Luxury reaches out
- The aspiration for luxury has travelled well beyond the metros into tier II and III cities
- Cities like Coimbatore, Hubli, Ludhiana, Dehradun, Jamshedpur, Bhubaneswar, Guwahati, Surat and Indore are new luxury hot spots
In the last six-eight years, Ashish Gupta, 34, has changed six vehicles, including a couple of Mercedes-Benz cars, a Range Rover and a Volvo. The builder and consultant from Raipur currently owns two Audis: an A4 and a Q3. “I like to keep updating my cars based on the latest technology, enhanced performance and updated safety features," says Gupta over the phone. Luxury cars are not his only guilty pleasure; he is also an avid collector of watches. “I have 31 of them, from a Fossil to a Hublot and everything in between. Initially, I used to buy them to just show off but then I got interested in Swiss luxury watches," says Gupta.
Gupta says the last five years have seen a significant rise in the disposable income of Raipur’s middle class. Simultaneously, the number of luxury car dealerships has increased. “When people start accumulating more money, the first thing they do is update their cars," says Gupta.
More than 1,000km north in Panipat, Haryana, Kunal Shingla, 35, who has similar tastes, believes in the snob appeal of luxury goods in small-town India. The businessman says his joint family of 30 owns several Rolexes and Omegas, and six cars, including an Audi Q7 and a BMW 7 series. “I see luxury cars in Panipat everywhere and they are increasing by the day," says Shingla. “All my friends drive luxury cars. If it were not for the narrow streets in the city, we would have had a lot many bigger cars."
It is not just about cars or watches. It is also about attitude and mindset. “In a city like Panipat, it is surprising to see people not only wearing a Louis Vuitton or a Burberry but wearing something from their lines that is not available in India," says Shingla. “It becomes a status symbol for people. And with luxury becoming more easily accessible in smaller cities today, it is also becoming a trend."
Removed from the glitz and glamour of malls in the metros, the luxury industry has found a new market in smaller cities and towns where brands are finding loyal patrons, who have both money and taste. Non-metro destinations like Coimbatore, Hubli, Ludhiana, Dehradun, Jamshedpur, Bhubaneswar, Guwahati, Surat and Indore are the new luxury hot spots. A rise in disposable income, growing brand awareness and the increasing reach of the internet, all play a part.
When German luxury firm Montblanc’s Indian arm (a joint venture with Titan) decided to offer its products through e-commerce platform Tata CLiQ Luxury in April, it was in for a surprise. The first sale came from Kanpur, followed by more from Bilaspur, Raipur and Coimbatore. “The majority of the online sales were coming from cities and towns where we do not have a boutique," Nicolas Baretzki, CEO of Montblanc International GmbH, was quoted as saying in news reports.
According to the “Top Of The Pyramid Report 2017", released by Kotak Wealth in February last year, the total number of ultra high-net-worth households (households with a minimum net worth of ₹25 crore) in India grew 10% in 2017 to 160,600 households. The company expects the number to double by 2022. Interestingly, 44% of such households are outside the top four metros (Delhi, Mumbai, Chennai, Kolkata).
“Over the last few years, the volume contribution from tier-III cities has grown by double digits," says Rahil Ansari, head of Audi India. “These regions have clearly exhibited rising aspirations for luxury cars. Even if sales in these cities are still limited, the contribution to volume is increasing."
“We also see a positive trend of customers in these tier-III cities who have an appetite for performance and lifestyle cars with new body styles, such as an Audi A3 Cabriolet. Compared to a few years back, Indian buyers are not hesitant to splurge on themselves. They are young-minded achievers who like to reward themselves by upgrading their lifestyle," says Ansari.
Audi is not alone. Mercedes-Benz India and BMW India have also witnessed a growing appetite for luxury cars in smaller cities. This trend is also mirrored in the pre-owned luxury cars market. According to Truebil.com, a Mumbai-based virtual marketplace for used cars, there has been a “20% hike in the used-luxury segment on our platform from tier-III cities compared with last year".
“Earlier, the maximum buyers for pre-owned cars were from tier-I cities, but we now see more inclination from buyers from tier-II and tier-III cities," says Truebil co-founder Shubh Bansal.
A long tryst with luxury
India has a rich history as a market for luxury products. The country accounted for nearly 20% of Rolls-Royce’s global sales in the early decades of the 20th century. The Patiala Necklace, commissioned by maharaja Bhupinder Singh in 1926, remains Cartier’s single largest commission to date. And after a prolonged period of sluggish growth, following the economic crisis of 2008, brands are returning to India. The country is one of the fastest growing luxury markets in the world and one that is still at a nascent stage. According to a February 2018 report by industry lobby Assocham, the Indian luxury market was set to grow by 26% to $30 billion ( ₹2.1 trillion) by the end of 2018 on the back of “growing exposure of international brands amongst Indian youth and higher purchasing power of the upper class in tier-II and III cities".
The other factors in India’s favour are: a younger workforce, steady economic growth and a huge untapped population.
Dedicating one chapter to the ascent of India, “The State Of Fashion 2019", a report co-authored by The Business of Fashion and McKinsey & Co, says: “India is increasingly a focal point for the fashion industry, reflecting a rapidly growing middle class and increasingly powerful manufacturing sector. These, together with strong economic fundamentals and growing tech savviness, make India too important for international brands to ignore."
The report projects that India’s smartphone user base will more than double to 690 million by 2022. At least half of these numbers will be from smaller cities and towns, a demography which is spending considerable time online.
“By 2020, tier-II and III dwellers will comprise over 75% of the internet users in India, and with the rapid digitization of money, they are also adapting to online spending at a fast pace," says Amit Damani, co-founder of Vista Rooms, an online firm that manages and rents luxury vacation homes.
Damani says his company started by focusing on cities like Mumbai and Pune but “we’ve been surprised with the response from smaller towns such as Bhilai, Belgaum and Kolhapur as well. The demand has just grown over time due to word-of-mouth publicity, and the tier-II and III city market has doubled for us in just the last six months."
Over 20% of Vista Rooms customers are from these smaller cities currently, compared with 5% in 2017, he says. Average booking value for customers from smaller cities has also been higher: at ₹24,000 per night compared with the overall average value of ₹18,000 per night.
“Guests from smaller cities are looking to stay at luxurious private homes and willing to spend for an exclusive experience," says Damani.
Online travel bookings from and to these smaller cities have also recorded a significant rise. “In the last couple of years, Cleartrip has seen that the rate of growth in tier-II cities is double compared to that of tier-I cities for air passenger traffic. Cities like Bhubaneswar, Indore, Patna, Ranchi, Bagdogra and Guwahati are emerging as some of the most popular destinations in the country," says Balu Ramachandran, head of air and distribution, Cleartrip.
The retail conundrum
But while the boom in international travel and access to digital and social media has led to significantly greater brand consciousness, the daily luxury consumption habits are still nascent in smaller cities. There are very few luxury malls in India and almost none outside the National Capital Region, Mumbai and Bengaluru.
“The consumption numbers or the demand for luxury goods in these (smaller) cities isn’t strong enough to support the actual brand openings/launches," says Dinaz Madhukar, executive vice-president, DLF Luxury Retail & Hospitality.
These consumers, therefore, still prefer to come to larger metros for their luxury buying, “since they feel that they get a far better showcase of luxury products and a holistic shopping experience there," says Madhukar.
Gupta, for instance, bought his Hublot watch during a trip to Delhi.
Darshan Mehta, president and CEO, Reliance Brands, refers to these new consumers as pockets of wealth. While there are exciting pockets of wealth across the country, they are still not enough to justify or sustain full-time brand-specific stores in smaller cities. So to reach out to the customers in smaller cities, Reliance Brands started what it calls trunk shows and pop-ups.
“When we launched the Diesel brand in the country in 2010, we started looking at our customers’ profile, where they come from, how much and how often they spend, etc.," says Deval Shah, business head, Reliance Brands. “We witnessed that a lot of customers came from cities like Nagpur and Varanasi, who were buying things while visiting Mumbai and Delhi, respectively." It made the brand take notice of the untapped potential in such cities and it started reaching out to those customers by going to their homes with their “trunk shows".
“We got our first set of orders from such trips in 2011 to Nagpur. Over the years, we have fine-tuned this model of business and now there are defined routes where we travel all the time," says Shah.
Last year, Shah and his team travelled to 230 cities with such pop-ups. These contributed 8-9% of the company’s total sales.
“It (pop-ups) is the best way to reach out to new clients," says Anjali Gaekwar, country head India for Christian Louboutin, which holds about four-five pop-ups each year outside the metros of Delhi and Mumbai. “So far we have been to Chennai, Kolkata and Ahmedabad only, but we might go to smaller cities in the future too," says Gaekwar.
The Indian luxury market, explains Mehta, is complicated. Even though there seems to be a healthy demand from these “pockets of wealth", the markets in these smaller cities lack depth and a luxury ecosystem.
“So smaller cities might be the future of the industry but till the time organized luxury retail doesn’t expand to these cities, trunk shows and pop-ups are the way to go," says Mehta.