In the optimism that emanates from the idea of an India emergent, luxury forms a key component of the dreams and aspirations, which currently drive the idea of an India taking its rightful place as a global economic player whose time has come. The Indian luxury market is referred to as an “enigma”, will it or won’t it boom, and when? These questions reflect strong signals that it might, but also hints at the obstacles on the way.

In 2007 a McKinsey and Company report predicted that the “middle class” population would grow from 50 million to 583 million by 2025. And more than 23 million of them will number among the country’s wealthiest. In October this year Capgemini released a report revealing that the Asia-Pacific’s high net worth individuals (HNWIs) outnumbered Europe’s for the first time. This growth was dominated by China, Japan and Australia, and in the ninth place India entered the realm of the top 12 wealthiest concentrations of citizens in the world. Those eyeing the Indian market’s future potential are spurred on by the promise these statistics hold.These are reinforced by reports such as the annual CII-AT Kearney report.

In October, it estimated the Indian luxury market would almost triple from its estimated current annual worth of $5.75 billion to $14.72 billion by 2015. The McKinsey prediction was even more positive; in March it projected the Indian luxury market to be worth $30 billion by 2015.

But these very figures have led to a nagging question: “Is India ready for luxury?”

If the projections are truly prescient, the market — as defined by the global brands and retailers in the business of luxury — seems ready. China is held up as a good example; it took to luxury buying in a breathtakingly short span of time.

But signals remained mixed as to the extent to which Indian consumers will be prepared to pay the high premiums on branded luxury goods. Delhi’s DLF Emporio seems to symbolise the “standard” against which to measure the readiness of the Indian consumer for luxury. Yet, the showpiece mall remains a stand-alone model in a market that is still fragmented, nascent and navigating unknown territory.

Despite sporadic buying at various luxury stores, scepticism remains about the so-called mindset of the Indian consumer and the pace and nature of growth of the market itself, especially when two best known global consultancies differ widely in their perception of the future Indian market. Then there are other on-ground constraints, such as infrastructure, legislation and high import duties.

Financial Chronicle asked key leaders within the Indian luxury industry for their views on the future. Ashok Khanna, founder of Ananda in the Himalayas, among India’s best-known privately-owned luxury spas, recognises the spending power of India’s growing number of the rich. “The number of middle class graduating into the rich is fairly large and, therefore, the luxury goods market has a bright future here,” he says.

Faith in the burgeoning middle class and recognition of the changes this is effecting is key. Nakul Anand, executive director of ITC, (which owns over 100 hotels in India, including the 5-star and premium ‘Luxury Collection’), says, “A change in lifestyle, urbanisation, double incomes, smaller dwellings… are driving this growth.”

Sanjay Kapoor, managing director of Genesis Luxury, which has a joint venture with Burberry and franchise agreements with Paul Smith and Canali, agrees. He believes that “soon the luxury retail scene in India is going to change drastically. I see this happening sooner than later.”

Though the market is still seen as nascent, all feel that the current growth is a precursor to a boom within a few years. Their mood is clearly both optimistic and bullish about India’s readiness for luxury despite the challenges. Experts use the analogy of an ecosystem. In luxury, too, the challenges need to be systematically addressed.

Infrastructure is a key component of this ecosystem. One example: the AT Kearney report says the market for private yachts is a miniscule 0.2 per cent because of absence of suitable mooring facilities. One industry insider says the super rich simply keep their boats in Dubai and fly there to go yachting. But India’s abysmal road infrastructure doesn’t seem to prevent them from buying luxury cars.

According to Ashish Chordia, chairman of Shreyans, the official importer of Ferrari, Maserati, Porsche and Ducati, bad roads “may hamper owners from enjoying the complete potential of a car, but it is not a deterrent to drive and enjoy cars.” His company sold 94 Porsches in 2009, 136 in 2010 and expects to sell 500 by the end of 2011. Prices range from Rs 65 lakh to Rs 2.6 crore. It’s the Porsche SUV rather than its sports models that sells well in India.

In luxury retail, the experience of buying and customer service is often as important as the actual product itself. India’s chaotic and crumbling streets are not ideal places for flagship stores. Replicating the way luxury has developed in Europe (for example, Rue du Fauborg Saint-Honoré in Paris) is unlikely in India in the foreseeable future. Hermès may be taking this approach with its remarkable flagship store opening in Mumbai’s historic Fort area. But Hermès is a luxury brand in a league all its own, with a small but focused target group of the most affluent. For most brands, the single flagship store in costly heritage sites is not cost- effective, limiting their retail site options.

This has forced luxury brands to open in hotels, airports and malls, such as Delhi’s DLF Emporio, the only mall providing a cohesive luxury experience. Mumbai’s Palladium Mall, which offers a risqué mix of luxury alongside prestige brands, is seen as something of a trend- bucker, but ultimately far from the ideal.

However, not all see the Palladium model as a problem. To them, the idea of unleashing an untapped market through a supply side push is a central concern.

Neelesh Hundekari, principal and head of luxury and lifestyle practice at AT Kearney, is positive about the mix of brands Palladium offers. He believes that luxury brands need to reach a hitherto untapped market of small and medium enterprise (SME) owners, and it is essential to understand the different luxury needs of the newly rich Indians. They may have never consumed luxury before, “so a big luxury mall won’t make sense to them.”

The emphasis on SME owners should accompany a greater push to delivering luxury brands outside India’s largest cities — the so-called last mile. The AT Kearney report sees it already happening in cars; over half of car dealerships are outside the metros. The opening of luxury stores in tier II cities (Louis Vuitton and Hermes in Pune, for example) also indicates a small wave of change that may yet translate the projections of the market size into reality. There is an increasing number of luxury stores in cities such as Pune and Hyderabad.

Louis Vuitton, owned by French conglomerate Louis Vuitton Moet Hennessey (LVMH), and some other luxury brands are well-known for their approach to international expansion, which rests on tightly controlled distribution and stand-alone stores. Louis Vuitton may have just five stores in Singapore but the population there is 5.18 million, tiny when compared with India’s. This partly rests on Singapore’s success in tourism but also reflects that, in South-East Asian countries consumers are wiling to spend more on luxury accessories, and entry into luxury happens at relatively low income levels. This is not yet so in India. Louis Vuitton has only four stores in India; its approach is deliberately cautious, careful to target metros such as Delhi or tier II cities with high concentrations of affluent young professionals enriched on India’s technology boom.

The recent push towards raising FDI caps on single-brand stores has galvanised mediators such as Genesis Luxury’s Sanjay Kapoor. He insists that “if the easing of FDI goes through, many more brands will soon enter the market.” He also believes that this will open the gates for brands currently not in India, such as “Ralph Lauren, Prada, Dolce and Gabbana, to name a few.” His company already has signed up joint ventures with several new brands which will make an Indian debut in a few months. Genesis declined to reveal these upcoming brands.

It is still too early to say what results 100 per cent FDI in single-brand retail will bring. Policy-based restrictions may deter some brands from entering India through this route, and real estate costs are prohibitively high, making stand-alone stores a high-risk venture. Yet stand-alone and flagship stores are considered essential to the DNA of global luxury brands.

This raises the question whether there’s a sufficient consumer market to support the expansion of stand-alone stores in line with the projected 2015 growth.

Advertising and media coverage of luxury in India have grown enormously in what many see as a “supply-side” push. This creates awareness and desire — a vital part of a thriving luxury ecosystem. But can ‘sufficient’ demand be created this way? This is where the subject of the Indian “mindset” comes in, a mindset that many say resists change and views with apprehension the extravagance represented by luxury consumption.

The fact is indulgence and convenience are central to luxury. And in India that costs a little more than elsewhere. A sales assistant at Burberry in Emporio says that the brand sells at a premium of around 12.5 per cent in line with import duties in India.

Ashok Khanna emphasises service. For him, luxury is about building a relationship that will bring the customer back “…the second time and the third time and so forth.” But, as Nakul Anand sees it, there is a shortage of talented manpower, that is, professional staff trained in the high service standards that luxury demands. This remains a problem in India.

Bertrand Michaud, Hermes Asia Pacific managing director, says it is important to create equivalence between what his brand offers in India and say in London, Paris or New York. High import and excise duties may mean Hermes products cost more in India, but he does not think the rich see this as a barrier. For them, the value of convenience outweighs price in making regular purchases of apparel and accessories. The Hermes flagship store, just as Emporio, fits with the concept of “destination luxury”, emphasising once again the notion of luxury as an experience and integral part of affluent lifestyles.

The Indian consumer prioritises certain things in terms of their “luxury value”. Many Indian middle class families happily spend large sums on international travel, dining out, and education. These are their luxury priorities that underline the common belief that Indians are cautious spenders. Others may seek value through discounts and best deals. Spending apacity and purchasing patterns may not always converge. CEOs of multi-billion dollar companies may wear a simple Titan watch rather than a gold Rolex, or baulk at the cost of a branded Italian suit. This is an “old money” perception of luxury brands being a form of inappropriate decadence, highlighted most famously in the public personae of Ratan Tata or NR Narayana Murthy.

The contrarian view is that mindset is not a problem. They believe that the newly rich are keen to flaunt their wealth, and branded goods with their famous logos fit well with the “bling” factor. In tandem, some luxury brands have recognised the need for customisation, or “Indianisation”. Bottega Veneta, for example, produced a silver clutch costing over Rs 4 lakh especially for Indian women to match with a traditional outfit worn for a wedding. A Delhi Cartier store salesperson says they sell a respectable amount of classic Love, Trinity and Eternity ranges, but the Panthere range doesn’t do so well, since it isn’t “blingy” enough for Indian tastes, apparently.

Some feel that luxury brands need to do far more to accommodate Indian lifestyles and aesthetic sensibilities. The jewellery market in India is a good example of how Indian tastes cannot be so easily adapted to western forms.

Intricately linked to the massive bridal market, Indian jewellery is made according to traditional tastes and meant for flaunting at weddings and other social events. The AT Kearney report says the jewellery market was $730 million in 2009, and saw better than the predicted growth in 2009-10 due to the rising price of gold and diamonds and low price elasticity. International brands could not possibly have more than a tiny fraction of this market, unless watches are included. Since data is hard to come by, it is impossible to ascertain.

Management consultants may obsess about the lack of “luxury zones” in retail infrastructure, but in the most ordinary chaotic markets on Indian streets, jewellers with exquisite pieces costing six-figure sums do splendid business. The M Block market in Delhi’s GK1 is a relatively upmarket location, but the noise and mess still intrude into it. Yet, on a side street sits Titan Industries luxury diffusion brand Zoya, which along with its second boutique in Mumbai, does Rs 31 crore of business a year.

As the luxury market flourishes, Zoya has its eye on the growing number of India’s rich. Arif Saleem Padiath, business manager of Titan Industries, quoted from a research survey revealing that 25,000 high net worth families collectively spend some Rs 6,000 crore ($1,200 million) a year on jewellery.

Of course, jewellery is the exception that proves the rule. Luxury apparel and accessories are still a small market in India.

So what kind of luxury products do Indians want and buy?

At the Louis Vuitton and Gucci stores in DLF Emporio, business seems brisk, notably with women who flash piles of cash to buy bags at over Rs 1 lakh, or sunglasses and other accessories. But exact sales figures are never revealed. In many other stores in this mall there is only a trickle of customers.

At the Mont Blanc store in Delhi’s Taj Mansingh hotel, Cyrus Bagwala notes that corporate gifting drives higher sales of pens and accessories, especially during festivals like Diwali. It points to the possibility that not all buying is for meeting the individual’s chosen luxury needs. He adds that despite the hotel location, little business comes through tourism. Delhi’s rich visit the store to make periodic purchases of pens, watches and leather accessories, which also reflects the continuing importance of luxury hotels in the leisure, dining and consumption patterns of affluent Indians.

Dipak Agarwal, CEO of DLF Brands, which has joint ventures with Italian brands Armani and Ferragamo, says that though the luxury market is small, the brands are doing very well. Asked to clarify “doing well”, he explains that it hinges on “sufficient growth”, so that at some point in time large growth can be reasonably expected. This justifies the investments made now. The key is actual sales, which, he claims, are growing by 20-30 per cent annually.

To go back to the AT Kearney report, the market (segmented into apparel, accessories, personal care and jewellery) in South- East Asia is worth $8 billion, six to seven times bigger than India’s. (That puts the Indian market’s worth at just $1.3 billion.) With jewellery accounting for $730 million, the balance amount (around $500 million) is spread across the other three product segments.

Within luxury apparel, the market in India is heavily slanted towards men, and brands such as Zegna, Paul Smith and Armani do well in India. As Abhay Gupta, executive director of Blues Clothing Company, which has joint ventures with brands such as Versace, notes, for women’s apparel there are no specific industry research figures especially for the luxury category. Indian women are much less likely to spend on branded apparel, given the tradition of wearing designer saris and ethnic wear at weddings and other social events. This places the weight on women’s accessories to perform well. But at this point, the future size of market for bags costing over Rs 1 lakh each is anybody’s guess.

With accessories, the global experience is that luxury companies which offer heavily branded entry-level bags (for example, starting around Rs 40,000 for a small bag) draw in first-time customers. That helps to expand the market.

If international brands (each of which now have no more than two to four stand-alone stores in India) grow at the predicted rate of 20 per cent annually, a strong market will begin to emerge. It is perhaps this promise that brands like Louis Vuitton, Gucci and Burberry are banking on.

Further, most luxury brands produce or licence fragrances. The global industry for fragrances is worth an estimated $30 billion. The AT Kearney report devotes some time to the importance of entry-level pricing of personal care products, where the Indian luxury market is quite distinct because 50 per cent is fragrances. For products “priced at greater than $25, and fragrances… at more than $50” the market was $230 million in 2009, and will be $700 million by 2015. It is this kind of “entry-level” luxury, available at almost all malls, that will spur growth of the market, as consumers attune themselves to luxury brands through these seemingly modest but powerful vectors of lifestyle aspirations.

Still, it is not clear if the consultancies’ ambitious projections are based on hopes pinned on entry-level products with appropriate pricing in addition to a growing segment which purchases more expensive products.

Internet-based purchase of luxury goods is not much talked about in India. But this might prove lucrative in selling luxury products to customers looking for value, as well as reaching out to smaller cities.

Global brands are keeping a close watch on India. Several brands have come in to put in place the required ecosystem and hope to have the “first- mover” advantage. Giving out a strong signal to others waiting in the wings. Earlier this year, L Capital, the private equity arm of LVMH, invested heavily in Genesis Luxury.

Is India ready for luxury? Yes, the signs are encouraging that many areas of the luxury industry will grow and prosper here. The optimism is pinned on the newly prosperous. Those who hold this view want India to change faster and become another China or Japan in the luxury market. Quite how and to what extent this will happen remains to be seen.

phyllidajay@mydigitalfc.com

(The writer is luxury editor at Financial Chronicle. She is an anthropologist with expertise on luxury and sustainability and is currently writing her doctoral thesis on Indian fashion)