International Journal of Arts and Sciences 3(7): 267 - 277 (2010) CD-ROM. ISSN: 1944-6934 InternationalJournal.

org

Luxury and Lifestyle Retail in India: A Multifaceted Market

Sita Mishra, Institute of Management Technology, Ghaziabad, India

Abstract: Retailing, one of the largest sectors in the global economy, is going through a transition phase in India. Over the last few years, organized retailing in India is spreading and making its existence felt in different parts of the country. In organized retailing, one segment that has swiftly come into focus is luxury and lifestyle retail. Indias escalation as an economic power to reckon with, has forced the global companies to view it as one of the key markets from where future growth will emerge. India is home to some of the richest men in the world, with the fastest growing high net worth individuals (HNIs) in the AsiaPacific region living here. The Indian luxury retail market is the beacon of the future, with a number of international brands are vying to design, develop and deliver the high-end goods and services to India consumers want. To do so, they are being forced to build their distribution and to spur consumer interest in products that aren't familiar to many Indian shoppers. The paper analyses the developments in this multifaceted luxury and lifestyle retailing in India and focuses on prospects and challenges for luxury retailers in India. Keywords: Luxury retailing, Lifestyle retailing, India, consumer behavior

1. Introduction
The Indian retail market, the fifth largest retail destination globally, has been ranked as the most attractive emerging market for investment in the retail sector by AT Kearney's latest annual Global Retail Development Index (GRDI), in 2009. According to a study conducted by the Indian Council for Research on International Economic Relations (ICRIER), the retail sector is expected to contribute to 22 per cent of India's GDP by 2010 (Financial express report,2010). At present, the retail industry in India is estimated a US$ 400 billion industry. With rising consumer demand and greater disposable income, it is projected to grow to US$ 700 billion by 2010 with an expected annual growth rate of 30 percent, according to a report by global consultancy Northbridge Capital (Indian Express report, 2010). Further, the retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a compound annual growth rate (CAGR) of 10 per cent (CRISIL report,2009). In absolute terms, this figure is very commendable but the actual contribution to the GDP comes only in the form of organized retail. Organized retail segment grew at the rate of 42.4 % in 2007 and is expected to maintain a much faster growth rate in next three years (Images F&R research, 2009). As of now, the organized part accounts for around 6.5% of the Indian retail market. Though, it is expected to maintain a faster growth rate in the coming years with an estimation of touching 13% by the end of 2010. Over the last few years Indian retail has witnessed rapid transformation in many areas of the business by setting scalable and profitable retail models across categories. Indian consumers are rapidly evolving and accepting modern retail formats. New and indigenized formats such as departmental stores, hypermarkets, supermarkets, specialty and convenience stores, and malls, multiplexes and fun zones are fast dotting the retail landscape.

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The Organized Retail share has been gaining strength owing to the robust economy that has given more disposable income in the hand of the consumer. This has led to increased demand of products/services and a better shopping environment. Over the long term (5 years), it is expected to grow at a CAGR close to 19 percent from Rs 852 billion in 2007-08 to Rs 2024 billion in 2012-13 as per CRISIL research (2009). The organized retail penetration as a result is expected to move upwards from 5.5 percent in 2007-08 to 7.3 percent in 2012-13.Exhibit 1 based on Images F&R research (2009) provides a glimpse of organized retail to total market for different retail segment for the period 2004-2007. It can be observed from the exhibit that organized retail has made its entry into all type of segments. Also, it is coming in all type of retail formats and thus targeting different type of customers. Hence, India is also witnessing growth of luxury brands in India, leading to introduction of new retailing stores called as Luxury stores. The luxury retail market in India is showing great growth momentum regardless of the present global financial crisis. Though the market is small, it is growing at a rapid pace fuelled by a small but increasing number of consumers. Exhibit 1: Share of organized retail to total market

Source: Images F&R research, India retail report,2009 The degree of growth for any sector in a particular country depend lot on the government policies. These policies are very dynamic in nature and hence the changes in the investments and trends for a sector. The luxury retailing has been also affected by certain changes in the FDI in retail sector. Till end of 2005, no FDI was allowed in Indian retail market. Hence, number of international luxury brands were only limited to 8. These brands were present only through franchising route. Whereas, as government announced 51% FDI in single-brand format, the number of luxury brands increased to 25 by year 2008. However, 100 percent FDI is allowed in whole cash and carry (C&C) operations but that is not a model which luxury retailers will be able to leverage to attract its target customers. Despite foreign direct investment restrictions,

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companies such as Versace, Oakley and Nike Golf are increasing area and product assortments to draw consumer interest in what they consider one of the biggest markets in Asia (Menon, 2009).

2. Concept of Luxury Retailing

Luxury has never been something easy to define, yet this mystery concept is something highly desired by one and all alike. Luxury has moved from its old meaning of ownership (also known as conspicuous consumption) of objects to the new meaning of the experience / fulfillment derived from possessing a certain object (Mansharamani and Khanna,2007). The market for luxury characterised by individualism has become ever more developed over the course of the centuries, driven by the glorification of all things sensual as well as the demand for refinement (Sombart, 1988). Luxury fashion goods are apparel, accessories, handbags, shoes, watches, jewellery, and perfume for which mere use or display of particular branded products brings prestige to owners, apart from any functional utility (Vigneron and Johnson, 2004). Vigneron and Johnson (1999) integrated previous research findings in delineating five effects on luxury goods consumption: interpersonal Veblen, snob, and bandwagon effects; and personal hedonic and perfectionism effects. Individualists purchase luxury goods for self-directed benefits: affective (e.g. hedonic pleasure), symbolic (e.g. self-expression), and utilitarian (e.g. taste for quality) (Tsai, 2005). Interpersonal factors are primary influences on luxury goods consumption in Asian cultures. Wong and Ahuvia (1998) contended that collectivist orientation goes far in explaining Asian consumers' purchase and display of luxury goods. They described that the tradition of honouring others with expensive gifts also helps account for large sales of these goods in Asia. Asian consumers purchase luxury goods to secure social recognition and to adhere to social norms (Shtte and Ciarlante, 1998). The immense popularity of luxury goods among Asian consumers derives partially from considerations of face, the importance of the regard of others (Bao et al., 2003; Li and Su, 2007). Doctoroff (2005) argued that Asian consumers purchase luxury goods for status display because their culture emphasizes hierarchy and status. Asian consumers' status-seeking purchase of luxuries emphasizes social meanings conveyed by price, brand, or packaging (Willis, 2006). Luxury retail sales doubled to $US220 billion over the last decade, driven partially by an unprecedented doubling of millionaire consumers worldwide (Demos, 2007; Gumbel, 2007). Europe and the USA are the traditional main markets, but Nueno and Quelch (1998) reported that Asia had come to account for 24 percent of luxury sales versus 40 percent for Europe and 28 percent for North America. The cult of the luxury brand is so powerful that Asian consumers account for as much as half of the global luxury industry (Chaddha and Husband,2006). India has been identified as an important source of this growth and is likely to grow at an annual rate of 28% in the next three years. The accelerating pace of economic and social change is transforming the Indian luxury landscape (Economictimes report,2008). But despite the immaturity of the Indian market, there are already clear trends developing, mainly in the penetration rates of luxury brands into the mens and womens sectors. Luxury clothing, fragrances, premium footwear, home electronics and high-end watches have achieved good penetration among male Indian consumers, but items such as cufflinks, belts, wallets, luxury wines, Champagnes and cigars still rate low on the wish-lists of many Indian men seeking luxury

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brands. Among women, jewellery, cosmetics and skincare can already boast high levels of awareness, followed by categories such as underwear, handbags and mobile phones (Davitt,2006). Luxury brands are now following the Indian consumer, expanding their sales operations. According to a study by the Discovery division of Mumbai based O&M advertising; India and China are beginning to contribute in a big way to the global market for luxury products. This global market was estimated at approximately $69.4 billion in 2003 and is expected to grow 50 per cent to reach $140 billion by 2010 (Chuganee, 2006). According to the World Wealth Report (2005) published by Capgemini and Merrill Lynch, the BRIC nations (viz. Brazil, Russia, India and China) continued to emerge as an economic force and create wealth in the process. The World Wealth Report puts HNI growth in India at 14.6 per cent per annum, nearly double the global rate. This is likely to be much higher. More than the numbers, it's the attitude that has changed. It is, thus, the emergence of mass affluence combined with aspirational mindsets and lifestyles that are helping to stimulate consumer demand for luxury retailing.

3. Luxury Retailing in India Opportunities & Challenges

In fact, luxury in India was synonymous in pre-British times and even the post- British era saw its pockets of richness of erstwhile royal families and the newly-developed industrial classes who were the users of European luxury brands. The Indian attitude towards luxury had long been akin to Europeans. Indian princes had a penchant for luxury goods from the west. Brands such as Cartier and Louis Vuitton were patronized by the Patiala royal family among others, and many princely families in Rajasthan had their own private collection of luxury cars. The emergence of new elite in India was all that was required for the mindset to resurface. With the libralised economy opening up new pockets of affluence in India, luxury retailers would found new customers in India. The last couple of years have seen a profusion of luxury brands into the Indian market: from stand-alone stores in five star hotels to luxury Malls. These brands which were previously only seen in international fashion magazines and high streets abroad are now gaining popularity in India. With one of the highest levels of disposable incomes, the well-traveled Indian luxury consumer is being wooed by all. In most surveys of the luxury goods market globally, the most exciting market is mainly viewed as China. But, looking at the growth in GDP and HNIs in India, there can be little doubt that the Indian market is going to see considerable demand increases and general growth in the coming years. Organized retailing in India is expected to grow at 19 percent. Thus, in terms of investment in retail sector, India is likely to be one of the hottest destinations for all type of retailing including luxury retailing. The wealth potential of Indias affluent was to the tune of US$ 203 billion as of 2005. With income levels going up, customers prepared to buy such brands are growing in numbers. According to an NCAER Household Income Survey (Exhibit 2), in 2005-06, there were 53,000 families in India with annual incomes of more than Rs 10 million. By 2010, India will have some 1, 40,000 people in this super rich category. Industry estimates suggest that as many as 200-300 international luxury brands are trying to make inroads into the Indian luxury market, already worth Rs 2,400 crore ($444 million according to the India Luxury Trends 2006 report by KSA Technopak), growing at 30-32 per cent. In terms of size, India

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would be around USD 5 billion, of which the most visible part the products category comprising apparel, fashion, watches , jewellry, accessories, cosmetics, wines and spirits is the smallest. Luxury services hotels, gourmet restaurants, spas are the next and assets luxury cars, yachts, jets, houses are the largest category (Hudekari,2009).

Exhibit 2 The Indian Wealth League

According to a report prepared by DSP Merrill Lynch and Capgemini (2008) the number of High Networth Individuals (HNIs) has gone up by 23 per cent in India. The report further mentioned that the combined wealth of the HNIs has increased to $440 billion until 2007.Luxury retail in India is being flaunted as the next big thing in Indian retail scenario. The market in India is now considered as the next China for luxury goods consumption. Luxury goods manufacturers and retailers are keen to tap further this rising affluence and increases in aspirational lifestyles and consumption patterns. According to value partner report (2008), Luxury Retail in India is still very small but is growing at a fast pace (Shown in Exhibit 3). Given the fact that India does provide lot of opportunities for luxury retailers, it is definitely not that easy a path. This paper looks into three key issues regarding consumer profiling that are very essential from a luxury retailers perspective. 3.1 Consumer profiling From the basic definition of luxury goods, one issue is definitely clear it is not meant for masses. And thus, one needs to clearly define the target market for its goods/services. The foremost criterion has to be Disposable Income. These products/services are very expensive and hence are considered as luxurious. In Indian context perception of luxury varies between those born in wealth and those belonging to new elite class of wealth creators. As mentioned above the traditional users of luxury products in India were people from royal families, their consumption

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of luxury products was natural, an extension of who they were. But for second category of customers, luxury is a source of gratification. Managing this dichotomy and creating a new customer base is primary mandate for these retailers.

Exhibit 3 Growth of luxury market in India

a. Socio-Demographics

The first classification of customers can be done based on the Income-group and can be clubbed into following three categories: 1. Luxury ready These are people whose annual income is over USD 100k. They are the present and primary consumers of luxury goods/services. Further, they are already exposed to the world-class living and thus for them luxury is a necessity rather than aspiration. 2. Future potential These are people whose annual income will be between USD 50K 100K. They are the one who have just got exposed to luxury product/services. Thus, their current focus lays on acquiring of luxury assets & products. They are ready to splurge on the brand of aspirations, though not very frequently. For them, the luxury is still to flaunt and not a necessity. 3. Others As obvious, people with income below USD 50K are clubbed in this category. As of now, they are no way going to spend on luxurious items but certainly they are the one who works really hard to move upwards in the ladder. Hence, it is advisable for all luxurious products/services having a long term plan for India to ensure the brand communication reaches to them. All the three categories of consumers are likely to grow in the near future in India.

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b. Lifestyle attributes

Income level justifies that India do have a sizeable number that spends on luxury products. But, why a person does would like to spend on luxury products/services. This is where the understanding of the lifestyle attributes of such prospects provides useful information. These inputs help the luxury and lifestyle retailers to customize its offerings, and provide services that are world-class. SRI Consulting Business Intelligence places consumers in three groups based on psychographics according to what luxury means to them. Luxury as functional: This segment is composed of consumers who buy luxury products for their superior functionality and quality. They usually involve themselves in a longer decision making process in order to make rational and logical decisions, rather than emotional or impulsive ones. Luxury as reward: This segment purchases luxury goods in order to showcase their achievements. They are motivated by their desire to be successful and demonstrate this to others. They usually purchase smart luxury that demonstrates importance while not leaving them open to criticism. Luxury as indulgence: This groups purpose for luxury goods is to self-indulge. They are willing to pay a premium for goods that express their individuality. They enjoy luxury for the way it makes them feel; therefore have a more emotional approach to purchases.
c. Buying Influencers

According to AT Kearney research analysis, the luxury consumers are most influenced by peer groups. They are primary influenced by peer feedback and positive word-ofmouth reviews (Hudekari, 2009). In addition, the media also plays a strong role as an influence with lifestyle publications, television and the internet. The Luxury Marketing Council Worldwide has established a chapter in India, with the aim of promoting luxury in India. Their task is to build synergy between various luxury brands interested in India by way of sharing of consumer insights as well as best practices. Hindustan Times has been at the forefront of driving the luxury revolution in India by organizing two Indian Luxury Conferences in the last 4 years. To add to it, it also brings out a monthly supplement of luxury goods available in India, thereby creating awareness for the luxury brands. India now organizes two big Fashion Weeks viz. Wills Lifestyle India Fashion Week and Lakme India Fashion Week. These fashion weeks aim to make India a global fashion destination and to increase visibility of Indian Designers in the global fashion arena. Additionally, Fashion Magazines play an important role in generating awareness of luxury products from a global perspective 3.2 Challenges of Luxury Retail in India Despite its growing number of millionaires, India lags emerging market peers China and Brazil because of a lack of quality retail space, high import duties on luxury goods, a cap on ownership in local units, excessive red tape and piracy. Luxury goods in India also make up the smallest

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proportion of the overall retail market, just 0.4 percent, according to Bain and Co. Report, compared to 2.7 percent of Chinas retail market (The Epoch Times report, 2009). There is no denying the fact that India is heading towards a retail boom, however unlike the high end fashion capitals of the world like New York, Milan, Paris or London, India has no high street worth mentioning. Availability of appropriate space is a priority for luxury retail, and the lack of such quality retail environment in India is the reason behind the top international brands choosing the exclusive ambience of deluxe five-star hotels than camping it out on the streets. Apart from this, the luxury brand holders are concerned mostly with ensuring and maintaining the right brand position (Sparks,2007). Although sales are clearly vital, the key element in driving sales is that the brand retains its position and attractiveness as a desired luxury brand, which may be affected by swings of fashion, brand position dilution, loss of control of distribution and the counterfeit and duplicate markets. Thus, if a brand position changes in the eyes of the HNIs and aspirational consumers then the luxury added value may be lost. Therefore, luxury retailers need to protect their brand positioning and full control of the channels of distribution so that customers feel exclusivity with these brands. At this nascent stage of development, luxury brands need to concentrate on a few key distributors who understands the luxury retail philosophy and have passion and commitment to build these brands (Goenka,2007). The tighter control has been one factor in the expansion of counterfeiting, as these duplicate products tend to be aimed at either ripping off aspirational consumers or targeting the lower income market. Nevertheless, a plethora of cheap duplicate goods does damage the brand image and is of concern to luxury and lifestyle retailers in India. In addition, today, fashion brands are giving luxury brands competition because of marketing mix and branding strategies, which makes it acceptable to pair these two brands. Some of the challenges inhibiting the growth of luxury retail in India would be: Rentals costs have gone up dramatically and now match those in Singapore or even London although sales for luxury goods are lower because India is still a developing market. This has put luxury brands in a spot, slowing expansion plans and, in some cases, forcing a reshuffle in franchise partners. In addition, luxury stores finding it difficult to break even at the current sales density and rent. Brands are now pushing back break-even points to around four years from two years as they had planned. Building scale is still a challenge as there are a few select cities with potentials for luxury retail. There is lack of high quality luxury retail environment, with its presence restricted to select hotels which leads to low footfalls. There are no modernized and dedicated luxury retail areas in protected areas like airports. There is high cost of setting up luxury stores due to high rentals on certain prominent high streets, besides this some of the high streets like Connaught Place (Delhi) are cluttered and crowded, with a hot and humid climate. In addition, the high streets are unsuitable due to the absence of exclusive ambience demanded for luxury retail. Although, this situation is somewhat ease after opening of Indias first two luxury malls viz. the United Breweries Ltds UB City mall in Bangalore and DLF Ltds Emporio mall in New Delhi. Luxury products are not competitive in India because of high duties. Duties on luxury products are also among the highest in India, which means retailers often crunch margins to keep prices comparable to other markets. This makes rental to margins ratios and rental to revenue ratios wafer-thinDealers in luxury brands have urged the Government to rationalise the taxation structure in the country so that luxury brands, which were still largely purchased

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abroad, were available at globally competitive prices to Indian consumers. Govt. should take legislation like Foreign Direct Investment (FDI), Value Added Tax (VAT) and other duties into consideration in order to help promote the sale of luxury brands for which there was a sizeable demand within the country.

4. Conclusion
Luxury retail is growing at a frantic pace in India, but still there are a sizeable number of rich Indians not known to luxury, leaving lots of room for those trying to walk in the fray. The Indian luxury market is a story waiting to be told, as all segments of this market viz. Luxury product, services and assets are growing rapidly and can potentially triple in size by 2010. Indian luxury market will be very crucial to the global luxury retailers in near future. However, luxury retail players should keep in mind certain considerations before they make their foray into the Indian Luxury retail sector. They need to focus on long-term investment and continue investing in spite of short term losses, strong organization comprising of a committed local team, finding the right partner for joint ventures with a clean track record and competence in retail, consumer understanding and real estate (as space is a premium) and customization of the merchandise according to local flavor and body structure. Despite presence of several growth prospects in India, this market presents lags emerging market peers because of a lack of quality retail space, high import duties on luxury goods, a cap on ownership in local units, excessive red tape and piracy. But despite the nascent market, some clear trends have developed by now especially in the penetration rates of luxury brands into the mens and womens sectors. The starting point for identifying successful Luxury brand strategies in India has been established by identifying certain salient aspects of luxury brands that remain constant as well as identifying the stage of mindset of the Indian consumer towards these brands. Going by the latest wheel in the luxury retail sector, India is debonair and is one of the fastest growing markets after the Gulf. With the inexorable pursuit for luxury, the affluent class with tremendous purchasing power are on the fast lane endorsing leading luxury brands which have all chosen India as the happening luxury retail destination.

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