Growth Strategies 2015-01-22

How high spenders give adequate business to luxury retailers

As Indian beauty industry is experiencing an unprecedented shift towards luxury retail, big spenders have become the darling of these brands. Here’s a road map revealing how luxury brands are betting on high spenders.

How high spenders give adequate business to luxury retailers

Luxury products reign supreme when it comes to quality. Usually associated with a big price tag, luxury brands ensure that the consumer digs deep into their wallets to indulge in high-end products.

Premium brands flocking the high streets, seeing the heavy wallets of high spenders are acutely focusing on capturing attention of their target consumers by providing ‘just the way you like’ products. Arjun Khurana, Managing Director, OFI India, Bottega Di LungaVita, said, “The high spending consumers in India are knowledgeable and well aware of the various skincare and wellness brands and their products. This facet of the Indian consumers proves beneficial to our brand. The wide range of our products ensure that there is a definite product for every individual and thus helps us gain their loyalty.”

Key growth contributing factors
An insatiable appetite for high-end merchandise is fuelling a boom in luxury spending. Also, with the rise in income levels and growing awareness, the demand for luxury products has been growing by over $255 million a year in absolute terms, on a par with the United Arab Emirates and considerably stronger than Singapore and Australia.

As per a recent report of Euromonitor International, while China has been spearheading the BRICs growth surge and whetting the emerging market appetite of the world’s leading luxury goods companies, India is, by far, the fastest-growing market, and is predicted to grow by an additional 86 per cent in constant value terms between 2013 and 2018, to reach a value of $3.5 billion.

Moreover, the report also mentioned that the total luxury goods retail value in India is expected to grow by 63 per cent during the period. Increasing disposable incomes and rise in the number of high net worth individuals will provide an opportunity for luxury goods players in India.


Commenting on the same, Gilles Moutounet, Country Head, L'Occitane en Provence India, said “The level of awareness has grown in five years subsequently. We have witnessed in these five years, the arrival of most high-end brands in India and the opening of many new high-end retail locations, which have helped to develop the level of awareness.”

Adding to the same, Khurana shared, “We as a brand are just two-years-old in the Indian market, and yet, we have noticed major changes among the Indian consumers. They are now more aware and focused on maintaining a healthy lifestyle and are keen on using solutions that help them lead a hale and hearty life.”

Similarly, some big market players believe that economic growth and optimism has played a pivotal role in luxury retail boom.

It’s not just the demand that is surprising the experts. An unexpected new shopping trend where men and women are equally conscious of their looks and wellbeing are pushing luxury brands to new heights.

A new breed of high spenders is out in full force, where women spend like men and men shop like ladies. Beyond the role reversal, there's a new group of shoppers with a spending habit that's setting the luxury world on fire.

Varun Sharma, General Manager, The Body Shop India, said “Nowadays, men are more conscious about their looks and demand for new beauty products specially created for men’s skin. Even Tier II, III and IV cities have consumers, who are well aware and demand good quality products to take care of themselves.”


Importance of stores

The ambiance, expensive décor and high-end products on display make a luxury retail outlet attractive enough to lure big spenders. In-store cafes and lounges are also a new trend introduced by both international and high-end Indian brands.

As consumers do not wish to compromise on the connoisseurs of luxury, high-end luxury retail outlets provide ‘frills' to the well-travelled Indian consumer. Thus, all the big brands have opened their stores in the country with unique décor, inspired from their global outlets.

Khurana informed, “The average size of our stores is about 350 sq ft. We try to maintain a budget, which depends on the city and the prevailing rents we spend, which is approximately Rs 8-10 lakh on the furniture and fixtures of each store. Our store formats range from kiosks to self-owned stores and shop-in-shops.”

e-Tailing- new prime business location
Online may seem to be the new prime location for sellers in India. However, the high-end luxury brands are still keeping away from the virtual retail world, for reasons ranging from brand exclusivity and fear of fakes, to rule of the land.

Still, some players who have entered in this category to capture the growing market share have seen rampant growth in this area.
“We have already started e-tailing in India with strong associations with main renowned portals. Otherwise, our expansion plans is to still grow our store portfolio by opening new boutiques whenever there is a good project in hand,” informed Moutounet.

Benzamin said, “We saw immense demand for our brand coming from cities beyond the metros, where we are present in, we addressed this demand by going online with our e-tail partner Nykaa, in order to serve these consumers.”


Direct marketing
Not only showrooms, high-end stores and e-Tailing, but direct marketing brands are also witnessing good growth, and in turn, reaping high return on investment on luxury products.

Shweta Paul, Head, Beauty Category, Amway India, said, “In India, so far, Artistry has witnessed a growth of six per cent of macro Amway business, ever since it entered in India in 2010. It has been a substantial growth at a CAGR of about 20 per cent as per the data of last nine to 10 years. The brand has retained its second position in the luxury beauty products category. In the last quarter, the brand saw a growth of 9-10 per cent of its total portfolio.”

Customer retention
To woo the high-spenders, luxury brands also offer complimentary maintenance products and styling help and other related services. Estee Lauder offers personal stylist and makeover help to the high-end regular customers, likewise, other brands often introduce additional services or products in the kitty of their regular clients.

Said Moutounet, “We run a VIP club for all loyal customers entitling them to cumulate points with all purchases leading to special offers, which will only be available for them.”


Revenue ratio
The growing demand of luxury retail brands in India contribute significantly in their revenue ratio as well.
“Growing on a marginal ratio, L’Occitane has more than 2,300 stores worldwide, with only 14 doors in India,” said Moutounet.

Likewise, Khurrana said, “Bottega di LungaVita under OFI holds about 20 per cent share of the European market. In India, the growth is slow yet steady. We are still in a phase where we are trying to reach out to a majority of consumers.”

Future ahead
Reportedly, the overall luxury retail market has grown at 23 per cent since 2006. The luxury products market which includes apparel, watches, jewellery, electronics, perfumes and beauty products has grown at 30 per cent, reaching a market size of $2 billion.

According to PwC reports, the expected growth of the Beauty and Wellness industry by 2015 is set to be Rs 1 lakh crore from Rs 70,000 crore, currently.

“If you further split Rs 1 lakh crore, the beauty sector is positioned at Rs 49,000 – Rs 50,000 crore. Of which, Rs 25,000 crore is occupied by fitness, health and other regular therapies, while the remaining Rs 25,000 crore is occupied by other alternative therapies,” predicted G Ramachandran, Director- Promoter, Gold’s Gym India, at The Franchise India Entrepreneurship Summit 2014.


Even though India’s overall per household luxury expenditure is low in comparison with the BRIC country counterparts, there are large variations in household spending levels and consumption patterns in richer regions like Delhi, Goa and Mizoram show great capacity for luxury spending.

Thereby, experts suggest the marketers of luxury goods must implement multiple business strategies, tailoring to each region and target the high-spending lot, in a bid to successfully harness the tremendous potential of the Indian luxury goods market, also, to retain the existing consumers in the category.

Overall, a bright future of beauty and luxury retail is foreseen in the upcoming year.


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