Corporate India’s Luxury Bets

ASHNA SHROFF is an avid shopper of luxury goods. Luxury brands are a big part of her basket of fashion accessories and beauty and fragrance products. “Some of my favourites are Dior, Louis Vuitton, Gucci, Hermes and Valentino,” says Mumbai-based Shroff, who works as a digital content creator. Over time, she has expanded her luxury spending to clothing as well. “Most luxury houses have unparalleled history. While I love finding new premium brands, buying from a luxury brand is a different experience. I consider my collection as an investment that will last me a lifetime,” she says.

Like her, there are scores of young Indians with high incomes and evolved tastes who are keen to buy luxury products. No wonder luxury retail is emerging as the new battlefield for conglomerates such as Reliance Industries, Aditya Birla Group and Tata Group. Be it Reliance getting French luxury house Balenciaga to India or Aditya Birla Group’s deal with French department store chain Galeries Lafayette, there is excitement among luxury brands and retailers. Purchasing power of people is expanding, says Angshuman Bhattacharya, partner and national leader, consumer products & retail, EY India. Earlier, the trend was limited to the very rich, usually entrepreneurs. Now, with corporate events and parties becoming the norm, even the salaried are buying luxury products.

A November 2022 study by Bain & Company–Altagamma found that India’s luxury market will be propelled by “increasing interest and evolving attitudes and behaviour” among customers. “Although there will never be another China in growth contribution to the (luxury goods) industry, India and emerging Southeast Asian and African countries have a significant potential. India stands out for its potential among the rising stars,” says the study.

Clash Of The Titans

The frontrunners for the prized luxury retail market are deep-pocketed conglomerates. The strategy is simple — partner with global luxury players who want to cash in on the India opportunity but whose knowledge of the market is restricted. “The big retailers are becoming omni-channel retailing engines,” says Bhattacharya.

Also, there is huge demand for ethnic luxury, which both Reliance and Aditya Birla Group are trying to meet. “Family events such as weddings play a big role in India. That’s why local luxury brands have a strong presence in the market,” says Abhishek Malhotra, partner at McKinsey. And when shoppers have no dearth of money, why not go the whole hog? After all, the number of high net worth individuals (assets of over $1 million) is expected to grow 77% between 2021 and 2026, while the count of ultra high net worth individuals (assets of $30 million and more) is estimated to rise 39%, says The Knight Frank Wealth report 2022.

Partnerships Are Key

Reliance Brands, subsidiary of the conglomerate’s retail arm, has built a portfolio of luxury brands through partnerships. Its repository includes Burberry, Balenciaga, Tiffany & Co., Versace and Villeroy & Boch. Reliance’s luxury mall, Jio World Plaza, in the expansive commercial and cultural hub Jio World Centre in Mumbai, will house an array of international luxury stores ranging from Gucci to Louis Vuitton. “From mass and premium to luxury, Reliance has a retail format in about every segment,” says Arvind Singhal, chairman & managing director, Technopak Advisors. He explains why. Technopak estimates that merchandise retail (including consumer durables, furniture, footwear, clothing) market in India will touch $2,200 billion by 2032. “China is about $2,600 billion today. That will excite a lot of people.” In 2022 alone, Reliance stitched partnerships with Balenciaga, Italian brands Maison Valentino and Tod’s S.P.A. Jacopo Venturini, CEO at Maison Valentino, describes India as a market “rife with opportunities” and says the launch of the fashion powerhouse’s first boutique store in the country’s capital is a “significant step in Valentino’s global strategy.”

The modes of partnerships vary. The companies are opting for long-term franchise agreements, distribution partnerships or joint ventures. “There could be an inventory model wherein Indian partner brands buy products, sell them and make margins on that; a concession model where inventory is transferred on a consignment basis, that is, they pay global brands on the basis of what they sell; a wholesale model where the parent company imports products, puts them in a bonded warehouse and then supplies to Indian retailers, who then sell and pay the brands over a period,” says Deloitte India partner Rajat Wahi.

So, if Reliance has been eager to stitch partnerships with global brands, rival Aditya Birla Group has been quick on its feet, too. Late last year, Aditya Birla Fashion & Retail (ABFRL) signed a partnership with iconic French chain Galeries Lafayette to open stores to house close to 200 luxury brands and build a dedicated e-commerce platform. This will make it easier for ABFRL’s bouquet of premium brands to get space in a luxury department store. Ashish Dikshit, managing director at ABFRL, says this is “coming-of-age moment” for Indian luxury. “India is now home to a generation of young and affluent consumers with global exposure who are willing to spend on finer things in life. This is visible in boom and dynamism of the luxury market. The partnership with Galeries Lafayette is a ringing endorsement of India’s significance as a global luxury market and a future growth engine for luxury brands,” says Dikshit.

Ethnic Matters

Unlike Reliance, which has been gung-ho about building a portfolio of global brands, ABFRL has been more focused on ethnic luxury. “Ethnic wear is a huge market opportunity where we wish to build a large play,” CFO Jagdish Bajaj said at the company’s FY22 earnings call. ABFRL wants to build a ₹1,500 crore ethnic wear business by FY26. Luxury, which is steadily becoming a shopping staple for some households, obviously cannot be left out. ABFRL has decided to partner with designer labels. Though Reliance, too, has invested in Indian labels such as Abu Jani Sandeep Khosla and Abraham & Thakore, it has not been as aggressive as ABFRL in the ethnic category.

Over past few years, ABFRL has acquired majority stakes in Sabyasachi, Shantanu & Nikhil and House of Masaba. It also holds a 33% stake in the luxury couture business of Tarun Tahiliani. The partnership, inked in February 2021, gives ABFRL the option to increase its stake to 51% in next few years. The company wants a foothold in high-end luxury, as seen in its association with Sabyasachi, as well as affordable luxury (House of Masaba). ABFRL recently entered into definitive agreements to acquire TCNS Clothing, the owner of leading ethnic brands W, Aurelia, Wishful, Folksong and Elleven. The partnerships will allow designer labels to take brands to a wider set of people. “Many Indian brands are struggling. When a designer builds a brand, the clientele is narrow. None of them have been able to take luxury fashion mainstream. They have always been expensive. Most couldn’t scale up beyond ₹100 crore. They have realised that they’d rather stick to the creative side and allow others to take their brands to the market through retailing, e-commerce and other models,” says Bhattacharya of EY. “I was clear we needed a partner who could not just help us with scale but also have the same dedication to quality and customers,” Tahiliani had said earlier. “Sabyasachi has shown strong momentum and is executing its strategy to become the first India-based global luxury brand. We have opened an exclusive Sabyasachi store in New York spread over 5,500 square feet. Shantanu & Nikhil delivered highest-ever Q2 business with revenue up 48% over last year,” ABFRL said during Q2 FY23 earnings call.

Enter The Collective

ABFRL is present in global luxury fashion, too. It has The Collective, an omni-channel offering that houses over 100 international fashion brands such as Versace, Armani and Michael Kors. “Our main target group is businessmen and industrialists,” says Amit Pande, brand head at The Collective. The Collective’s average pricing for apparel is ₹15,800. It does not sell in-house labels; most of its products are imported. “We stay with a brand for at least three seasons. We add three-five brands every season,” says Pande. The e-commerce channel is also doing well. The Collective website accounts for 22% of total business globally; of this, about half comes from non-store towns.

Online Only

Amid the tussle between Reliance and Aditya Birla Group, online-only Tata CLiQ Luxury is working to “take top five million households with high disposable incomes, says chief business officer Gitanjali Saxena. “These households can have different brand affinities depending on occasion, purpose and use,” says Saxena. Experts also point at the widening luxury segment as consumers experiment and spend on homes, watches and even small items such as candles. “While many go only for big brands, many like to discover new brands. That’s where a lot of our brands in the IndiLuxe segment do well,” says Saxena.

Tata CLiQ Luxury is ‘doubling down’ on beauty and home segments. “We want to go after fine jewellery in next couple of quarters. We can also then perhaps enter art or collectibles. Consumers want to acquire things that are different. Anything that they need should be available on Tata CLiQ Luxury,” says Saxena. The brand is open to setting up brick and mortar stores if partnership with a luxury brand necessitates such a move. “If we take a long-term view, we see ourselves as omni-channel players,” says Saxena.

Broadening Market

The biggest reason for the boom in luxury retailing is the fact that household management is being passed on to young working millennials who are more open to products that are high on aesthetics. India is home to the world’s largest population of millennials and Gen Zs; the two make up about 51% population, which translates into an absolute count of over 700 million, according to a study by market research firm RedSeer Consulting. Gen Y (millennials) and Gen Z accounted for the entire growth of the global luxury goods market in 2022, according to the Bain & Company-Altagamma study. In coming years, spending by Gen Z and Gen Alpha (born between 2010 and early 2025) is set to grow three times faster than for other generations until 2030, it says. “We are getting a lot of younger consumers who have lesser responsibilities and are earning a lot. These consumers care about brands, quality and love to acquire distinct things,” says Saxena.

There is already a broader trend of premiumisation, say experts. “The fact that Apple has done well in India indicates the market is moving to premium smartphones. In auto, there has been a progression from small cars to SUVs and now bigger cars. Sellers of luxury apartments are doing much better. Brands are reading this change. People have money and are willing to spend,” says McKinsey’s Malhotra. Also, the story of India is moving from top five/six metros to top 30 cities, says Malhotra. “The spread of entrepreneurship, the spread of business, is rapid across India. There are pockets of affluence in Surat, Rajkot, Indore, Nagpur, Chandigarh, Dehradun,” says Singhal. As several states take the lead in augmenting infrastructure in order to attract businesses, income of households will rise.

“We would be foolish to not look at emerging luxury customers who have a lot of aspirations,” says Pande. This is where entry categories like perfumes, sunglasses, belts come into play. “An entry product like perfume starts the journey. The customer starts exploring the brand. People’s aspiration and ability to buy are translating better (into sales) now. This story will play out in a big way in next four-five years,” says Pande.

Is There Enough Room?

Luxury brands are keen to roll out the red carpet for consumers in India but their road to expansion is marred by inadequate availability of real estate, say experts. “There are hardly any malls in India that can be called luxury,” says Singhal. Luxury retail is not expanding beyond four-five malls. “DLF and other big players are looking to double their total square footage over next two to three years but there’s no visibility how much of that space will be dedicated to luxury,” says an analyst on condition of anonymity. “Overheads to develop a brand are high and don’t make sense unless a company has multiple stores to spread out costs. Where is the space for multiple stores? In places like New Delhi and Mumbai, there are hardly three to four catchment areas for a luxury brand,” says Neelesh Hundekari, partner at Kearney. Singhal says the challenge is likely to persist for at least a few years. It’s yet to be seen how developers and retailers come up with a viable solution to this conundrum. India is clearly taking to consumption of luxury but it will take a significant time for the market to mature and become a haven for luxury customers. Until then, happy shopping!