BRAND: - PATEK PHILLIPE

(Launching the brand in India with the

collection: “Rare Handcrafts”)
IDENTIFIED EMERGING LUXURY
MARKET: - INDIA

India is expected to emerge as the world's fastest growing major

economy.

The Indian luxury market attracts a fair bit of attention – either because of the
significant (and increasing) number of Indian billionaires in the list of HNIs or
because of new brands that want to enter this generally high growth market.
The luxury market is around $1.3 trillion globally and is growing at around 5%.

In the last decade the Indian luxury market is in the spotlight with global luxury
brands showing a growing presence. The current Indian luxury market which is
valued at 18.5 Billion USD (Source: ASSOCHAM) has right potential to reach
more than 100 Billion USD in the next 7-8 years. India's growth in Ultra High
net worth Individuals has also been impressive. As per latest Knight & Frank
wealth report India's UHNWI count rose by 340 per cent (to 6,020 persons),
whereas global growth was 61 per cent (to 187,468). The report also says that
"India will account for five per cent of the total UHNWI population and six per
cent of the billionaire population across the world by 2025.

This increasing sense of ‘brand-consciousness’ among Indians is principally

attributed to the country’s burgeoning aspirational and younger middle class.

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At the same time, increased internet penetration has also contributed to this
consumer behaviour, allowing consumers to search and satisfy their desire to
own and possess designer brands.

Taken together, these factors will help India’s luxury sector grow by about 30
to 35 percent over the next three years – across categories as diverse as fine
dining, electronics, luxury travel, luxury personal care, fashion, and jewellery.

Most of the luxury brands are present in India and they do try to get at least
some part of their latest collections every season. Despite that Indians that
travel abroad prefer to shop in the US, Dubai, London, Singapore, France, Italy
and Switzerland either for the bragging quotient or to take advantage of the
generous deals available. Import duties (of 30-35%) make products at least 10-
15% more expensive in India, which can sometimes be twice as expensive as
compared to deals available in post-season sales and in outlet malls. The
market would easily double or triple if all this shopping happened in India.

Mature consumers globally buy luxury products because they identify with the
brand and they value the intrinsic craftsmanship of the product along with the
heritage/story. Indian consumers buy to flaunt. They want to show that they
have arrived, using luxury products to communicate status and prestige. Hence
“flashing logo” brands do well, and brand performance is highly correlated to
its popularity.

Businessmen are the biggest spenders locally: While the old money, film stars
and corporate czars are more visible in the media sporting luxury products, the
real buyers are the small and medium enterprise owners and their families.
They have money but crave status, have cash to spend and don’t know where
to spend – luxury products offer the perfect solution – buy your way into elite
society by flaunting luxury.

Despite the positive news though fundamental barriers persist. A very

scattered consumer base and higher prices leads to lower footfalls, which
means low sales productivity and weak retail economics. An all-pervasive
middle-class value conscious mindset leads to bargain hunting lowering the
percentage of full-price sell throughs hurting gross margins. Scarce good
quality mall and high street space leads to very high rentals making it the single
biggest cost head higher (as % of sales) than anywhere in the world. Weak

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 margins and a small base reduce the attractiveness of the market leading to
fewer investment dollars in the hands of the country managers even though in
growth terms India would stand out.

Trends in Indian Luxury Market: -

1. Growth of Luxury in Non metros

While Mumbai & Delhi lead in the numbers of Ultra High Net Worth
Individuals, Tier I & Tier II towns also account for 45% of the total luxury
market in India.

2. Growth of Affordable luxury segment in India

With the increase in middle class wealth in India along with increased internet
penetration there is a new segment of first-time buyers who buy luxury
products & thrive on good deals.

3. Innovation in premium Electronics gadgets & appliances

There is an increasing trend in the usage of wearable tech gadgets for leisure
and health. Most popular being Smart Watches, Fitness Bands & Head Sets
among High net worth individuals.

4. New age luxury Indian consumer

The definition of luxury Indian consumer is changing and also the new areas of
buying & investment. Increasingly younger ultra HNIs, with high disposable
incomes are also high spenders in non-traditional avenues. They are also the
ones who are largely responsible for bringing in concepts such as " Value based
& experience luxury marketing" into the limelight. The recent e-commerce and
technology boom have created many new segments of luxury customers in
India who are relatively young and highly aspirational.

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 5. Regulatory Mechanism

Traditionally Infrastructure hassles and lack of clear guidelines have prevented

Multinational luxury Retailers to directly invest in Indian markets. The other
deterrents for consumers in this segment being High Import duties &
counterfeit market which contributes 8-10% of the overall luxury consumer
market. However, with the opening of FDI in single brand retail & GST roll out
will minimize these deterrents to a certain extent.

Growth projections:
India’s economy is much stronger now. The indicators are all favourable. The
fiscal deficit, the inflation index, the current account deficit and the forex
reserves are all healthier & growth driven.

Global Status - Brand value:

Besides, India has been voted as the 7th most valued 'nation brand’. With
an increase in 32% in its brand value to $2.1bn, India has moved up one
position in the most valued nation brands list. Not only that, this surge of 32%
is the highest among all the top-20 countries on the list.
The nation brand valuation is based on five-year forecasts of sales of all brands
in each nation and follows a complex process. The Gross domestic product
(GDP) is used as a proxy for total revenues.

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 India as a luxury market

Indian Consumer Scenario

The Indian consumer has been divided into five different classifications. While
the top most of the pyramid or the Elite Class is just 4% of the overall
population, the absolute numbers are far too attractive for any luxury brand to
ignore. These numbers are expected to grow from current 10 m to 26m
households by 2025.
In addition, by 2025, the overall average house hold income is expected to
multiply by 1.7 times. This is an attractive proposition for any global retail
brand.

Growth of HNI’s and UHNI’s

According to Credit Suisse’s 2015 Global Wealth Report, India has ranked up in
the list of Top 20 countries as the number of ultra-high-net-worth (UHNW)
individuals rose by 100 since mid-2014 to now stand at 2100. In addition, India
is home to the fourth largest population of millionaires in the Asia Pacific
region.
Besides, it is estimated that India will witness a three-fold increase in HNI
wealth over the decade — it is expected to touch $2.3 trillion in 2020 from
$949 billion in 2010. By 2020 the wealth of high net worth individuals (HNIs) in
India will rise

by 94% as opposed to China's, which will grow at 74%, providing attractive

opportunities to luxury retailers

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 Delhi and Mumbai will remain as India’s richest cities in terms of millionaires’
wealth concentration.

According to a research report by Euromonitor, India merely contributes 1-2%

to the Global Luxury trade. However, despite this insignificant percentage, the
market is growing at a compounded annual growth rate (CAGR) of about 25%.
Indian luxury market is expected to cross $18.3 billion by 2016 from the current
$14.7 billion.

Digital Luxury Space in India

Given the wide reach of the digital medium and the very low entry barriers,
luxury brands are beginning to expand their presence through the online
space.
There is money in the smaller towns & markets, but there is no access to luxury
brands. As Indians acquire global tastes thanks to affordable foreign vacations,
influence of Hollywood and Bollywood, and the Indian diaspora, they are
looking to own foreign luxury brands.

Ranking of India’s Leading Luxury Retail

Cities
Delhi NCR - Has the most enriching retail legacy among the Indian cities,
therefore the city tops all real estate drivers. Delhi, especially the National
Capital Region, remain one of the strongest markets in terms of sale volumes
for the manufacturers
Mumbai - Mumbai has the highest retail demand potential. However, a lack of
availability of land parcels leading to high rents in prime areas act as a
dampener that causes Mumbai to lag Delhi
Pune - Pune provides the most affordable rents in prime areas among the Tier
I, Tier II cities

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Bangalore - Affordable rents in the city—compared to other Tier I & some Tier
II cities, have helped the retail to flourish here. However, the city has lesser
household expenditure even when compared to Kolkata and Chennai
Ahmedabad - A cash rich city, increased spending on premium high-end
offerings from global auto makers. For Italian super-luxury sports car maker
Lamborghini, cities like Ahmedabad have put up sales figures of six units in the
last six months. These figures are significant because the Volkswagen-owned
brand sold 16 units in 2014 as against 22 in 2013
Chennai - “Chennai-ites are mature shoppers. They are well-travelled and not
afraid to pay for quality,” says Ajay Agarwal, Managing Director, Bergamo.
Chennai embraced the concept of department stores much before the other
metros did. Demand for office space continues to grow for the third straight
year
Hyderabad - Hyderabad offers attractiveness in terms of affordable rents,
which is higher only to Pune among the Tier II cities. However, lesser
household income and household expenditure has ranked it lower.

The CII-Kantar report also breaks down the share of the country’s luxury
market geographically.

North India accounts for 40 percent of spending on luxury products and

services, with the Delhi National Capital Region leading the consumption share,
followed by Punjab and Haryana.

Southern and western India, each, account for around 25 percent and eastern
India lags in the luxury market with a 10 percent market share.

With their growing affluence, India’s Tier-II and Tier-III cities are also emerging
as new reservoirs of luxury spending.

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 Indian Luxury Retail Trends-– Emerging Tier 2 and 3 cities

Indian Luxury Retail Trends- Performance

drivers
▪ Value Conscious consumer - India is essentially a value conscious
consumer base. New trends in this direction are:

▪ Pre-owned luxury: Pre-owned luxury is a fast-catching trend. A rapidly

growing market owing to high depreciation of up to 30% in first 6
months, this is a highly attractive proposition. Online Platforms like Luxe
polis, Luxury station etc are relying on the fact that a considerable
amount of merchandise lies unused in the closets of women. This made
available at a good resale price, is fuelling young generation’s growing
aspiration of owning premium and luxury brands

▪ Rent and experience: There are sites that offer ‘rent a luxury’ product /
services. The consumer wants to lap it up since works completely well
with their changing mindset as well as pockets. A big portion of the
demand of car rentals industry is for luxury cars as the aspiring
consumer with increased disposable income wants to feel like a star for
a special date or on anniversary.

▪ Increasing digital influence - Digi-lux, the new mantra : Luxury brand

were vary of making their products available online as it erodes the
‘exclusive’ element from the luxury product but they are realizing the
importance of online platform not just for commercial viability but also

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 to connect better with their consumers. Suddenly jewellery to cars to
real estate to services – all being sought on the net. A combination of
physical stores, digital experiences and social media engagement is the
new mantra.

▪ Competitive landscape - Collaborate not compete: Although, there are

multiple brands in every segment within the Luxury domain, the key to
expansion and continued development of Indian Luxury Industry is
collaboration, not competition. it is imperative to keep growing by
synergizing our knowledge of craft with contemporary needs. Bringing
together the expertise while not diluting the brand equity is the key in a
market with highly fragmented consumer base.

Indian Luxury Retail Trends- Barriers

Despite the positivity outlook, the market does have certain inherent trade
barriers:

▪ Foreign Direct Investment: is a key regulatory road block to growth of

the sector. Foreign direct investment restrictions are keeping brands out
of the India. 51% foreign ownership is the limit; 100% is allowed but only
with 30% local sourcing which many brands find difficult to comply with.
Brands fear for dilution of their name and harming their business models
▪ Lack of adequate luxury retail Infrastructure is yet another roadblock.
Retail infrastructure is non-existent and street level environments are
often unkempt.

▪ Lack of talent: Talent which understand luxury retail as a sector is a

challenge to find. Those available are under competent and highly over
paid. Specialised skill centres and luxury B Schools have been initiated by
few organizations; Luxury connect being the first one to do so.
▪ Import tariffs are averagely ranging between 30%-40%. This coupled
with the high transportation costs, causes simple price parity and margin
issues for retailers. It is often cheaper for Indians to buy abroad.

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Indian Luxury Retail Trends- Opportunity

▪ The Bridge to Luxury: The “bridge to luxury” is a strategy specifically

aimed at emerging & immature luxury markets. For the luxury brand,
this type of market presents several challenges.

▪ Demand is primarily driven by price. With wealth and disposable income,

a relatively new phenomenon the consumer is still extremely cost
conscious.
▪ The consumer is looking for brand aspiration/recognition as the main
benefit of luxury In other words, the market does not yet value luxury
for the actual experience and quality — it is characterized by conspicuous
consumption from an increasingly your image conscious population,
keen to display their wealth or social status.
▪ The presence of “knock off” products in the local market — the
combination of brand and cost driven demand the local market is much
more open/susceptible to trade in fake goods.

Targeted Distribution Channels: Lack of quality retail space & presence of

customer in different geographical areas and inability of suppliers to reach the
target customer necessitates that the brands develop innovative models for
distribution. An example of innovative distribution strategy was adopted by
Judith Lieber, luxury handbag brand, when they conducted an exclusive ‘Trunk
show’ in Indore, a tier 2 city. The sales from this event equalled 10% of the
previous years. Brands like a Kiton and John Lobb have entered through a
private sale model with no physical showroom or permanent overhead.
In addition, with the rate of increase of internet penetration, E-commerce in
India is at an initial stage and has a long way to go. There is rather an over-
supply of start-ups expressing the immaturity of e-commerce market and
Luxury brands must be conscious of choosing the right distribution channel

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 Regulations
Since November 2016 there has been introduction of several cash related
restrictions which made an impact on luxury sector- first demonetization, then
the 2-lakh limit, after that PAN Card business and the last of them was the GST
implementation. Though these policies have initially obstructed the growth of
Indian luxury sector, but it is believed that these changes may be favourable in
the long term. Recently, government has approved 100% FDI under the
automatic route for single-brand retail trading and eased the mandatory local
sourcing norms. This would provide greater flexibility to the global retail
brands and increased consumer access to global brands.

Diverse characteristics of Indian

consumer
Indian consumers are very different from a consumer in China or the West.
Indians culturally are value conscious and always look for a good bargain.
People always seek value and search for information regarding at what price
they can get brands internationally. As import duty is very high, consumers
often find it cheaper to purchase from Singapore, Dubai or London. Consumers
are ready to experiment; they have become bold. It's not conventional pattern
of buying anymore. People are ready to experiment with colours, styling,
irrespective of age. Consumers are brand conscious and logo-centric and logo
must be shown well. For men, shoes with prominent logo sell more in India.
Women shoes do not sell well because they don't see value. However, women
buy sunglasses and handbags which are more visible. People like to show-off.
Indian buyers give a huge importance to perception and value. Quality and
craftsmanship is a selling point but not decider point for Indians, it is prestige
that people associate with brand that they are paying for and therefore more
than anything else it is perception of the brand in the country that is either
making a brand successful or is creating struggle.

Luxury space constraint

Real estate is heavily regulated in India; consequently, luxury brands generally
launch stores in luxury malls or hotels, through joint ventures with local
distributors. Presently, there are very few luxury malls in India which cater to
luxury brands. In India, luxury retailing is confined to the three metro cities-
Mumbai, Delhi and Bangalore. Tier 2 and 3 cities, with large populations and
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growing wealth are not catered too well. But retailers must realize that it is not
only metros where people have money or purchasing power, even small cities
clients also generate revenues. There is no high street for luxury brands in
India. All existing high streets are very cluttered and over-crowded and hence,
do not provide a suitable ambience that luxury retail demands. In addition, the
cost of setting up luxury stores in high streets is very high which dissuade the
retailers to open stores in such areas.
Luxury players need to understand that Indian market has some distinct
characteristics and in such an environment they must operate very cautiously
and selectively to create value for Indian consumers. Failure to recognize these
variations in terms of their levels of luxury addiction, and consumer attitudes
for luxury brands can detach retailers to understand consumer behaviour of
luxury buyers.

Scope for foreign companies

With the rapid rise of online shopping for luxury brands in India, it is expected
that online luxury stores will see investments of US$35 billion in 2016, which
will double by 2020.

Previously, the traditional luxury clientele in India consisted of those who

mostly shopped on their trips abroad. This trend continues and needs to be
tackled by luxury brands entering or operating in India.

Nevertheless, the modern Indian luxury consumer base is expanding, with a

growing middle and upper middle class earning higher disposable incomes.
Moreover, 70 percent of India’s population is younger than 35 years, and
youngsters are highly discerning consumers due to increased awareness
through the internet, growing influence of Western culture, and expansion of
modern retailing.

Yet, while India’s consumer base is steadily growing and is more liberal in its
spending habits, the desire for “value proposition” poses the greatest
challenge.

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 In this regard, luxury brands will have to contend with such perceptions even
as they differentiate themselves on the price platform.

India’s FDI policy

Authorities allow 100 percent foreign direct investment (FDI) in single-brand

retailing and 51 percent in multi-brand retailing.

This opens opportunities for international luxury brand companies when

strategizing their business operations in the Indian market.

India’s Retail Sector: Challenges and

Opportunities for Foreign Investors
For instance, many French brands have already made plans to invest in India
and open stores in the short term.

Established brands such as Louis Vuitton and L’Oréal are expanding further and
increasing their investments, while some companies are recalibrating their
joint venture partnerships to widen their Indian presence.

The removal of the cap on foreign ownership in single-brand retail and

liberalization of FDI limits in multi-brand retail should encourage international
brands to invest more.

Reflecting optimism over FDI liberalization, Tikka Shatrujit Singh, chief

representative in Asia for LVMH, the French parent firm of Louis Vuitton and
other global luxury brands, comments – “This was the last frontier to be
opened. It will make India a preferred market.”

India’s competitive luxury market

These growth trends and drivers are some of the reasons why, apart
from China, India is viewed as the most promising among all emerging
markets.

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India’s luxury spend is on par with the UAE, far ahead of Turkey, Thailand, and
Argentina, and growing faster than Singapore and Australia.

Further, even as China is poised to become the world’s second largest luxury
market by 2020, its ageing population and the growing chasm between its
haves and have-nots, is throwing up tremendous challenges to its political and
economic stability.

With the recent slowdown in the luxury sector in China, global markets have
shifted their focus to players in India. India’s luxury sector is still in its
emergent phase and will have many opportunities for future expansion and
diversification.

The government, too, has taken progressive steps to make the process of
entering the Indian market easier.

Luxury comes a full circle in India. India is not new to luxury brands. Although
India may be the fasting growing economy in the world but grabbing a piece of
this market is more difficult than anticipated. What was western luxury brands'
biggest consumer base during the times of the maharaja’s, is once again the
target market for the same brands. This time, it’s the new maharaja, the new
corporate Henry, the new young pulsating India that is driving in sales of luxury
goods. This customer has dreams and expectations. He wants luxury to be
providing a personalized, customized and Indianized experience. India's new
breed of consumer indulging in luxury goods and services is expecting a more
cherished luxurious experience. Luxury brands should engage themselves in
creating a brand connect with the consumers through media, PR, special
events & so on.
Provide closeness, uniqueness, product and brand acquaintance with
appropriate messages. Educate this new Indian customer with your value
proposition – reach out – engage – inform – indulge – entertain and then
retain. This customer is loyal and will remain with the brand if assured of
prompt service, efficient sales staff, continuous engagement and mutual
respect.
In a country with a multitude of cultures, languages, religions, festivals, colours
and tastes there needs to be a localized marketing strategy. Brands will have to
understand the flamboyant Punjabi and a reserved Bengali.
With varied types of customer categories, it is imperative to connect and
convert the first-time walk-in client in a luxury store. As from the study, store
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 staff interaction came out as one on the most important parameters for
customer conversion and retention. Sales staff can elevate the consumers’
involvement with the brand, both emotionally and materially. For closing the
sale and retaining repeat customers, brands must deliver influential,
enlightening and touching experiences as the physical store experience is the
most memorable form of communication that a luxury brand can offer.
Organizations need to create value experience through the digital platform in
alignment with the store experience.
A vast nation, multitude of cultures, unity in diversity and a majorly young
population makes India a distinct consumer base for the luxury industry.
Brands focusing on India specific strategy and connecting with the local Indian
consumer will be the ones who will be most triumphant in the coming years.

Watch industry

The report titled 'India Watch Industry Outlook to 2018 - Premium Segment
and Online Retail to Lead the Growth' provides a comprehensive analysis of
the various aspects such as market size, segmentation, trends and
developments and future projections of the mass, mid and premium price
wrist watches as key segments of the market. The report provides the market
share of the major brands and company profiles of key players/ brands in all
the major segments (mid, affordable luxury, luxury and super luxury) The
report also covers the online watch industry and wall clock segment in India
and provides market size and future projections of economy, mid and premium
price wall clocks as three segments of the wall clock industry in the country.

The Indian watch market for timepieces has grown at a rapid pace in the past
few years clocking a CAGR of 9.3% for the period FY'2008-FY'2013. The market
for timepieces includes wrist watches, table clocks, alarm clocks and wall
clocks. But the market for wrist watches formed the major proportion of the
market for time pieces with a contribution of about 89% in the total watch
market in the country by revenue while the market for wall clocks formed the
rest of the market share of 11% in FY'2013.
The wristwatch market has grown in terms of value from INR 33,731.0 million
in FY'2008 to INR ~ million in FY'2013. The wrist watches market in India can be

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classified into three broad categories based on price. The first is the mass price
segment consisting of watches priced lower than INR 1,000 which are mainly
the wrist watches sold by the unorganized players. The second category is the
mid-price segment of watches priced between INR 1,000 and INR 10,000. The
third is the premium watch segment with watches priced above INR 10,000.

In India, the mass segment of watches contributes the highest to the market in
terms of volume. On the other hand, in terms of value, each of the mass and
the mid-price segments contribute about 37%-38% to the total wristwatch
market in India. The rest is contributed by the premium segment which
constitutes around 25% of the INR ~ million wristwatch industry in India.

The premium wrist watch market has been the fastest growing segment in the
Indian wrist watch industry during FY'2008-FY'2013. As the size of the
population with high disposable income has increased significantly over the
past years, the demand for luxury goods have substantially increased in the
country. The premium segment wristwatch market in India can be further
subdivided into three price categories. In value terms, the Affordable luxury
wristwatch segment has the highest market share of about 44% in the
premium wristwatch market in India. The main consumers of this segment of
watches are the rising urban population with higher spending capacity. This
segment is expected to more than double from about ~ million in FY'2013 to
about ~ million in FY'2018 by experiencing a high growth at a CAGR of 23.3 % in
the period FY'2014-FY'2018.

The online retail in India has expanded tremendously in recent years. This
growth has also been witnessed in the wristwatch segment of the online retail.
The primary reason behind the huge growth of the online retail market for
wrist watches is the huge increase in the number of internet users in the
country owing to the rising internet penetration. In FY'2013 the online retailer
market for wrist watches was characterized by a few e-commerce websites
holding around 92.0% of the market share in the online retail wristwatch
segment. The market is majorly dominated by the five e-commerce players
Snapdeal, Flipkart, Watchkart, Jabong and Myntra. The online retail market for
wrist watches is expected to clock a CAGR of 54.0% for the period FY'2013-
FY'2018. The size of the wristwatch segment of online retail is expected to
grow from around INR ~ million in FY'2013 to about INR ~ million in FY'2018.

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 Luxury from maharaja to masses is here to stay.

References: -
Economic times- Brand equity February 13, 2019
Business Today February 24, 2018
https://retail.economictimes.indiatimes.com/re-tales/luxury-in-india-the-way-forward/3357
http://www.lcbs.edu.in/luxury-across-emerging-markets-india-best-brics/

INDIA WATCH INDUSTRY OUTLOOK TO 2018 - PREMIUM SEGMENT AND

ONLINE RETAIL TO LEAD THE GROWTH October 2013

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