Your SlideShare is downloading. ×
KPMG India Luxury Market 2014
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

KPMG India Luxury Market 2014

784
views

Published on

Published in: Business

0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
784
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
0
Likes
2
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. India luxury summit 2014 kpmg.com/in
  • 2. I am delighted to know that the second India Luxury Summit is being organised by ASSOCHAM with Spain as the Country Partner this year. Organising the second India Luxury Summit - 2014 at this opportune time will certainly provide a forum for the industry leaders from the luxury and retailsector for deciding on new investments and the way forward. I congratulate ASSOCHAM and KPMG in India for releasing this report, after a detailed survey of Indian as well as several international brands. I am sure that the industry will find this report useful in deciding their future investment roadmap. The youths of India is innovative and hardworking to address the market need. More and more families in India want to be within this area of luxury market. India is historically 'society of richness and luxury' in certain areas of living. I convey my good wishes to ASSOCHAM, (India's Apex Chamber of Commerce and Industry) for the success of the second India Luxury Summit - 2014. Dr. E. M. Sudarsana Natchippan Minister of State Commerce & Industry, Department of Industrial Policy & Promotion Government of India © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Message-Ministry
  • 3. We are happy to announce the second India Luxury Summit on Friday, 7 February 2014, in New Delhi.The presence of a high-powered Spanish business delegation at the summit is indeed very significant and shall provide many business opportunities. Needless to say, the luxury sector in India is poised to register a growth of 25 per cent y-o-y, and we at ASSOCHAM are committed to providing an effective business forum to Indian and global entrepreneurs. Spain has emerged as one among the European countries that can boast of strong global brands such as Zara and Lladro.These brands have become household names for the quality, variety and exclusivity they offer. I convey my best wishes for the success of the second India Luxury Summit - 2014 and thank all our stakeholders, including the Embassy of Spain and their Commercial Office in India for their guidance and support in ensuring the success of the second India Luxury Summit - 2014. I would also like to take this opportunity to thank the teams at ASSOCHAM, KPMG in India andYES BANK for preparing this report on the luxury sector, which I am sure, will help the industry for a better understanding of the luxury sector in India. D.S.Rawat Secretary General ASSOCHAM © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Message-ASSOCHAM
  • 4. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The year 2012 was dynamic for the luxury market in India, as it continued to grow unabated despite weak consumer confidence and an economic slowdown. Non- traditional markets - regions beyond metros and tier one cities - and a growing number of ‘HENRYs’ (High Earning Not RichYet individuals) spending on luxury goods are largely responsible for the growth of this market. In 2013, several players expanded their business in the Indian market and we expect 2014 to be equally - if not more - buoyant for the industry.We also expect competition in the ‘bridge to luxury’ segment to intensify with increasing number of consumers joining the luxury segment.While some of the foreseeable challenges include those related to shortage of quality staff and real estate, the industry is already trying some business models whose success is likely to overcome them.The sector has also witnessed the emergence of Indian players who have risen to fame by capitalising on traditional Indian strengths in areas such as arts, crafts and medicine. These are exciting times for the luxury sector in India, which is buzzing with activity. Players are increasingly walking the extra mile to overcome barriers typically associated with operating in India.Traditional ‘definitions’ and ‘characteristics’ of luxury consumers are evolving with increasing awareness among consumers; this is creating a host of opportunities for the existing and new players. KPMG in India is elated to be a part of the Second India Luxury Summit that provides a common platform to various industry stakeholders to share leading practices, plan the way forward and address the common challenges hampering the sector’s growth. This report incorporates extensive discussions with senior stakeholders of the industry and aims to present an all-encompassing view of the opportunities and issues present before the sector. KPMG in India and ASSOCHAM acknowledge and appreciate everyone who has contributed to this report. RajatWahi Partner KPMG in India Foreword-KPMGinIndia
  • 5. Overview of the Indian luxury market 4 –– The concept of luxury and the key trends 4 –– Emergence of Indian luxury 7 –– Key consumer segments 7 –– Luxury clusters in India 8 –– Challenges highlighted by luxury retailers in India 10 Success stories in luxury space 14 –– Manufacturing success with luxury ayurveda: Forest Essentials 14 –– Crafting success: Goodearth 17 –– Driving to success: BMW India 20 Industry views on the Indian luxury market 24 –– The way Ahead: Indian Luxury Brands Going Global - by François Arpels 24 –– India's Luxury Retail Quotient - by Research and REIS, Jones Lang LaSalle India 27 © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Tableofcontent Note: Names of brands / companies used as examples in this report are without any prejudice to any specific brand / company
  • 6. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 | India Luxury Summit 2014
  • 7. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 2 Section1 OverviewoftheIndian luxurymarket The concept of luxury and the key trends Emergence of Indian luxury Key consumer segments Luxury clusters in India Challenges highlighted by luxury retailers in India
  • 8. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 | India Luxury Summit 2014 Theconceptofluxuryandthekeytrends The global luxury market was buoyant through 2012-13; a period characterised by global economic recovery in developed economies such as the U.S. and positive recovery signals from Europe. In consonance with this trend, the wealth of the world’s richest grew by 17 per cent as 210 new entrants joined the ever-increasing Forbes Billionaires List1 . India continued to hold its position in the global billionaire list with a contribution of 55 billionaires, accounting for a total net worth of USD194 billion.This is a marked improvement over 2004, when there were just nine Indians in the list.The year 2013 was marked by a slowing Indian economy and diminishing consumer confidence, but it seemed to have little or no impact on the growth of India’s luxury market, with the country’s wealthiest continuing to spend unabated on luxury goods through the year. The Indian luxury market grew at a healthy rate of 30 per cent in 2013 to reach USD8.5 billion in 2013. It is likely to continue growing at a healthy pace to reach USD14 billion by 20162 .The sector includes luxury products such as apparel, accessories, home decor, pens, watches, wines and spirits, and jewelry; services such as fine dining, concierge services, travel, hotels and spas; as well as assets such as fine art, yachts, and automobiles. Growth was driven by lifestyle segments such as fine dining, gadgets, hotels, jewelry, personal care and wines; growing at 30 to 35 per cent as the luxury consumer refused to compromise on the ‘luxe' life. Global billionaires' wealth Source: http://forbesindia.com/article worlds billionaires-2013/forbes-billionaires-list-2013/34951/1, accessed 14 January 2014 1. “Forbes Billionaires List 2013,” Forbes website, http:// forbesindia.com/article worlds billionaires-2013/ forbes-billionaires-list-2013/34951/1, accessed 14 January 2014 2. India's luxury market up in 2013 and likely to break all times record in 2014, http: www.assocham.org/prels/ shownews.php?id=4327, accessed 14 January 2014
  • 9. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 4 India’s luxury potential has attracted several luxury players such as Damiani and, Royce over the last few years, and several others such as Godiva Chocolates and Faberge Jewellery plan to enter the Indian market. Additionally, brands such as Geox Group andVilleroy & Boch, which exited India previously, are now showing renewed interest in the country’s luxury market3 . The Indian luxury consumer landscape is experiencing strong evolutionary undercurrents that are redefining the consumer profile and how luxury players operate in the space. A look at some of the key trends reveals the opportunities and challenges that the sector in India currently presents. An ever - increasing and ever-evolving base of consumers The growth of the Indian luxury market is driven by an ever-increasing base of ultra high-net worth households (HNHs), which is likely to grow at a CAGR of 27 per cent through 2017-184 . The luxury space was once defined and limited by the preferences of these ultra HNHs, including only the most elite and bespoke products and services. However, in recent times, rising income levels and aspirations have led to a growing segment of potential luxury buyers beyond traditional luxury shoppers.These consumers are typically upper middle class aspirers looking to ascend the ‘consumption ladder’. An increasing proportion of luxury demand is likely to come from this segment, which belongs to a larger group likely to experience the highest income increase in India5 . Players have responded to this potential by launching entry-level luxury brands to help these consumers trade up.They have also customised the shopping experience and their services significantly to cater to such buyers, who often experience luxury for the first time. This presents a significant opportunity for players to establish a long-term connect with the consumer and gain a first-mover advantage. Indian luxury market size (USD billion) Source: ASSOCHAM website, http: www.assocham.org/prels/shownews.php?id=4327, accessed 14 January 2014 3. KPMG in India analysis 4. Top of pyramid 2013, KotakWealth Management and CRISIL Report, 2013, p10 5. “Living in India”,The Financial Express, 12 June 2011 Number of ultra high net households Source: KotakWealth Management Report 2013
  • 10. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 | India Luxury Summit 2014 Urban India's average household income Geographical spread of ultra HNHs in India Source: “Living in India”,The Financial Express, 12 June 2011 Source: Luxury carmakers change lanes to cruise in a slow market, Business Standard website, http://wap.business-standard.com/wapnew/storypage. php?id=2&autono=113110200441, accessed 10 January 2014 Luxury car-makers set to double used auto sales this year, Indian Express website, accessed 10 January 2014 India shows Hidesign how to bag buyers, Business Standard website, http://www.business-standard.com/article/management/india-shows-hidesign-how- to-bag-buyers-113082901082_1.html, accessed 10 January 2014 Source: KotakWealth Management Report 2013 Growing focus beyond the metros and tier-I cities Home to nearly half of the country’s ultra HNHs, India’s non-metro regions offer lucrative growth opportunities for luxury segment players. Players with a long- term perspective have already started investing in establishing a connection with consumers in these areas. Infrastructure, which includes a proper retail environment, is a key challenge that players in these regions face. Players are overcoming this through innovative models and local tie-ups in order to optimise investments and minimise risks. Such innovative means are gaining popularity amid a thriving franchising sector, stringent investment norms and limited knowledge of local preferences. Brands such as Judith Lieber are reaching out to tier-II consumers through local partners and exhibitors to build awareness and to induce consumer trial6 . Players are also using these channels to educate potential consumers about luxury and thereby, position their brand as relevant for the consumer. Luxury car maker BMW launched the 1 series at an entry price of INR 2,090,000, (ex-showroom, India) positioned at just 2 to 3 per cent higher than the entry-level variants of various premium brands. Around 70 per cent of luxury handbag player Judith Leiber‘s customers now come from tier-II and tier-III cities without depending on store- based expansion. Its local partners showcase select products to potential consumers through exhibitions7 . Mercedes-Benz launched its 'Proven Exclusivity' programme in June 2010 to target consumers interested in used luxury cars, playing on the legacy of the Mercedes brand name and superior shopping and service experience. Hidesign is moving beyond the traditional luxury consumer and is increasingly positioning its products for young achievers with high incomes. These are typically people who are extremely status-conscious. 6. Luxury market to reach $15 bn by 2015 in India, marketers try new ways to woo buyers in non-metros, Economic Times website, http:// articles.economictimes. indiatimes.com/2013-03-21/ news/37903575_1_luxury- market-brand-smaller-cities, accessed 10 January 2014 7. Betting on India, Outlook magazine website, _http:// business.outlookindia.com/ printarticle.aspx?288331, accessed 10 January 2014
  • 11. India Luxury Summit 2014 | 6 Evolving channels and relationships As the consumers evolve, so do these channels; as a result, many luxury players have ‘switched’ partners to suit specific needs8 . Examples include players such as Corneliani,Villeroy & Boch,Versace and Guess. At present, only a handful of Indian companies continue to be the preferred choice of luxury players, primarily in segments such as clothes and accessories.This trend is likely to continue as luxury brands continue to assess their strategy. High degree of ‘Indianisation’ and ‘localisation’ ‘Indianisation’ and ‘localisation’ are increasingly becoming differentiators of success with new consumers in new markets. Luxury brands no longer deal with just the elite and well-traveled urbane customer. New segments with varied profiles may now constitute potential targets for luxury brands; examples include segments such as farmers selling their lands to developers and entrepreneurs experiencing windfall gains. Brands are responding by introducing local, Indian elements to their products - lifestyle brands are signing up with Indian designers, hiring relationship managers who speak local languages and tweaking offerings for Indian festivities, weddings, to name a few. While several luxury players have launched wedding ranges in India, many are increasingly targeting Indian weddings with custom- made products such as handbags, scarves, food hampers and liquor for guests. Highlighting the state of flux, more than 150 international fashion brands launched in India during 2004-11 have either changed partners or exited India9 . © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8. “‘Global luxury brands scout for new partners in India,”’ Fashion United website, www.fashionunited.com/ executive/management/global-luxury-brands- scout-for-new-partners-in-india-20122903488800, accessed 15 January 2013 9. Twist inTale: Global luxe brands scout for new partners, Fashion United website, _http:// www.fashionunited.in/news/fashion/ twist-in-tale-global-luxe-brands-scout-for- new-partners-290320123357, accessed 10 January 2014
  • 12. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 | India Luxury Summit 2014 EmergenceofIndianluxury In 2013, luxury champagne player Moet Hennessy, who previously offered only imported products, launched its first Indian-made wine10 .The strategy is aimed at targeting a new breed of consumers -urbane youth. Similarly, brands such as Hidesign thrive on situating their manufacturing facilities in India while catering to the market.These trends are indicative of a growing comfort around the concept and quality products being made in India. This sentiment now extends beyond entry-level shoppers and is shared by traditional luxury shoppers as well10 .This augurs well for Indian luxury players.The traditional Indian luxury shopper is now more aware than before and is willing to look beyond the geographic limitations that once determined purchase decisions.The traditional Indian luxury consumer is also increasingly focussed on multiple aspects such as cost, after sales service, etc. while making the choice. Homegrown players have capitalised on traditional Indian strengths in areas such as textiles, leather, jewelry and personal care to gain popularity both in India and abroad.These players have often capitalised on aspects such as traditional craftsmanship, unique aesthetics or heritage value to identify with consumers.The international presence and popularity of these brands have only reinforced their position in the luxury market in India. Examples include fashion designers such as Ritu Kumar and Sabyasachi; high-end ayurvedic personal care company Forest Essentials; and hospitality players such asTaj, Oberoi and ITC. Luxury consumers preferring to shop in India over abroad (%) Source: KotakWealth Management Report 2012 10. French champagne group Moet Hennessy launches ‘made in India’ bubbly, Mint website, http://www.livemint.com/Companies/ t9oWBhX504U3gpRHIu83JL/French-champagne- group-Moet-Hennessy-launches-made-in-India.html, accessed 10 January 2014
  • 13. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 8 Keyconsumersegments The moneyed class in India has always had exposure to luxury brands through imports or overseas travel. In addition, economic growth of the country has created a new generation of consumers as diverse as senior corporate professionals, young working women who live with their families and are liberal spenders, successful entrepreneurs, and farmers who have sold their land to developers.The word ‘luxury’ itself has different shades of meaning for each segment (as depicted in the figure below). Each of these segments constitutes a potential luxury consumer group with distinctive behavioral characteristics. Thus, owing to India’s consumer diversity, luxury players eyeing this market need to apply a segmented approach and sharpen their brand strategies. Source: KPMG in India analysis as on 17 January 2014
  • 14. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9 | India Luxury Summit 2014 LuxuryclustersinIndia Indian luxury consumption constitutes only 1to 2 per cent of the global luxury market11 . However, with significant increase in the HNI population, the overall rise in disposable income places India among the leading global destinations for luxury brands. Currently, luxury consumption in India is concentrated in Delhi, Mumbai and Bengaluru, with the preference for luxury goods growing across the country’s top 10 cities. DLF Emporio in Delhi, Palladium in Mumbai and UB City in Bengaluru are some of the luxury malls in India12 . South India has emerged as a primary driver of India’s luxury market. In this region, the population tends to be highly receptive to new products and flavors as compared to other regions of the country. In North India, the demand for premium and imported goods has witnessed a boom in the metros as well as tier-1 and tier-2 cities12 . In the last few years, cities such as Surat, Jaipur, Lucknow, Nagpur, Coimbatore and Kanpur have witnessed prominent growth in income distribution.The number of high-income households in these cities is estimated to grow at around 20 per cent annually, as against 13.7 per cent in metropolitan cities13 . Considering this strong growth momentum will continue in coming years, luxury brands have been evolving rapidly and expanding their footprint in high streets in the top 10 cities, luxury hotels and high-end residential areas. Retailers are thinking out of the box to capture the fragmented Indian consumer through different strategies. Source: "India's Luxury Retail Quotient", Jones Lang LaSalle India Report, 7 January 2014, p1. 13. Luxury brands target India’s conservative markets, FashionUnited website, www.fashionunited.in/news/ fashion/luxury-brands-target-indias-conservative- markets-160820124057, accessed on 27 January 2014 11. Fake luxury market to double by ’15,The Statesman website, _www.thestatesman.net/news/34458- fake-luxury-market-to-double-by-15.html, accessed 16 January 2014 12. The Luxe Choice: Homes Over Malls, Businessworld website, http://www.businessworld.in/news/finance/ markets/the-luxe-choice-homes-over-malls/1158604/ page-1.html, accessed 10 January 2014
  • 15. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 10 Challengeshighlightedbyluxury retailersinIndia Lack of quality luxury space and environment The presence of luxury brands in India is primarily restricted to malls, high streets and countable luxurious hotels.While there are limited luxury malls (only three - UB City, DLF Emporio, and Palladium) in India at present, setting up stores in high streets affects retailers’ profitability due to sky-rocketing rental costs. Moreover, high streets such as Churchgate (Colaba, Mumbai) are very cluttered and crowded and are unsuitable due to the absence of the exclusive ambience that luxury retail demands.Thus, there is a dire need for modernised and dedicated luxury retail areas in protected vicinities such as airports. Despite this challenge, multiple luxury retailers have successfully established in India, with out-of-box marketing strategies and innovative ideas that capture the potential luxury customer. Fragmented and diversified consumer base Indian HNI consumers are highly fragmented and, thus, are not easy to reach. Further, this HNI consumer class can be classified into three different categories - the inheritors (traditionally wealthy) who are habitual spenders; the professional elite who are discerning spenders; a large segment of business giants (entrepreneurs, owners of small and medium enterprises) who have the money but lack appreciation for fine luxury goods because of no prior exposure to such products. Luxury brands need to strategically design their growth plans to tap demand across these three categories.This not only necessitates expansion in the type and nature of product offerings of brands, but also calls for increasingly innovative marketing plans to tap rapidly evolving consumer behavioral trends. Most international luxury brands need products that are tailor-made to suit the whims and fancies of Indian customers. Lacking policy support Despite strong demand momentum, Indian luxury market has not been viewed as policies and regulations friendly for the luxury retailers. Import duties (20–150 per cent) are relatively higher in India15 .This is considered as a key apprehension factor among the international players, who may resist them to frame aggressive growth plans for India. An announcement on liberalised FDI policy in luxury retail was considered as a welcome move for the industry in November 2013. However, some of the clauses such as — 100 per cent FDI in both single and multi-brand retail requires 30 per cent of local sourcing, could be difficult for the international luxury players to comply with.16 Hermes was among the first brands to move beyond luxury malls and hotels and to Mumbai’s Horniman Circle, creating a high street in India, and has been performing well since 200914 . 14. Hermès Opens in Horniman Circle, Mumbai Boss website, _http://mumbaiboss.com/tag/bertrand- michaud/, accessed 10 January 2014 15. The Ascent of Money, IndiaToday, http://indiatoday. intoday.in/story/luxury-market-in-india-luxury-goods- products/1/228450.html,accessedon16January2014 16. Believe in the India Luxury Market, Sharnoff’s Global News, www.sharnoffsglobalviews.com/luxury- market-india-181/, accessed 16 January 2014
  • 16. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 11 | India Luxury Summit 2014 Proportion of counterfiets in the luxury market Source: ASSOCHAM-Yes Bank Report 2014 Countering the counterfeits Sised at around INR25 billion, counterfeits constitute a considerable 5 per cent of the Indian luxury market17 .The counterfeit market has been growing at a rate almost double to that of genuine products. Most of these products belong to segments such as apparel, perfumes and accessories, which are usually lower ticket items and can be easily placed in gray channels. Luxury players in India continue to face supply side issues such as legal loopholes pertaining to intellectual property rights, inadequate means to monitor various emerging channels, and a growing number of online portals, among other factors. However, much needs to be done at the consumer end as well to create awareness about genuine products.This is even more important as a large number of aspirers with diverse backgrounds and limited knowledge of products become potential consumers. Only a handful of players have effectively engaged the consumer in education and communication on the brand. A collective, industry wide effort is likely to have a far-reaching impact in dealing with the issue - as seen in other industries such as films and music. Awareness and collaboration also needs to be built with authorities, who have experienced major revenue losses due to loss of taxes and duties, on how to deal with counterfeits. Lack of trained staff Lack of trained staff is a well- acknowledged challenge that the Indian retail industry faces.The problem intensifies when it comes to the luxury sector, which requires greater discretion and knowledge on the part of a salesperson. Several luxury players have cited ‘excluding’ potential customers as a key risk to their business. Most brands have in-house training systems to train staff on aspects such as etiquette, visual merchandizing and knowledge. Elements for such training often borrow heavily from those of their global parents. Recently, with the local market evolving, several luxury brands have ‘Indianised’ their pitch to suit shoppers.This includes focusing on educating shoppers who are new to luxury and speaking in local dialects to make the customers feel comfortable, separate rooms for closed door selling, etc. Luxury players are likely to remain convinced about India’s demand story. As growth in large markets continues to saturate, the BRIC countries (Brazil, Russia, India and China) are poised to be the next major growth engines19 . Under French law18 , purchasing fake products may incur a fine of up to EUR300,000 or three years imprisonment.The French Government also launched an innovative campaign with industry players against fakes, with taglines such as ‘Buy a fake Cartier, get a genuine criminal record’ and ‘Real ladies don’t like fake’. Cardinal sins while selling luxury: –– Stereotyping consumers based on appearances or the way they talk –– Excluding the addressable market, appearing unapproachable to potential shoppers –– Trying the same pitch for all luxury shoppers. 17. Fake luxury market to double by ’15,The Statesman website, www.thestatesman.net/news/34458-fake- luxury-market-to-double-by-15.html, accessed 16 January 2014 18. Fake goods are fine, says EU study,Telegraph website, _http://www.telegraph.co.uk/finance/newsbysector/ retailandconsumer/7969335/Fake-goods-are-fine- says-EU-study.html, accessed 10 January 2014 19. KPMG in India analysis as on 30 January 2014
  • 17. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 12
  • 18. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 13 | India Luxury Summit 2014
  • 19. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 14 Section2 Successstoriesinthe luxuryspace -Casestudies
  • 20. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15 | India Luxury Summit 2014 CaseStudy-I Manufacturingsuccesswithluxuryayurveda: ForestEssentials Forest Essentials (FE) was established with an aim to promote traditional cosmetics in a modern way.While various other ayurvedic products were available when it was launched, there was a need for ensuring quality by sourcing ingredients in an appropriate manner. It was also believed to be important to position ayurvedic products as utilitarian and easy to use - the lack of it was hampering their sale, especially among high-end consumers. FE’s model based on ayurveda and the absence of any Indian brand in this ‘prestige space’ acted as a catalyst for its entry in the country.The company started by offering soaps and oils with high-end global packaging, which instantly struck a chord with consumers. Company overview Established in 2000, FE is a leading Indian player in the high-end personal care segment. Its key products include a wide range of ayurvedic skin care, body care, hair care and wellness products. The company’s manufacturing facility is in Uttarakhand and it sells products through exclusive retail stores and institutional players (including luxury hotels and spas). Key facts Year started 2000 Founder Mira Kulkarni Key brands Forest Essentials Presence 30 cities, including non-metros such as Jaipur, Ludhiana and Chandigarh No. of stores 26 exclusive stores Factories Two - Haridwar and Lodsi in Uttarakhand Revenue - The journey so far (key milestones) Source: KPMG in India analysis as on 30 January 2014
  • 21. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 16 FACTOR 1 — well-defined positioning to target the ‘white spaces’ in the market FE positioned itself as a ‘prestige’ or ‘bridge to luxury’ brand.The aim was to gradually upgrade consumers from the ‘masstige’ segment in the consumption ladder by creating aspirational value for high quality products.This segment is a high growth segment due to increasing incomes and growing number of youngsters, who are typically more receptive to trying new products. Since this space was largely unexplored, the company chose to enter through the shop-in-shops model to build awareness and promote trials. A growing luxury market and evolving consumers have helped the company establish exclusive stores and increasingly offer more personalised services. FACTOR 2 — incorporating global operating standards while operating in the Indian environment Evolving consumer preferences have shifted focus from packaging to the quality and ingredients of products. FE is aware of this shift and has consistently invested in infrastructure while establishing a backend system in sync with the growing demand. The company has its own workshops in Uttarakhand and in-house doctors, experts and technicians. FE’s partnership with Estee Lauder (EL) in 2008 has significantly helped the former upgrade its processes and facilities to match global standards. Constant collaboration and factory visits from EL’s teams have helped FE improve several of its processes, such as quality control, vendor development and packaging and introducing sustainable initiatives.These initiatives have enabled FE to leverage ‘quality’ and ‘ingredients’ as unique selling proposition, while targeting the prestige segment. Forest Essentials positioning Source: KPMG in India analysis as on 24 January 2014 Source: KPMG in India analysis as on 30 January 2014 Understanding key success factors There was a need to showcase the effectiveness of ayurveda to represent India. - Samrath Bedi, ED, Forest Essentials
  • 22. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 17 | India Luxury Summit 2014 FACTOR 3 — focussing on ‘experiential marketing’ through stores A significant per centage of FE’s BTL marketing is done through word-of- mouth publicity instead of forced selling. The company uses store environment as an important marketing tool to induce trial and repeat purchase by closely managing ambience elements such as lighting, scents and product display. Additionally, store staff is trained to provide expert advice and cater to specific requirements of consumers. FE’s made-to-order solutions are positioned in such a way that they aim to induce repeat purchase and ensure consumers stay loyal the brand.To avoid excessive pressure on existing channels, FE has a separate back end team catering to customised solutions. Increasing use of ayurvedic products, as preventive remedies rather than curative treatments, has reinvigorated interest among consumers. FE has capitalised on this trend by increasingly engaging with consumers on social media platforms and making their products more relevant to consumers. In terms of ATL activities, FE has been selective while choosing popularTV shows - which reach a certain audience or while launchingTV commercials - and has carefully planned limited period campaigns primarily to generate awareness and credibility. FACTOR 4 — a company-owned model of expansion Forest Essentials follows a company- owned model and operates through its own standalone stores and shop-in- shops in large format stores in India.This model helps the organisation maintain absolute control over its merchandise, supplier’s network and store staff and facilitates direct contact with end consumers. Considering all the advantages, the company has adopted a focussed expansion strategy to establish new company-operated stores. It has optimally leveraged its partnership with EL to select store locations, train staff members as per international standards, manage inventory and develop impactful relationships with customers. FACTOR 5 — extensive training programs The Indian luxury retail market has faced significant manpower shortage, especially for the front-end staff, which interacts directly with customers. Hence, FE has made significant investments toward the training and development of its human resource. Its store staff, including managers and brand ambassadors, have to attend extensive training sessions and conduct virtual store visits.These sessions are designed to train employees on all forward and backward operations of the company. Source: KPMG in India analysis as on 30 January 2014 Key achievements and plans Concluding remarks A good mix of traditional and modern can lead to a symbiotic relationship, which could be the key to overcoming challenges inherent in the Indian retail environment. Organisations such as FE demonstrate how global standards of operating, modern packaging and retailing can be merged with traditional Indian strengths.
  • 23. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 18 CaseStudy-II Craftingsuccess:Goodearth GE entered the market in 1996 when there was a huge demand-supply gap in terms of quality home products.The segment suffered from less product innovation despite being an integral constituent of the consumption basket. Only a few players had envisaged success for ‘export quality’ products in the domestic market. The well-travelled Indian luxury consumer was seeking products that appealed to his aesthetic sense, sold in an environment that offered both uniqueness and exclusivity. Company overview Established in 1996, Goodearth (GE) is a leading Indian luxury player that offers a wide range of products in segments such as home accessories, wellness, skin care, bed linen, glassware, textiles, crockery, candle lights, gift items and kids collection. GE’s values and offerings are based on the themes of nature and sustainability. Its first store was established in Kemps Corner in Mumbai and GE currently operates through nine stores across five cities. Key facts Year started 1996 Founder Anita Lal Key brands Goodearth Presence Five cities - Mumbai, Delhi, Chennai, Bangalore and Hyderabad No. of stores Nine exclusive stores Factories 1996 Revenue -
  • 24. 19 | India Luxury Summit 2014 FACTOR 1 – suiting the Indian aesthetics Goodearth’s unique selling proposition is its design that appeals to the modern Indian aesthetic taste. It adapts traditional designs to suit contemporary tastes primarily through its in-house design team; additionally, GE also collaborates with several traditional craftsmen for product development.The company’s team of designers collects natural fabrics from multiple regional craft communities and gives them a fashionable look. Handwoven textiles such as chanderi, mul and khadi are some traditional and eco-friendly products that the company uses extensively. FACTOR 3 – minding the backend GE works closely with craftsmen and various local vendors; hence, managing supply chain is essential to deliver on the ‘quality proposition’ as well as the timely processing of orders. GE maintains a close relationship with different partners such as craftsmen, small workshops and factories, and collaborates with them for day-to-day delivery schedules as well as for long-term growth strategy.This has enabled GE to put in place strong quality standards and efficient production and delivery systems that has helped it to scale up rapidly in the past few years. FACTOR 2 – offering a unique and exclusive retail experience GE has introduced several innovative concepts for retailing its products. One example is that of establishing restaurants in its stores to provide a ‘wholesome’ retail experience and thereby, making people spend more time in the stores. Such initiatives are complemented by steps to create a unique ambience, such as playing soothing music and putting relevant product assortment on display. This has helped GE in creating an ‘excitement factor’ around its stores. The journey so far (key milestones) Source: KPMG in India analysis, as on 28 January 2014 Understanding key success factors Goodearth designs are original, contemporary, whimsical, yet rooted in heritage. - Simran Lal, CEO, Goodearth We are working closely with our partners to ensure all of us are in sync with our growth projections. - Simran Lal, CEO, Goodearth © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 25. India Luxury Summit 2014 | 20 FACTOR 4 — focussing on marketing strategy Developing and managing a luxury brand requires constant innovation and an integrated marketing strategy. Like several successful luxury brands in India, GE has also balanced its emphasis on India’s rich artisanal history and traditions with contemporary design and styling. Every year, it launches a designer collection that is based on some tradition or culture. For example: • 2013 - GE launched the ‘Ratnakara’20 designs collection, which focussed on the lush beauty of the islands of the Indian Ocean. • 2012 - GE introduced the ‘Farah Baksh’ design collection based on the beauty of the Kashmir valley. • 2011 -To promote the cultural values and the crafts of Golkonda during the reign ofTipu Sultan, GE launched its ‘Golkonda’ designs collection. • 2010 - GE introduced its collection ‘Lotus Feet' that was influenced by the use of lotus in Budhhist art and architecture. FACTOR 5 — understand the importance of digital strategy Online sales can offer better increased comfort and convenience to tech- savvy consumer, thereby, providing better shopping experience than brick-and-mortar stores. Keeping this in mind, Goodearth has also made significant investments in technology.Through its digital strategy, it manages its merchandise on the website to accommodate international requirements. Its digital presence helps it to provide more personalised and excellent customer service online and augments brand visibility internationally. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Source: KPMG in India analysis as on 28 January 2014 Key achievements and plans Concluding remarks A unique product proposition should be accompanied with key growth enablers at the front end as well as back end. As the number of players in the luxury market increases, creating a unique retail experience can help a brand stand out. It is equally important to sync one’s growth with that of vendors and partners. Establishing quality standards and processes may be a difficult task in some cases in India and it can potentially make or break an organisation.20. Goodearth website, http://www.goodearth.in/Our- Company/Design-Stories/Ratnakara-2013, accessed on 31 January 2014
  • 26. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 21 | India Luxury Summit 2014 CaseStudy-III Drivingtosuccess:BMWIndia BMW entered the Indian luxury car market in 2006, when the segment and luxury market were still in a very nascent stage in India.The market was only around 3000 cars and primarily catered to the urban consumer, the super luxury segment – businessmen, C-level executives and top notch professionals – with very few options below the INR5 million price points. BMW started off by establishing a strong foothold in the high-end segment, creating a strong aspirational value for the entry segment. BMW’s key offering included young sporty looking cars – a major deviation from the then industry trend. Company overview Established in 2006, BMW India Pvt. Ltd., a subsidiary of BMW Group, is one of the well known players in the luxury car segment in India. Its key products include passenger cars, multi-purpose vehicles and utility vehicles.The company has its manufacturing facility in Chennai and cars are sold mainly through exclusive dealerships. Key facts Year started 2006 President Philipp von Sahr Key brands BMW Presence 35 cities, including small cities such as Kanpur, Raipur, Noida, Lucknow and Faridabad No. of stores 37 dealership stores Sales 7,327 units in 2013 The journey so far (key milestones) Source: BMW case study, http://www.bmw.in/in/en/, accessed on 16 January 2014 Note:The information for this case is collected through secondary research
  • 27. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 22 FACTOR 1 – understand the ‘new’ dimensions of the consumer landscape The entry level luxury segment driven by a growing number of high earning young professionals, is adding a new dimension to the luxury consumer landscape. BMW launched the one series at an entry price of INR2,090,000 (ex-showroom, India) positioned just 2-3 per cent higher than the entry-level variants of various premium brands.21 BMW India has also increased potential consumer base by the used car space through ‘Premium Selection’ offering in 2011. It is also offering finance options to the customers (BMW India Financial Services Pvt. Ltd.) to aid purchase. It currently has 10 showrooms offering this service; the vehicles sold are under five years old and have a mileage of less than 120,000 km.22 Key differentiators over the unorganised used car market also include adherence to defined BMW product standards and high-end purchase and service experience. FACTOR 2 – Establishing long term consumer connect and ‘educating’ the consumer BMW launched Mobile Showrooms in 2012 to help people in small cities such as Karnal, Agra, Dehradun, Nashik, Kottayam and Jamshedpur get familiarised and test-drive its products23 . Typical high-end urbane shopping experience is replicated through air- conditioned weather proof buildings.This strategy has helped BMW overcome typical infrastructure challenges associated with marketing products in small Indian cities, while preparing ground for BMW’s entry in the future. Target cities have been identified after detailed demand analysis andhas been mapped to BMW’s capacity to service these markets. Another example of BMW’s long-term strategy to establish consumer connect is its organizing student connect programmes in small cities such as Agra, Meerut and Faridabad through its dealers to familiarise ‘future consumers’ with the brand. Understanding key success factors How did BMW adapt to India? To enter India, BMW made several technical modifications to its products.This included raising suspension systems, changing engine and filter systems, adapting its air-conditioning systems to the Indian environment and introducing heavy-duty horns. It focussed on local assembly or the ‘complete knockdown approach’ in its Chennai plant right from the beginning in India. It was a tax-efficient approach that helped the company offer products at competitive prices to cover different sub-segments of the luxury consumer domain and gain market share quickly. Several models such as 1 Series, 3 Series, 5 Series, X1 and X3 are assembled in India and the plant capacity has been ramped up from 3,000 cars per year in 2007 to 11,000 in 2013. To induce purchase, BMW also launched its in-house financing arm in India in 2010.This has helped the company facilitate easy financing of its cars at competitive rates. BMW has also developed various customised offers for customers - including competitive interest rates and discounts. About 80 per cent of BMW’s clientele used this scheme as on March 2012. 21. Luxury carmakers change lanes to cruise in a slow market, Business Standard website, http:// wap.business-standard.com/wapnew/storypage. php?id=2&autono=113110200441, accessed 10 January 2014 22. Luxury car-makers set to double used auto sales this year, Indian express website, http://www. newindianexpress.com/thesundaystandard/ Luxury-car-makers-set-to-double-used-auto-sales-this- year/2013/06/09/article1626502.ece?service=print, accessed 10 January 2014 23. BMW launches a mobile showroom to reach the emerging markets in India, EconomicTimes website, http://articles.economictimes.indiatimes.com/2012- 08-23/news/33342336_1_bmw-india-bmw-x1-german- auto-major-bmw, accessed 10 January 2014
  • 28. Source: KPMG in India analysis as on 29 January 2014 Key achievements and plans24 Concluding remarks Indian luxury consumers are evolving rapidly and with new consumers joining the segment or becoming ‘addressable’, players would be required to modify their strategies accordingly. ‘Indianising’ products alone is no longer enough - players must aim to Indianise their entire strategy to increase sales. As metro cities reach a saturation level with an increasing number of luxury brands, mastering low-cost models would be a key to success beyond metros. 24. Discount policies will distroy brands in the long term, EconomicTimes website, http://m.economictimes. com/opinion/interviews/rivals-are-undercutting-the- market-philipp-von-sahr-bmw/articleshow/23784070. cms © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 23 | India Luxury Summit 2014
  • 29. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 24
  • 30. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 25 | India Luxury Summit 2014
  • 31. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. India Luxury Summit 2014 | 26 Section3 Industryviewsonthe Indianluxurymarket The way forward: Indian luxury brands going global - By François Arpels India's luxury retail quotient - By Research and REIS, Jones Lang LaSalle India
  • 32. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 27 | India Luxury Summit 2014 ThewayAhead: IndianLuxuryBrandsGoingGlobal -byFrançoisArpels TheAuthor François Arpels is the co-founder and Managing Partner of IndEU Capital, a fund dedicated to investments in the entire value chain of the branded premium and luxury goods industry in India, which he has witnessed changing since 1995 when he begun being actively involved in the country. He has built considerable experience and has acquired an intimate understanding of the fashion and luxury industry thanks to more than 25 years of experience as an investment banker, strategic consultant, and former shareholder and member of the executive committee of his family owned jewelry companyVan Cleef & Arpels. François advises and is on the Board of several fashion and luxury companies in Europe and India. He is a regular contributor to the media, a guest speaker at conferences, and co-founder ofThe LyFe (The Luxury Future), a think tank on the future of the luxury industry. Indian history is filled with stories of the love for fine things, especially the nobility and royalty: threads of gold, ornate hand-carved furniture, richly embroidered clothes, exquisitely carved accessories, and, of course the jewelry. Throughout its civilisation, India has been a showcase for unprecedented levels of refinement and has a deep tradition of luxury that can be seen in its crafts, architecture, rituals, festivals; and a strong gifting culture through the ages, as can often be seen at weddings. As a result, India has a large pool of skilled craftsmen, artisans and designers from different states, skilled in producing cultural and handmade luxury products. It is no secret that most luxury and fashion houses have been relying on India for their quest for beautiful fabrics, their access to unique handcrafting techniques, their embroidery requirements and their supply of precious stones, etc. India has been inspiring the luxury and fashion industry for years. For example, the paisley, which has contributed to Etro’s success and is widely used today, originated in India. Another illustration is found in some of Hermes’ and Guerlain’s bestselling perfumes that have been inspired by colors, spices and fragrances from India. Yet another illustration of India’s influence is visible in recent advertising films such as Guerlain’s ‘La Légende de Shalimar’ which presents the beautiful landscapes of India and shows the mogul empress Mumtaz Mahal in her palace surrounded by the Shalimar gardens; or in ‘Odyssée de Cartier’s’ epic commercial boasting depictions of sumptuous iconic locations, including theTaj Mahal. It is, therefore, surprising that despite its luxury heritage, talent and knowhow, there are no globally recognised luxury brands that have emerged from India. The current state of development of India’s luxury brands, save for the hospitality industry, can be compared to that of Europe during the 1950s when the likes ofVuitton, Cartier,Van Cleef & Arpels, Chanel, and Gucci were still promoter-owned and mostly sold locally in addition to a handful of international capitals. Several factors can, at least in part, explain the status of the luxury industry in India.
  • 33. India Luxury Summit 2014 | 28 India has been relying on export and manufacturing business models rather than on branding. As a result, local businesses may have understood the technical aspects of market share and competitiveness; leading to large independent family-owned and managed companies that have been built and passed on through several generations, but taking them to the formal level of branding has eluded most of them. Emerging brands in India have limited financing facilities due to the lack of interest from investors. In addition, lack of professional management talent, due to weak educational programmes dedicated to the industry, has led to several players in the market being unawareness of international standards by many players in the market resulting, among other things, in nonexistent strategy towards building brand equity. Finally, a number of inexperienced fashion journalists have brought confusion to the market. Rich Indian families have traditionally relied on their trusted neighborhood shirt-maker, tailor and jeweler, as was the case 50 years ago in Italy. It is noteworthy that India continues to lack adequate retail and distribution channels, and logistics organizations that are essential for consistent brand rollout. Finally, brands are faced with challenges linked to the climate. Today, India can be said to have reached the turning point with respect to the emergence of authentic India-influenced luxury- lifestyle brands. Fueled by changing demographics, which has provided greater access to this refined world, the Indian consumer has become aware of the finer things in life. Indian brands have been constrained in their development due to the lack of a large middle class. Emerging brands can neither rely on guidance from market intelligence, which is nonexistent, nor on market studies, which are inadequate. Business model Ecosystem Tradition Infrastructure Environment Domestic market size Insight © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 34. So what’s the way forward for the Indian luxury brands going global? A distinction must be made between ’going global‘ and ’luxury‘. Achieving both status at the same time is very ambitious and only a handful will succeed. On the road to going global, Indian brands should prioritise building brand awareness at home, before looking to expand internationally, thereby increasing their probability of success.Which known foreign brand has successfully gone global - with more than a symbolic international presence - without first being able to rely on its domestic market? The good news is that a whole number of brands should be able to prosper, capitalizing on the boom of the middle class in India and a mature perception of luxury from the market, before venturing abroad. India has a domestic market and demand worth millions. A significant proportion of disposable income in India is spent on luxury goods thanks to the rising number of wealthy people, a growing middle class, and affluent young consumers. It is this market that everyone else is trying to reach. Hence, Richemont has recently applied to enter in the single brand retail space with luxury brandsVan Cleef & Arpels and Cartier. Luxury products don’t necessarily make luxury brands. Brands that will reach luxury status are even fewer and so are those that will understand the challenge of finding a balance between being timeless thanks to a strong brand concept and heritage, being relevant - thanks to precise brand positioning - and being innovative going forward. On their journey to luxury, Indian brands can rely on a wider sophisticated audience. Only a few years ago, any foreign brand coming into India from France, Italy or Spain carried connotations of luxury.There is now a wider understanding, among the entire value chain of the industry, from designers to consumers, of what key characteristics qualify companies for the luxury category - heritage, quality, artisan knowhow and selective distribution. In this context, a new breed of businesses are emerging with young and talented designers at their helm. They understand that managing a brand effectively and helping it achieve the luxury status is part of a painstakingly long process. It requires a consistent integrated strategy, innovative techniques, strong marketing (with the more obvious ones for clients being coherent merchandizing and product mix, differentiated advertising and impeccable service), rigorous management control and constant auditing. There is a major opportunity in the making and extraordinary potential for companies that master the required branding techniques and processes to capture the ever-growing market of consumers. Only with the right financial support and professional guidance will brands be able to capitalise on the increasing prosperity and a more savvy value chain in India. The time is ripe to provide the necessary financial and managerial support to the current crop of talented designers to ensure the optimisation of the unlimited variety of resources offered by India - jewelry manufacturing, shawls and sarees, silk weaving, tribal textiles, embroideries (lace, Zardosi, Kashida, Phulkari and Kathi, etc), block print, leather goods and leather embroidery and marble stonework - and proper branding techniques to help them become global. 29 | India Luxury Summit 2014 © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 35. India'sluxuryretailquotient -byResearchandREIS,JonesLangLaSalleIndia India’s strong consumption story relies on its demographic structure, which, at this point in time, is highly favourable compared to most other emerging nations. As per the UN population statistics, this favourable demographic dividend will last for another 25–30 years. Before that, most other emerging nations would have already begun to witness a slowdown in the growth of young (working-age) population. The ensuing benefits with regard to the rising income and household spending would provide a significant boost to the consumption-driven growth story of India. A glimpse of the changing pattern of India’s consumption is already visible in the breakdown of private final consumption spending data provided by the government.There is a marked increase in spending on lifestyle products and services such as hotels, mobiles, transportation and other miscellaneous goods. As against that, spending on essentials has only remained stable. International retailers are well aware of these benefits that the Indian economy offers. Barring few legislative challenges that could be tackled through the policy reforms and opening up of the retail sector, retailers have often expressed their intention to enter and invest in India’s attractive retail sector.This is very well reflected in AT Kearney’s Global Retail Development Index 2012, where India ranks as the fifth most attractive retail market for international retailers. Luxury retail scenario in India At present, India enjoys only 1 to 2 per cent of the global luxury market. Luxury retailers, both national and international, are in the race to foray or expand their footprint in India.The frequent foreign travels of Indians have significantly increased the brand awareness of India. Along with this, the increasing upper- middle class in India are the country’s key drivers of luxury retail demand. Louis Vuitton, Prada, Gucci and Jimmy Choo are no more unknown brands to India. In the last decade, luxury retail has grown significantly and is growing at a rate of almost about 20 per cent. From luxury cars and apparels to furnishings, are paving their way into the choices of Indian consumers.The definition of luxury is very relative and changes from country to country and among different income groups. However, most households earning more than INR one million or above annually opt for luxury goods in India.With the significant growth of this income group, luxury retail in India is expected to witness steady growth in the coming years. In India, preference for luxury goods is growing across all the metro cities, although they are mostly concentrated in Mumbai and Delhi. Luxury malls such as DLF Emporio in Delhi, Palladium in Mumbai and UB City in Bangalore are already operational. However, luxury retailers generally open their stores in luxury hotels with increased preference from consumers as they are expanding their brand presence by starting their stores in high-end malls and high streets and sometimes opening their flagship stores in high-end residential neighbourhoods. India Luxury Summit 2014 | 30 © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 36. 31 | India Luxury Summit 2014 Ranking Of India's Leading Luxury Retail Cities © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Delhi NCR tops most of the parameters on which we base our retail attractiveness quotient.The city tops all real estate drivers and also the socio-psychological parameters. As a result, Delhi NCR stand first in rank and we can deduce that it has the most enriching retail legacy among the Indian cities. Hyderabad offers attractiveness in terms of affordable rents, which is higher only to Pune among theTier II cities. In addition, a huge amount of upcoming supply in the next three years would naturally keep the momentum in consumption alive in the future. However, lesser household income and household expenditure has ranked it lower. With the highest in-migration and a large number of SEC A and SEC B population, 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 behind Delhi in terms of existing retail stock, and also against other cities when compared to the upcoming supply.The high propensity to consume creates an inherent shopping culture, which helps sustain the rise in demand for retailers. Pune provides the most affordable rents in prime areas among theTier I andTier II cities.The high migration rates will be well supported or even enhanced in the future, given that the city has a large office space supply per capita in the pipeline. However, low household income and expenditure compared to most other cities has ranked it the lowest. Bangalore ranks high on the chart with its good retail consciousness and the existing and upcoming supply. In addition, affordable rents in the city - compared to otherTier I and someTier II cities - has helped retail to flourish here. However, the city has lesser household expenditure even when compared to Kolkata and Chennai. Chennai, with its affordable rents and good high street stock in contrast to the organised retail stock, has received the fourth rank. In addition, the large number of high and upper-mid residential units launched in the last three years would be able to create the retail demand. However, many from Chennai migrate to other IT destinations such as Bangalore, Hyderabad and Pune, as indicated by their low migration rates. The best that Kolkata can offer to retailers is the attractive household expenditure and an illustrious high-street variety retailing. It has a fairly high concentration of SEC A and SEC B households whose propensity to consume is usually higher than others. However, rents in prime areas are not affordable and the retail stock is also low, both of which make penetration of the retailers difficult. Delhi NCR Hyderabad1 6 2 7 3 4 5 Mumbai Pune Bangalore Chennai Kolkata
  • 37. India Luxury Summit 2014 | 32 © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 38. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Acknowledgement In order to provide a comprehensive industry view in the study, we have interacted with various representatives from the retailing community including players in the industry, both domestic and international, and industry experts.We would like to thank the various industry participants, whose invaluable contributions have made this study possible. The support provided by the ASSOCHAM andYes Bank has been instrumental in providing us with a platform to base our industry discussions. We would also like to thank the various representatives across companies / brands with whom we interacted during the course of the study, for providing us with valuable inputs on the luxury sector. We would also like to acknowledge the core team from KPMG in India who made this report possible: RajatWahi, Gaurav Nayyar, Urvashi Gupta, Puneet Luthra, Jiten Ganatra, Subashini Rajagopalan, Rajesh Patel and Neelima Balchandran.
  • 39. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. About ASSOCHAM The knowledge architect of corporate India Evolution of value creator ASSOCHAM initiated its endeavor of value creation for Indian industry in 1920. Having in its fold more than 400 chambers and trade associations, and serving more than 4,50,000 members from all over India, it has witnessed upswings as well as upheavals in the Indian economy, and has played a catalytic role in shaping the trade, commerce and industrial environment of the country. Today, ASSOCHAM has emerged as the fountainhead of knowledge for Indian industry, which is all set to redefine the dynamics of growth and development in the technology driven cyber age of the knowledge based economy. ASSOCHAM is seen as a forceful, proactive, forward- looking institution equipping itself to meet the aspirations of corporate India in the new world of business. It is working towards creating an environment conducive for India business to compete globally. ASSOCHAM derives its strength from its promoter chambers and other industry and regional chambers and associations spread all over the country. Vision Empower Indian enterprises by inculcating knowledge that will be the catalyst of growth in the barrierless technology driven global market and help them upscale, align and emerge as formidable players in their respective business segments. Mission As a representative organ of corporate India, ASSOCHAM articulates the genuine, legitimate needs and interests of its members. Its mission is to impact the policy and legislative environment so as to foster balanced economic, industrial and social development.We believe education, IT, BT, health, corporate social responsibility and environment to be the critical success factors. Members: Our strength ASSOCHAM represents the interests of more than 4, 50,000 direct and indirect members across the country.Through its heterogeneous membership, ASSOCHAM combines the entrepreneurial spirit and business acumen of owners with management skills and expertise of professionals to set itself apart as a chamber with a difference. Currently, ASSOCHAM has more than 100 national councils covering the entire gamut of economic activities in India. It has been especially acknowledged as a significant voice of Indian industry in the field of corporate social responsibility, environment and safety, HR and labour affairs, corporate governance, information technology, biotechnology, telecom, banking and finance, company law, corporate finance, economic and international affairs, mergers and acquisitions, tourism, civil aviation, infrastructure, energy and power, education, legal reforms, real estate and rural development, competency building and skill development to mention a few. Insight into new business models ASSOCHAM has been a significant contributory factor in the emergence of new-age Indian corporates, characterised by a new mindset and global ambition for dominating international business.The Chamber has addressed itself to key areas such as India as an investment destination, achieving international competitiveness, promoting international trade, corporate strategies for enhancing stakeholder value, government policies in sustaining India’s development, infrastructure development for enhancing India’s competitiveness, building Indian MNCs and the role of the financial sector as the catalyst for India’s transformation. ASSOCHAM derives its strengths from the following promoter chambers: Bombay Chamber of Commerce and Industry, Mumbai; Cochin Chambers of Commerce and Industry, Cochin; Indian Merchant’s Chamber, Mumbai; Madras Chamber of Commerce and Industry, Chennai; PHD Chamber of Commerce and Industry, New Delhi and has over 4 lakh direct and indirect members.Together, we can make a significant difference to the burden that our nation carries and bring in a bright, new tomorrow for our nation. D. S. Rawat Secretary General Email: d.s.rawat@assocham.com The Associated Chambers of Commerce & Industry of India ASSOCHAM Corporate Office: 5, Sardar Patel Marg, Chanakyapuri, New Delhi-110 021 Tel: 011-46550555 (Hunting Line) Fax: 011-23017008 / 9 Website: www.assocham.org
  • 40. kpmg.com/in The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in India. KPMG in India contacts: Dinesh Kanabar Deputy CEO - KPMG in India, Chairman - Sales & Markets T: +91 22 3090 1661 E: dkanabar@kpmg.com RajatWahi Head Consumer Market T: +91 124 307 5052 E: rajatwahi@kpmg.com ASSOCHAM contacts: D. S. Rawat Secretary General 5, Sardar Patel Marg, Chanakyapuri, New Delhi - 110 021 T: +91 11 46550555 E: assocham@nic.in Latest insights and updates are now available on the KPMG India app. Scan the QR code below to download the app on your smart device. Google Play | App Store