the first stage is export driven. Brands come here to capture the super premium types. They bring in what they have in the West and sell. Then you go the next stage, how am I going to be a relevant player and look at capturing consumers with high aspirations or wealth. The next stage is when you become more embedded, have a local expression of brand—use India for sourcing, become a relevant player in the country. We are in the second stage right now. This market has to be shaped.

Graphic by Ahmed Raza Khan/Mint