Luxury reboots, reconnects

A visit to Delhi’s Emporio mall, which houses some of the biggest global luxury brands such as Louis Vuitton, Dior, and Gucci, this rainy afternoon in the middle of July is telling. All stores have restricted the number of customers to 10 or 12. You have to wait outside if the sales assistants are busy. Louis Vuitton has a 45-minute waiting time. At Dior, the security guard reminds impatient shoppers that “all assistants are busy” (even after an hour of waiting). At Gucci one has to scan a barcode and get a token (I got 36).

Things are, however, different on the second floor of the mall where Indian couture houses such as Rohit Bal, Anita Dongre, Ashima Leena, Gaurav Gupta etc, are located. There are hardly any customers. Since these primarily cater to the Indian wedding market, which has been a Covid casualty, sales are down.

So, is all well with the Indian luxury market? “It’s a mixed bag,” says Abhay Gupta, founder and CEO of Luxury Connect, a brand management firm for such niche companies. “While some brands are doing well, some have shut shop,” he adds. In March, Fendi closed its only store in India (at the DLF Emporio). The YSL and Brunello Cucinelli stores at DLF Chanakya haven’t reopened post the second lockdown. During the pandemic, Bang & Olufsen exited India. On the other hand, there are others like fashion brands Alexander McQueen, Billionaire, Philipp Plein and beauty brand La Mer, which are expected to enter India next year. In fact, Alexander McQueen has already finalised the space in Chanakya, and Versace at Emporio.

“Unlike the first lockdown when it took over a month for footfalls to come back, this time the response has been more positive,” says Prashant Gaurav Gupta, vice president and head of DLF Luxury Malls, adding, footfalls at Emporio are back to prepandemic levels.

India’s $6-billion luxury goods industry (another $7 billion is services) has gone through a reset. Consumption has become more conscious and sustainability is the buzzword. Revenge spending and revenge travel are helping keep luxury retail and hospitality afloat. Online shopping is no longer restricted to mass brands, with all the top ones making their presence felt online.

However, in this nascent industry which is no older than a couple of decades, the domestic market is still much smaller than mature ones such as the U.S. or China. But there are better days ahead. According to Euromonitor International, India’s luxury goods market will be worth $8.5 billion in 2022, against $6 billion in 2021.

Meanwhile, its key customers, the number of ultra-high networth individuals (UHNWIs) — those with a networth of $30 million or above —are set to grow exponentially. According to Knight Frank’s Wealth Report 2021, India has 6,884 UHNWIs, projected to rise 63% to 11,198 by 2025. Even the billionaires club in India is expected to increase significantly by 43% to 162 by 2025, from 113 in 2020.

The India story

In the middle of June, just about a week after the Cartier store in Delhi’s DLF Emporio mall reopened post lockdown after the second Covid wave, Shrishti Mehta booked an appointment and paid the store a visit. She returned sporting the French luxury goods conglomerate’s classic Juste un Clou bracelet on her wrist. “The bracelet was on my bucket list. I had been postponing its purchase thinking I would pick it up on my next Europe trip and get a VAT refund. But I had Covid in April. Once I recovered, I didn’t want to wait any longer,” says the 39-year-old human resources professional in a leading multinational firm.

While Mehta’s was a case of ticking off a bucket list item at the earliest, Akshay Kapoor and his wife Anita went on a shopping spree, which many in the trade refer to as ‘revenge buying’ — consumers making up for lost time with an increase in spending. Between the two of them they bought a bag, a cap, belt and tie, all from Gucci. “Normally, we would have bought them over the year, with one thing on the birthday, another on the anniversary. But since we didn’t buy anything last year, we just bought it altogether,” says Kapoor who runs an ancillary unit in Haryana.

The vaccination drive and campaigns showing that malls are sanitised and safe have played a key role in assuring customers. DLF Luxury Malls’ Gupta believes the Indian luxury market is growing steadily, and Covid-related travel restrictions have resulted in pent-up demand being met domestically. “The Indian consumer used to split his/her shopping internationally and domestically, but now that entire impetus is on domestic consumption,” says Gupta.

Neelesh Hundekari, partner and head, lifestyle practice, Asia-Pacific, A.T. Kearney, a management consulting firm, adds, “Around 30% of Indian luxury consumption happens overseas. Some of that will get substituted in India now”

Amit Pande, brand head for The Collective, one of India’s largest luxury retailers, agrees. Walk-ins for The Collective stores that have reopened (Mumbai is still under lockdown) are at 80-85% of pre-pandemic levels. “This happened fairly quickly this time. Post the first lockdown it took us nearly six months to reach those numbers.” E-commerce has also acted as a catalyst — the numbers have grown three times, and are helping add 20-30% more customers every month. “Traditionally nearly 45% of our e-commerce transactions come from cities where we don’t have stores, which are typically nonmetros,” says Pande. The Collective has now shortlisted pincodes with high purchases and allotted personal relationship managers to them. Mining barons from Raipur, agriculturalists from coastal Andhra Pradesh, and small towns in Kerala — “the names of which you and I would have not even heard of are on the list,” he adds.

But, is it for real?

A.T. Kearney’s Hundekari warns that a lot of purchases taking place currently are either deferred or advance buying, but that may not last forever. “Those who are buying now couldn’t do so for a year, or are afraid that the country may go into a lockdown again.” Hundekari believes discretionary purchases will go down as consumption behaviour has changed. “There is casualisation of the workplace. The number of occasions to show off your luxury purchases are now fewer,” he says.

India’s luxury market is still aspirational and shallow. Most buyers don’t buy because they believe in the brand, but because they want to show off. Post Covid, there is bound to be a change in categories, something that is already visible. Pande of The Collective says the demand for t-shirts and sneakers for men has gone up and the women’s business has doubled since last year’. Athleisure (a type of hybrid clothing worn during athletic activities) tops the list, followed by sneakers, knit dresses and cross-body bags — basically those that are more casual and practical.

However, it’s still a mixed bag, as far as the market is concerned. Some global brands have done well in India while some haven’t. The Indian unit of Hermes International, the seller of the iconic Birkin bag, reported a 55% increase in net profit at ₹18.7 crore for FY19 on the back of a revenue of ₹109.6 crore. It had reported a net profit of ₹12.1 crore the year before, according to its filings with the Registrar of Companies (RoC). Louis Vuitton India Retail reported a 24.5% year-on-year rise in net profit at ₹16.2 crore in FY19. On the other hand, Dior India, which operates as Christian Dior Trading India, reported a net loss of ₹26.7 crore for FY19, according to RoC documents.

Another category, which has seen a significant shift is alcoholic beverages. While Indians mostly bought high-end alcohol at duty-free shops pre-Covid, restrictions on travel meant they have had to buy it from the local market. “For the alco-bev space, a new channel has emerged which I like to call the ‘home premise’, and this one is here to stay. There has also been a spike in wine consumption at home, which is extremely positive for us. With the consumer having more time and options (now that travel retail is not a possibility), upgrading is on the upswing — hence ‘premiumisation’ is clearly evident,” says Sophia Sinha, head of marketing, Moët Hennessy India. The company, part of leading French conglomerate LVMH, makes premium wines and spirits such as Dom Pérignon, Moët & Chandon, Glenmorangie and Belvedere. Although market research firm IWSR’s data shows an 18% dip in wine volume in 2020 against 2019, Sinha thinks it’s positive considering companies lost three-five months of sales due to the lockdowns. “This indicates that the retail channel which supplied to the ‘home premise’ has helped, thanks to consumers buying more wine than expected during the pandemic for home consumption.”

Another change is in the beauty care segment. According to Euromonitor International, the super-premium beauty and personal care market was around ₹2.3 crore in 2019, which dipped to ₹1.56 crore in 2020. It is expected to rise to ₹1.8 crore in 2021. Brands such as L’Occitane have developed their digital channels to keep in touch with customers. Through their WhatsApp chat service, people can seek advice from experts to pick up products based on their requirements. The company has also launched oneon-one video consultation sessions with experts. “At L’Occitane, the last year has reiterated the company’s belief that though retail would be important, digital is the way ahead,” says Simi Dewan, country head (DGM), L’Occitane En Provence India.

Big-ticket items such as luxury cars also seem to be on an upswing. In India, luxury vehicles account for less than 1.2% of total vehicle sales, against 13% in China and 10% in the US. Lamborghini is anticipating a record year for its business in India in 2021. “In H1 2021, we have already surpassed 50% of our 2021 target. We are +20% in terms of customer deliveries and bookings vis-a-vis 2019,” says Sharad Agarwal, head, Lamborghini India.

Consumers are now keen to adopt sustainable and eco-friendly options. More than 70% of Lexus owners cite hybrid technology as one of the main reasons for purchase. In India, five out of six vehicles in the Lexus portfolio are self-charging hybrid electric vehicles. “They appreciate their choice of Lexus hybrid electric vehicles that contribute to a cleaner environment through planting of trees, which makes our guests carbon neutral,” says P.B. Venugopal, president, Lexus India. The company has come up with a treeplanting initiative, which aims to offset the carbon footprint of each Lexus car sold in India by planting an equivalent number of trees.

While travel and hospitality were severely hit by the pandemic, luxury hospitality brands are still bullish on India, thanks to the pent-up demand of domestic tourists looking for a safe luxury experience. The first Raffles Resort in India is opening in Udaipur in August. The second will open in Jaipur by the fourth quarter of 2022. An iconic Fairmont hotel will open in Mumbai soon. “We are seeing a return of luxury travel across the globe, especially with the high-end hotels segment because after all the uncertainty that people have been through due to the pandemic, now they are looking for ways to indulge in extravagant but mindful experiences,” says Puneet Dhawan, senior vice president, operations, Accor India & South Asia.

Resorts chain Six Senses is launching its first property in India in Sawai Madhopur in Rajasthan in September. ITC Hotels recently opened a new property in Chail, Himachal Pradesh, and plans to open six more in the next one year. The Taj group launched a property in Darjeeling last year.

China’s dominance

Covid-19 has reset the global luxury pecking order. An unexpected boom in consumer spending in the country's luxury goods market in mainland China due to forced local shopping owing to travel restrictions has boosted the domestic market

This has doubled China’s share of the global luxury market in 2020 to 20%, according to Bain & Company’s report, China’s Unstoppable 2020 Luxury Market. Since 2015, reductions in import duties, stricter grey market controls, and now pandemicrelated travel restrictions have helped mainland China’s portion of Chinese global luxury purchases to increase steadily. Given the growing influence of younger consumers, Chinese brands are increasing online penetration through measures such as luxury live-streaming from pop-up stores. Euromonitor International pegs China as the world’s largest luxury consumer with a market of $284 billion in 2021, which is expected to skyrocket to $380 billion by 2022.

Hainan island on the southernmost tip of China, a duty-free destination, has also added to China’s numbers. By the end of October 2020, sales were growing in Hainan at 98% year-to-date, says the Bain report. According to another study by McKinsey, Chinese travellers doubled their overall spending on duty free goods in the island to $4.3 billion in 2020, up from $2.1 billion in 2019. This year, spending during the Labor Day holidays in May are already up 248% year-on-year. Chinese consumers can also purchase duty free products online for six months after returning home from Hainan

The way forward

Nearly 80% of luxury sales today are “digitally influenced” — whether it is asking a friend on social media or checking out an influencer’s recommendation on Instagram — according to a recent report by McKinsey. It forecasts nearly one fifth of global luxury sales will take place online by 2025.

The growing importance of digital in luxury is driven mostly by a generational shift. While older shoppers were traditionally the growth engine for luxury sales, according to a Bain & Company report, millennials accounted for 35% of consumption in 2019, and by 2025 could make up for 45% of the market. What’s more, the evenyounger Generation Z could make up 40% of luxury purchases by 2035, up from only 4% in 2019.

The pandemic has accelerated the digital uptake in luxury. From virtual catwalks to Zoom-styling consultations, and dial-in personal shopping experiences, luxury brands have had to adapt innovative technologies to reach out to their customers. Gucci, for instance, is letting customers virtually “try” shoes through a augmented reality (AR) lens on Snapchat. Luxury makeup brand, Sephora, is also using AR, allowing customers to check out its products through 3D images on the website.

Burberry is using artificial intelligence (AI) to identify counterfeit products. The British luxury brand has incorporated digital innovation in its retailing strategy. Its fashion shows are now broadcast live on different digital platforms such as Apple TV and Snapchat. Brand enthusiasts can pick up their favourite pieces immediately after the show, instead of waiting for six months for production.

During the pandemic, French luxury brand Louis Vuitton accelerated its use of AI by engaging it in product development, supply chain management, and customer support.

With the luxury consumer becoming younger and more tech-savvy, for brands it is a question of going digital or shutting shop.