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India - Not Quite On Brandwagon

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International Fashion House Prada
India - Not Quite On Brandwagon
05 th Jul 2011
June 24, 2011 was a historic day for Prada, when it began trading on the Hong Kong Stock Exchange. The Italian luxury goods group sold its shares in an initial public offering at HK$39.50 each, raising US$2.14 billion. Though Prada’s trading debut fell short of high expectations (of anticipated earnings of €3 billion by 2013-2014), what’s interesting is that the company picked an emerging Asian market rather than getting listed in a traditional bastion such as Milan or London. Prada’s decision underlines the importance of Asia not just as a market for luxury products but also as a source of capital. China, Russia and India are the new markets that luxury brands are eyeing as their traditional markets are hit by the slowdown. Markets such as China have new, young millionaires seeking to build their ‘guanxi’ or business relationship by gifting luxury brands. However, given India’s per capita GDP and the number of high net worth individuals, analysts estimate that the potential luxury market size in India is 120 percent to 150 percent larger than its current size compared to a corresponding figure of 10 percent to 15 percent for China. The luxury market in India is expected to grow at 21 percent and treble by 2015. The Indian luxury sector (spanning the gamut of apparel, accessories, watches, jewellery, cars, yachts, hotels, spas and houses) represents a dormant volcano for the international marketer who can customise a response that is uniquely Indian. The Indian luxury consumer is evolving rapidly, but along a path that is inherently different from those in other developing economies. Gayatri Ruia, entrepreneur and founder of Mumbai’s uber-luxe shopping destination, Palladium, says, “Many [luxury brands] have not been able to sustain their presence in India due to naïve expectations based on the Chinese and other new markets. Since India is such a vast country with a diverse mix of tastes and preferences, luxury brands have to look at India-specific strategies to drive sales.” This is where a joint venture partnership with an Indian counterpart is important because the latter knows the ground realities and the pulse of the market. The local partner understands that there is a divide between old and new luxury. Old luxury represents a consumer who comes from a family historically associated with an affluent lifestyle, be it travel or fashion. The young Indian professional or businessperson is the consumer who represents the face of new luxury. This group has high levels of disposable income, is well-travelled and fashion-conscious with exposure to international trends. They are not averse to spending on luxury goods. Leading luxury brand retailers vouch for this ‘masstige’ (downward brand extension) phenomenon. They say that luxury cars are appealing to, and purchased by, middle-class consumers who do not fit the typical profile of an elite consumer segment. But the mindset of the Indian luxury consumer is still that of an ‘aspirer’, not that of a ‘connoisseur’. Even the exceedingly wealthy are very price-conscious and have a middle class mindset. “In India, luxury consumers, irrespective of their economic status are looking for discounts and like to be informed before everyone else when there is a sale,” says Ruia. The geographic distribution of the luxury consumer in India is another major concern for the industry. Though Delhi and Mumbai are expected to remain the prime markets for luxury consumption, at least another five to seven towns could be added to India’s luxury map in the next five years. Cities such as Bangalore, Hyderabad, Pune, Ludhiana and Amritsar promise rich pickings for luxury brands, given their purchasing power and predilection for luxury. But despite all these estimates, at present, there is an absence of a sizeable population shopping for luxury goods in India. To attract more consumers here, luxury brands are better off in a ‘mall’ environment like the Palladium, situated in Phoenix Mills, Mumbai. This also helps bring down the operating costs for the players. More brands are also opting for the smaller retail format to increase sales. “A large part of the (luxury) shopping (in India) is still need-based,” says fashion stylist and costume designer, Pernia Qureshi. “I need this, I know where to go and get it,” is the general perception. Unlike in the West, the ‘shopping for leisure’ population is rare to find in India. Additionally, luxury shopping in India is still not a pleasant experience. Qureshi finds the mall itself limiting her shopping experience. She prefers leisure shopping at Madison Square in New York or Oxford Street in London, where one can walk down the high street or sit down at the cafes. “I don’t do much experimental shopping here,” she says, adding that the market lacks depth and spread. One way to change consumer perceptions and reservations about shopping for luxury goods in India is to bring in iconic high recall brands and ‘ladder brands’ such as Zara that are not too exclusive. “The challenge is to create a lifestyle experience that the Indian consumer can relate to; to provide a world class experience in terms of ambience and service and at the same time not making it so exclusive that people would not be comfortable,” says Ruia. “The trick is to convince super luxury players that having a high street brand [like Zara] next door is important.” Experimenting with new formats such as a luxury discounter (liquidation channel) would also open up the market by exposing consumers to collections of previous seasons at attractive prices and help boost the sales of the brands. For international luxury marketers in India, the biggest challenge would be to get the pricing right even while maintaining their quality. As for consumers, for now, they should stick to buying the luxury brands rather than investing in their shares. Read more: http://business.in.com/article/briefing/indias-not-quite-on-the-brandwagon/26522/1#ixzz1RDvm6Tqj

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