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‘Urbanisation will determine luxury’s future’

India has 4.5 million wealthy households, which earn more than $14,000 (Rs 6.3 lakh) a year and consume luxury products and services.

india Updated: Mar 26, 2011 01:20 IST
Sapna Agarwal

India has 4.5 million wealthy households, which earn more than $14,000 (Rs 6.3 lakh) a year and consume luxury products and services. About 42% of this market is concentrated in Mumbai and Delhi. The top eight Indian cities account for 60% of these households. Such concentration poses challenges and opportunities, said Laxman Narasimhan, director, McKinsey and Co, who runs its emerging markets consumer and shopper insights group. Narasimhan was one of the speakers at the Mint Luxury conference in Mumbai on March 25. Edited excerpts from an interview:

How much is luxury contributing to the overall retail market?
Luxury today is very small; it is in the range of $3 billion (Rs 13,500 crore). There are 4.5 million relevant households in 2010 and that will double to nine million households by 2015. It can grow in the range of 18% to 25% because of the small base. But it depends on a lot of things.

Such as?
It depends on supply, real estate, price, products being sensitive to local needs and issues. To me, weddings are a big part of jewellery purchase. Fifty per cent of jewellery purchase is weddings and if you had a product that didn’t really reflect the 50%, it is not going to sell as much. Supply will determine, to a great deal, what will happen in this market and when I say quality, I mean quality supply.

Who is the luxury consumer?
There are two segments in the target zone for luxury. We call them the globals. There are the super rich and the other rich [households with income levels of $36,000, or Rs 16.20 lakh]. They are educated — post-graduate, senior management — and buy multiple brands. Quality and convenience matter to them. Then there are the affluent, households with income of $14,000 to $36,000 per annum. They are also graduates, middle-upper management executives. They are selectively premium and are aware of the brands. Here they participate with maybe a purchase of a perfume, a scarf, a tie, a wallet.

This consumer is concentrated in just a few cities — 42% of them are in Mumbai and Delhi and 60% in the top eight cities. It is such an urban phenomenon; how you resolve urbanisation is an important part of how the luxury market will play out.

The luxury market never took off as expected. Where are we in terms of evolution?
The first stage is export driven. Brands come here to capture the super premium types. They bring in what they have in the West and sell. Then you go to the next stage: how am I going to be a relevant player and look at capturing consumers with high aspirations or wealth. The next stage is when you become more embedded, have a local expression of brand — use India for sourcing, become a relevant player in the country. We are in the second stage right now. This market has to be shaped.