Retail is not recession proof and the same applies for “Luxury Retail” as well. However, a closer look at some of the figures suggests otherwise. Although the entire retail industry is worried about the poor consumer sentiment which has been exacerbated by the plunging Rupee in the last few months, leading media house Business Standard recently reported that “ the downturn in the economy has bypassed the uber-luxury street ”.
The media house also quoted Sanjay Kapoor, Managing Director, Genesis Luxury which retails luxury brands such as Armani, Canali, Jimmy Choo, Bottega Veneta in India, that same-store-sales (SSS) growth of its exclusive brand outlets were in the range of 10 % to 15 %. The point was further reiterated by Darshan Mehta, Chief Executive of Reliance Brands, which retails high-end apparel brands such as Ermenegildo Zegna and Paul & Shark, where the median price-point is Rs 15,000, as well as brands such as Diesel and Thomas Pink in the affordable luxury segment. He said that the company was so far unaffected by the slowdown and SSS growth of its exclusive brand outlets were 10-15 percent.
Interestingly, for Luxury brands in India it is business as usual as their target audience – the high net worth individuals (HNI) or high income group are less affected with inflation when compared with the middle-income group. As a result, a lot of foreign luxury brands have made a beeline to enter the Indian market.
Italian luxury goods maker Bulgari is in talks to set-up single brand stores in India. Switzerland-based luxury goods company Richemont too has plans for the Indian market. The company which is the world’s second largest luxury goods maker and owns brands like Cartier, Alfred Dunhill and Montblanc wants to initially investment USD 25 million in the Indian market which it plans to increase later on. The optimism of all the luxury retailers for the Indian market stems from the rising disposable income and brand awareness as well as purchasing power of the upper class.
A recent report by Kotak Wealth Management-Crisil Research titled “Top of the Pyramid 2013 – Decoding the ultra HNI “ shows that HNIs have grown to around 100,900 in 2012-13, and is expected to triple to 329,000 over the next five years. It also estimates that the net worth of ultra high networth households (HNHs) to surge 4.5 times from Rs 86 lakh crore in 2012-13, to Rs 380 lakh crore by 2017-18. In the report, an ultra HNH is defined as one with a minimum average net worth of Rs 25 crore accumulated over the past ten years states.
The report also underscores the fact that the recent wealth creation in India has been through inclusive economic development. Unlike before Independence or in the early years after that, when they were most likely to have been from the upper class or the nobility, the Indian billionaires of today come from varied backgrounds.
Entrepreneurship is clearly the dominant source of wealth in India, but fast-growing service industries such as technology and financial services too have catapulted many hitherto middle-income group households into the ultra HNH bracket. It also showed that over half of the ultra HNHs in the country continue to live in the four metros, which is understandable because these cities are the financial epicenters of their respective regions.
The other top 6 cities account for slightly over 13 percent and the next 40 cities are home to about 15 percent. The rest are spread across the country. These numbers will eventually change in favour of the non-metros but only in the long term, as the benefits of development percolate down to all regions.
Most of the respondents in the survey believed that there is a downturn and an early recovery is not in sight, indicating a level of pessimism about the economy. This has caused a change in the ultra HNIs’ perception on spending. Nearly a third of the respondents indicated that their spending has been adversely impacted.
Although they continue to spend to maintain their lifestyle — ensuring their non-discretionary spend in the near term won’t be curtailed — they are now exercising greater caution regarding discretionary purchases. Nonetheless, in keeping with their flamboyant lifestyle, they are seen spending lavishly on “Luxury Homes, Food, Clothing / Apparel, Education, Travel & Family Vacations”.