Luxury Opportunities Abound in India, But How To Manage Challenges?


Gautam Vazirani | December 13, 2012

3 key players from the Indian luxury market discuss the challenges and opportunities involved in growing their business, at the 2012 Essec Luxury Round Table in Mumbai

The pool at Lakshman Sagar, a two-and-a-half-hour drive from Jodhpur

India’s rapidly growing luxury market is seeing emergence of potential for luxury travel retail, luxury hotels and yachts. These new segments are slowly sprouting amid several infrastructural, legal and bureaucratic bottlenecks that continue to impact growth of the overall luxury goods and services market in the country.

Ashok Som, Professor and Associate Dean of the Global MBA at Essec Business School in Paris and Singapore, set the mood of the roundtable by stressing emphasis on the global shift in buying power, from west to the east, and similar trends seen in growth of millionaires who are expected to drive consumption in these new segments.

The key point for purveyors present at the round table was to analyse how they could reach out to new affluent consumers within current market challenges to sustain commercial relevance of their business in the coming years.

“ How can brands reach new affluent consumers within current market challenges to sustain commercial relevance in the coming years? ”

Luxury Travel Retail: Convincing Outbound Travellers

DFS is currently present only at Mumbai international airport but it is slowly witnessing growth of the luxury travel retail market in India. Sales at DFS are mostly skewed towards wine and spirits as affluent Indians travelling abroad are gradually becoming comfortable with the idea of buying foreign goods in their own country.

“Most of the travel retail market in India is driven by wine and spirits as Indians buy mostly whiskey when they arrive into Mumbai. Indians buy whiskeys for upto US$ 3000 at DFS,” remarks Manishi Samwal, Managing Director of DFS in India. However, current socio-economic trends may present business challenges for companies like DFS.

Samwal reveals that 95% of international departures from India, estimated at around 12 million in 2010, comprise first time travellers or those travelling once a year. Given the fact that over 70% of duty free spends are split between Mumbai and Delhi, does this mean that most Indians have minimal engagement with luxury travel retail, thereby stunting its growth?

Apart from this, India’s weak airline industry and the near absence of transit passengers – a key component of growth of duty free shopping in other Asian hubs such as Dubai and Singapore – only adds to the woes of growth in luxury travel retail.

“ India’s weak airline industry & near absence of transit passengers only adds to the woes of growth in luxury travel retail ”

Samwal highlights that modernisation of more airports on the lines of public private partnership model seen in Delhi, Hyderabad and Bangalore, is important to boost this sector. While Mumbai is expected to have its new international terminal airport by next year, slow pace of modernisation will continue to hinder growth in other cities.

The travel retail market for categories beyond whiskey, such as perfumes, cosmetics, fashion clothing and accessories is expected to take off once the brick and mortar domestic luxury retail market is well established and enough brands have penetrated the country. According to market estimates, this should happen in the next 3- 5 years as luxury retail is still finding its feet in India.

But the most important challenge is to convince Indians to buy European brands in India, despite frequent overseas travel. The core segment of Indian consumers for luxury travel retail can be described as affluent, educated and well travelled but seeking value for money.

These consumers exit or come back into the country from their business and leisure trips and are usually time poor and cash rich. Samwal expects to see such demographics becoming serious buyers while waiting to board their flight on the airport.

“ The most important challenge is to convince Indians to buy European brands in India, despite frequent overseas travel ”

Luxury Hotel Segment in Top Cities: Poor Demand Supply Balance?

Deepak Khullar, Vice President, Sales and Marketing of The Leela Palaces, Hotels and Resorts in India, underlined key challenges for building luxury hotels in India and finding profitable clientele to sustain the business amidst growing competition from 5 star and 4 star category hotels.

In the current economic scenario, developing a luxury hotel in top cities like Mumbai or Delhi is an expensive proposition, where cost per key can easily ascend to 15 million Indian rupees or more. To add to such real estate challenges, luxury hotels in top cities have been witnessing drop or flat growth in the occupancy levels in the last two years due to slow growth of economy, reveals a recent study by American hospitality consultancy firm HVS.

As corporate clients cut costs and trade down, a drop in luxury hotel and room occupancy has led to increase in demand for 5 star and 4 star hotels, translating into increase in demand for business hotels offered by Taj, Marriot, Hyatt and Starwood in India. These hotels are launching new properties tiered at different price points to lure large corporate travellers, said experts at the round table.

“ In the current economic scenario, developing a luxury hotel in top cities like Mumbai or Delhi is an expensive proposition ”

However, future supply trends of luxury hotel rooms in the top cities looks contrary to such trends. While the exact quantity of luxury hotel rooms in India is not clear, more than 65% of the supply between 2011- 2015 is expected to happen in Mumbai and Delhi alone.

World renowned luxury brands like Ritz Carlton, Waldorf Astoria, St. Regis and Conrad will soon manifest their ongoing plans and projects and compete with Indian players such as Taj and the Leela to sway Indian affluents.

In such challenging scenarios, Khullar finds it imperative to target “discerning nouveau riche affluents that are looking to exploit their socially elevated status.” This also seems to be one of the key reasons behind launching New York’s Le Cirque branch at the new Leela Palace luxury hotel in Delhi.

Research done by The Leela shows real clients are not glamourous personalities and Khullar is serious about finding them through below the line initiatives. Strategic collaborations and cross marketing alliances such as membership with ‘Global Hotel Alliance’ or an alliance with ‘American Express Centurion Partner Hotel’ are key initiatives through which Indian luxury hotels tap into the wealthy, he adds.

“ Corporate clients have cut costs & traded down, forcing a drop in luxury hotel and room occupancy ”

Luxury Yachts in India: Chronic Infrastructural Issues

A growing number of ultra HNWIs in India, who have already evolved from their BMW and Mercedes cars to Bentleys and Rolls Royces, constitute a prominent but dormant size of the infant leisure craft and luxury yacht market in the country.

Nafeesa Moloobhoy, Managing Partner of A.S Moloobhoy & Sons that deals with all major leisure craft sellers in India and provides maintenance services to luxury yacht owners, believes many potential consumers are reluctant to own yacht because of the lack of marina and supporting infrastructure along India’s 7000 kilometres coast line.

India’s socialist policies and complex bureaucratic rules and regulations are often blamed for preventing this segment from taking off. “Indian government does not support this industry and if someone approaches government officials with any entrepreneurial plans, the bureaucratic hurdles are appalling,” laments Moloobhoy.

“ A growing number of ultra HNWIs in India constitute a prominent but dormant size of domestic luxury yacht market ”

She also said that shipyards managed by modern engineering companies like Larsen and Toubro and ABG are willing to develop and maintain marinas and offer anchoring facilities at bay.

This should bring much needed employment to the labour intensive yacht industry and boost overall business like leisure hospitality and entertainment. Only if India’s bureaucracy acts liberal and encourages growth of this segment, wishes Moloobhoy.

The new emerging segments of the Indian luxury market have their own set of challenges to tackle and along with long term strategies, tactical out of box solutions may help them to seize the opportunities, till infrastructural and legal challenges ease out.

Given the complexities in the market, only serious players with a robust investment plan can survive. In the coming times, growth of these segments will give a balanced outlook to the overall luxury market in India.

To further investigate India’s luxury market on Luxury Society, we invite your to explore the related materials as follows:

- Indian Luxury Brands Go Beyond Borders
- The Role of Social Media in the Indian Luxury Market
- A Quick Look at Luxury in the BRICs

Hospitality | India | Travel | UHNW