Infra inadequacy major roadblock: CEOs
A whopping 95 per cent of the chief executive officers (CEOs) representing the global luxury industry opine that lack of adequate infrastructure is the key barrier confronting the growth of luxury industry in India, according to a just concluded joint survey by ASSOCHAM and Yes Bank.
"The lack of premium retail infrastructure in India is impacting both expansion plans along with bottom-line margins of the global luxury industry due to higher rentals thereby leading to a demand-supply mismatch," according to the 'India Luxury Top Management Survey 2012,' jointly conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Yes Bank.
The Indian market for high-end products and services is estimated at over eight billion (bn) dollars and is currently growing at annual rate of about 20 per cent and is likely to cross USD 14 bn during the course of next three years on the back of rising per-capita income and evolving consumer trends, highlights the ASSOCHAM-Yes Bank survey.
"Finding the right quality infrastructure space has been the biggest impediment for global luxury firms," asserted the CEOs.
"Lack of quality infrastructure is a huge bugbear for luxury brands in India, thereby forcing them to go slow in their expansion plans and steep rentals together with high duties further impede the growth and development of the sector."
Besides, inordinate high duties, varying tax structures, bureaucratic delays, red-tapism, exchange rate volatility, imposition of caveats, political and regulatory landscape are other significant challenges being faced by the luxury industry, highlighted the CEOs.
The ASSOCHAM-Yes Bank surveyed about 300 global business leaders, stakeholders and influencers representing the global luxury industry from France, India, Italy and UK during August-November to ascertain the challenges being faced by the industry, extent of opportunities, industry perspective on outlook of Indian economy, consumer behaviour, market entry strategies, marketing mediums, financial management and the overall future outlook of the industry.
Some of the significant players across various verticals who participated in the ASSOCHAM-Yes Bank luxury survey included - GUCCI, Christian Dior, Louis Vuitton, Ocean Style Yachting, Canali India, L'Oreal Luxe India, LVMH India, Judith Leiber, The Phenix Mills, The SPA Group, Geetanjali Group, The Bauers, Starwood Asia Pacific Hotels and Resorts, Da Milano Leathers, Reliance Brands, Hidesign and others.
Interestingly, though majority of global retail management still views the recently proposed 100 per cent approval for single brand retail in foreign direct investment (FDI) with a certain amount of apprehension and awaiting further clarifications regarding the same.
Highlighting the feasible solutions, the CEOs said: "Proposed FDI reforms are a golden opportunity to provide the much required impetus to the still nascent luxury sector in India and this should be followed by lowering of import duties to make luxury business more sustainable in India."
Apart from the aforesaid measures, lower import tariffs, better availability of adequate commercial areas, reasonable rent levels and increasing co-operation for an ever more effective enforcement of intellectual property rights are certain other improvements suggested by the CEOs to further perk up the luxury industry in India.
CEOs further said that clarity and streamlining the regulatory systems would benefit the growth of luxury sector in India.
The top management in the luxury industry feels that going forward, best returns would come through investments in luxury assets for the long-term and luxury products in the short-term, about 66 per cent of CEOs opined that Indian economy is expected to improve in the short-term temporarily owing to the recent reforms together with monetary and fiscal measures initiated by the government.
Considering the innate knowledge and expertise a local partner would bring along, 33 per cent of CEOs said that joint ventures (JVs) are the preferred route of entry for international brands. While about 26 per cent of the remaining said wholly owned Indian operations are a preferred medium for entry.
Besides, most CEOs said that only companies with strong financial muscle, brand penetration and strong knowledge on local conditions are capable of gaining complete control of their India operations.
About 65 per cent of CEOs agreed that tier II cities in India are ready to become new consumption hubs for the luxury industry and many said that 'ladder to luxury' is the ideal marketing strategy to penetrate in these towns followed by the e-retail route.
Outright purchase is the most preferred payment option for the goods procured followed by consignment basis, highlights the ASSOCHAM-Yes Bank survey.
About 36 per cent of CEOs said that quality, exclusivity and social appeal are key drivers for luxury purchases in India followed by price and perceived value. While about 32 per cent said Indian consumers are badge conscious.
Considering that different tastes and preferences makes marketing to Indian consumer a challenging affair, most CEOs said print, followed by word of mouth publicity, digital, sponsorships and outdoor advertising are most effective marketing medium for Indian luxury consumer.
While about 39 per cent of CEOs said investing in luxury assets would provide best returns about 34 per cent said luxury products comprising apparels and accessories present best investment opportunities in the short term.
While over half of the CEOs plan to primarily recruit local talent, about 25 per cent of those surveyed plan to move experienced employees from home markets to India and of the rest about 22 per cent plan to recruit employees from luxury business management programs.
While bout 30 per cent CEOs said private equity and 32 per cent said equity infusion by promoters are the preferred routes to raise finances for expansion of luxury brands in India. About 21 per cent said debt is the most ideal method of raising capital while about 17 per cent said IPOs are the preferred route to raise finances.