Luxury retail to India

The market

India has now overtaken China as the world’s fastest growing major economy. According to the World Bank, India’s GDP is expected to grow 7.3% in 2018–19, and 7.5% per year over the following two years, with growth driven by rising consumption and investment. This prosperity creates major opportunities for Australian exporters.

One market that is experiencing transformative growth is luxury retail. A recent analysis by Euromonitor [1] reports that urban consumers in India are witnessing an unprecedented rise in their income and standard of living. Middle-income earners are now spending 8–10% of their pay on luxury goods [2], including global clothing brands, cosmetics and wine.

The result is that India is rising briskly up the world’s rankings of luxury goods markets. Currently, India contributes just 1–2% to the global luxury trade, but India’s market is growing by 25% per year. This means India’s luxury goods market, currently worth approximately US$30 billion, is poised to reach US$50 billion by 2020. [3]

For Australian companies, India presents multiple opportunities. At one end, India has a fast-growing population of ultra-high-net worth individuals; at the other end is a highly aspirational young generation with disposable incomes. Men are becoming major beauty product consumers, and wine drinking is becoming more fashionable.

Exporters will face challenges. In 2018, new regulations and high tariffs helped slow growth in India’s luxury goods market. But continued double-digit growth should provide Australian brands with great opportunities – especially in beauty products, apparel and beverages. With local partners, Australian brands can help shape the appetites of India’s high-income consumers.

Opportunities

The luxury goods market in India covers multiple consumer segments. These include:

  • Ultra high-net worth (UHNW) individuals. India currently takes sixth spot in Credit Suisse’s ranking of the world’s top 20 countries [4] , in terms of UHNW residents. Last year, the number of UHNW individuals in India rose 31% — a phenomenal increase in global terms.
  • High-net-worth (HNW) individuals. Credit Suisse also reports that India is home to the fourth-largest population of millionaires in the Asia-Pacific region. This number has grown very quickly. In 2000, India was home to just 39,000 millionaires; now it is 343,000. This group spends up to 40% of their income on luxury brands.
  • The young, well-travelled middle class. According to the Associated Chambers of Commerce and Industry of India (ASSOCHAM), this consumer group spells particularly good news for luxury brands across the world. It predicts that this demographic, previously ignored by global brands, will attract global attention, aided by positive regulation in the retail industry.

Key trends

Over the past 12 months, Austrade India has noted five trends or characteristics in luxury retail that may help Australian exporters evaluate their potential market appeal.

  • Value-conscious consumerism. India can be thought of as having a value-conscious consumer base, and value-seeking does not stop at luxury purchases. Value can translate into experience, service or customisation, but luxury overseas brands may find they have to go the extra mile to please their new customers.
  • Value consciousness translates differently. Consumers are brand conscious and logo-centric, as long as the logo is prominent. For men, shoes with prominent logos sell well. Women’s shoes do not sell well because the value is less obvious. Women are more likely to spend on sunglasses and handbags, which are more visible.
  • Customisation. There is premium value in local customisation, individual service and personalisation. With the increase in consumer desire for exclusive products, luxury brands such as Zegna, Tom Ford and Corneliani are adopting bespoke services as an ultimate expression of luxury.
  • Luxury online, or digi-lux. Luxury brands have been wary of making their products available online. Until recently, they calculated that a digital connection would erode the exclusivity of the purchasing experience. This attitude is changing. Luxury retailers are reaching out online, enriching the customer conversation with digital experiences and social media.
  • Affordable luxury. Global groups like Michael Kors, Kate Spade, Coach and Charles & Keith are targeting brand-conscious aspirational buyers. These brands enable Indian shoppers to buy status-giving products at a much lower price than typical luxury brands. They are successfully appealing to young Indian buyers.

Opportunities for Australian producers

Several factors in the luxury Indian consumer market play to the advantage of Australian exporters:

  • Australia’s clean, green brand image. Australia is recognised by local consumers as being a safe, reliable and quality exporter of products and brands. Some Australian exporters have already taken advantage of this competitive edge and are established suppliers of skincare, babycare and haircare products.
  • The premium value of imported brands. Indian consumers are highly brand conscious and prefer premium consumer products. Branded and imported products are almost always regarded as being of high quality.
  • India’s openness to boutique brands. Fashion items that exhibit niche traits attract consumers in the mid-to-high-income level. This provides Australian fashion labels and boutique lifestyle designers with a potential entrée into the Indian market.
  • Exclusive online channels. Several Australian cosmetic and fashion brands have successfully entered India through exclusive online channels with no physical showroom or permanent overhead.

Austrade believes there are multiple opportunities for Australian exporters. Without downplaying other sectors, there is growing demand for premium Australian products in skincare, fashion, babycare, male personal care, chocolates, wine and health supplements.

Beauty

The Indian cosmetics market is growing by 25% per year, and is expected to be worth approximately US$20 billion by 2025.

  • There is a growing synergy in the market between beauty and health. Organics now comprise up to one-third of the personal care category.
  • The male personal care market is growing fast.
  • The online cosmetics market is growing strongly, although it is currently valued at just 2% of the market (or US$50 million).
  • The online market includes horizontal sellers such as Flipkart and Amazon, and verticals such as Nykaa and Purplle.

Wine and spirits

India’s beverages market is protected by ultra-high tariffs, which means wine and spirits importers are starting from a low-volume base.

  • Growth in wine imports is strong: during 2017, imports of Australian wines grew by 51% (in value), though importers are currently only prepared to pay a low FOB price of up to A$3.50 per bottle.
  • Consumption of wine is expected to rise 30% in metro cities.
  • India is one of the world’s largest whisky markets, although this market is dominated by local brands made from fermented molasses.

Apparel

Indian consumers are increasingly participating in the market for luxury clothing and apparel. From 2012 to 2017, India topped growth in the designer apparel and footwear market globally [1] , nearly doubling in size (97% growth in real terms, to US$7.6 billion).

  • Luxury brands are leveraging digital communications to strengthen their market position.
  • Stores remain essential to the shopping experience in designer apparel footwear.
  • The selfie trend is driving the aspirations of younger consumers towards global brands.

Tariffs, regulations and customs

Despite the positive outlook, the Indian luxury goods market is highly protected and can be challenging for first-time importers.

  • Foreign direct investment restrictions are keeping brands out of the India. Fifty-one per cent foreign ownership is the limit. One hundred per cent is allowed, but only with 30 per cent local sourcing of materials. Foreign brands may find it difficult to comply with these requirements; they may fear dilution of their name or harm to their business models.
  • Tariffs on beverages are ultra-high. The customs duty on wine is 150% on cost, insurance and freight (CIF). Thus, the final cost to the consumer would be around 9 to 11 times of FOB in Mumbai, around 7 to 8.5 times of FOB in Delhi and around 6 to 7 times of FOB in Bangalore. The tariff on whisky is also 150%.
  • Import duties on other luxury goods are also high. For local retail of luxury goods bought from overseas, the typical range is 30–60%. Coupled with high transportation costs, this tends to cause a significant reduction in potential margin for retailers.
  • Retail infrastructure is often challenging for western brands 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.
  • Local talent that understands luxury retail can be difficult to find. Those available for employment may appear under-skilled and able to charge high comparative employment rates. Specialised skill centres and business schools have been launched to address this deficiency.

Recommendations for market entry

  • Get to know the market Visit your prospective market, establish a price range for your products and understand local sales and distribution channels.
  • Due diligence Australian companies are urged to investigate enquiries from India and consult with Austrade for assistance. Ask for referrals to professionals who specialise in due diligence and background checks in India.
  • Find a local partner or agent Choose carefully and cautiously; look for a partner with a proven record, and ensure the partner can handle import formalities.
  • Test the market Be aware that everything is different in India, even between different cities and provinces. This may mean having to adapt your product to suit local tastes. Industry-specific trade shows are a good way to sample Indian markets.

Channels to market

Department stores

Department stores are a good platform for brand building and can attract high-end customers who are willing to pay for luxury products. However, the investment required to acquire counters is huge and the cost can be prohibitive for suppliers. Flagship concessions in department stores are still a key channel to expose fashion brands to high-end consumers and for brand-building. Online retail has become a much more appealing and major channel for increasing sales volume.

Professional stories

Shopping at professional stores for skincare and cosmetics has become trendy among young Indians. Stores such as Sephora, Health & Glow and Nykaa provide a one-stop-shop for consumers. These stores tend to display products of different levels of quality and price, which can satisfy different customers and their needs.

Internet retailing

Recently, business-to-consumer (B2C) online retail markets have achieved great success. Online retail is driving – and is being driven by – changes in customers’ purchasing behaviour. The trend is more pronounced in younger consumers, but the dominance of store-based retailing persists is also driven by ease of comparison.

Supermarkets / hypermarkets

Supermarkets are traditionally a very good platform for low to mid-range personal care products. However, higher-end cosmetics products are trying to tap into this channel as supermarkets upgrade their profile to meet the changing demands of their customers.

Cities and luxury markets

In a recent Euromonitor city-scorecard report, Delhi, Chennai and Mumbai all scored in a list of the top 10 of Indian cities that provided good retail venues for luxury apparel and footwear. [6] The surprise result, however, was the appearance of a number of Tier 2 cities where the rapid growth of globally competitive industries has created an exceptional concentration of high and middle-income earners. This makes some Tier 2 cities particularly attractive to overseas luxury goods companies looking to launch in India.

  • Bangalore, Karnataka. Capital of India’s IT industry, Bangalore hosts the headquarters of multiple major Indian companies, including ISRO, Wipro and Infosys. This has helped drive average disposal incomes to the top spot in the nation’s rankings.
  • Hyderabad, Andhra Pradesh. With a population of 6.9 million, Hyderabad came second on Euromonitor’s ranking of attractiveness as a city market for luxury apparel and footwear. It is home to US-based IT companies, including Microsoft, Apple and Amazon.

Links and industry contacts

Government, trade and business

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