“Lack of Dedicated Luxury Retail spaces” at High-street & Malls is “Restricting Presence of Luxury Brands in India” | Retail in Asia

” The lack of dedicated Luxury Retail spaces, the High-street and Premium Malls is restricting the presence of luxury brands in India, a new study reveals”…

The study entitled, “Challenges highlighted by luxury retailers in India”, was jointly conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and KPMG.

One of the key findings of the study is that setting up stores in high streets affects luxury retailers’ profitability due to sky-rocketing rental costs. High streets are also very cluttered, crowded and are unsuitable due to the absence of the exclusive ambience that luxury retail demands.

The report noted that the Indian luxury market grew at a healthy rate of 30 % to reach USD 8.5 billion in 2013 and is likely to continue growing at a healthy pace of about 20 % reach USD 14 billion by 2016.

This is due to rising number of wealthy people, growing middle class, affluent young consumers and other related factors. However, India currently enjoys just 1 to 2 % share in the global luxury market though it is the fifth most attractive market for international retailers.

Fragmented and diversified consumer base in India is also another significant challenge being faced by luxury retailers in India as High net-worth individual (HNI) consumers are not easy to reach.

The ASSOCHAM-KPMG recommends luxury brands to strategically design their growth plans to tap demand across three categories of HNIs, namely – 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.

“ There is a need for luxury brands to focus on expansion in the type and nature of products being offered and increasingly adopt innovative marketing plans to tap rapidly evolving consumer behavioral trends,” said D.S. Rawat, secretary general of ASSOCHAM in a statement during the official release of the study.

“Luxury is no longer a ‘status symbol’ but is now a lifestyle and the global brands need to fast evolve and learn ways to adapt within the local environment so that they can get accustomed to nuances of the market by understanding the cultural identity of Indian consumers,” he added.

Other challenges in luxury retail in the country include :

1. Lack of policy support for luxury brands – the study found that despite strong demand momentum, Indian luxury market has not been viewed as policies and regulations friendly for the luxury retailers. Import duties (20–150 percent), for one, are relatively higher and this is considered as a key apprehension factor among the international players, who may resist them to frame aggressive growth plans for India.

2. Clauses such as — 100 percent foreign direct investment (FDI) – in both single and multi-brand retail requires 30 percent of local sourcing, announced in the liberalized FDI policy in luxury retail in November 2013 could be difficult for the international luxury players to comply with,” the study noted.

Rawat said the duties are manifold, ranging from customs’ duty, counter veiling duty (CVD), special additional tax, and adding to the overall cost…

3. Lack of trained staff – the study cited that the shortage of skilled labour for the industry is a major cause of concern as it is difficult to make the local workforce understand the heritage and legacy of the brand along with the specific finishes involved in the manufacturing process.

“ In the absence of these requisite skill sets, brands have no option but to manufacture in their country of origin; lack of skilled workers can also be attributed to the sales function where presentation and interpersonal skills form an integral element for the business,” Rawat explained.

4. Growing prevalence of counterfeit luxury goods and a grey market – 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 grey channels.

The study emphasized 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…

“ Corrective measures need to be taken to banish the growth of grey luxury goods’ market in India which results in sizeable revenue losses for firms,” said Rawat.

“A strong legal structure combined with effective framework of intellectual property protection would help prevent dilution of brand image and reduced consumer trust”…!!

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