kpmg-assocham-india-luxury-summit-2014.pdf

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India luxury

summit2014

kpmg.com/in


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I am delighted to know that the second India Luxury Summit is being organised by

ASSOCHAM with Spain as the Country Partner this year.

Organising the second India Luxury Summit - 2014 at this opportune time will certainly

provide a forum for the industry leaders from the luxury and retailsector for deciding on

new investments and the way forward.

I congratulate ASSOCHAM and KPMG in India for releasing this report, after a detailed

survey of Indian as well as several international brands.

I am sure that the industry will find this report useful in deciding their future

investment roadmap.

The youths of India is innovative and hardworking to address the market need. More

and more families in India want to be within this area of luxury market. India is

historically 'society of richness and luxury' in certain areas of living.

I convey my good wishes to ASSOCHAM, (India's Apex Chamber of Commerce and

Industry) for the success of the second India Luxury Summit - 2014.

Dr. E. M. Sudarsana Natchippan

Minister of State

Commerce & Industry, Department of Industrial Policy & PromotionGovernment of India

Message - Ministry

2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reser ved.


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We are happy to announce the second India Luxury Summit on Friday, 7 February 2014,

in New Delhi. The presence of a high-powered Spanish business delegation at the

summit is indeed very significant and shall provide many business opportunities.

Needless to say, the luxury sector in India is poised to register a growth of 25 per cent

y-o-y, and we at ASSOCHAM are committed to providing an effective business forum

to Indian and global entrepreneurs.

Spain has emerged as one among the European countries that can boast of strong

global brands such as Zara and Lladro. These brands have become household names

for the quality, variety and exclusivity they offer.

I convey my best wishes for the success of the second India Luxury Summit - 2014

and thank all our stakeholders, including the Embassy of Spain and their Commercial

Office in India for their guidance and support in ensuring the success of the second

India Luxury Summit - 2014.

I would also like to take this opportunity to thank the teams at ASSOCHAM, KPMG in

India and YES BANK for preparing this report on the luxury sector, which I am sure, will

help the industry for a better understanding of the luxury sector in India.

D.S.RawatSecretary General

ASSOCHAM

Message - ASSOCHAM



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The year 2012 was dynamic for the luxury market in India, as it continued to grow

unabated despite weak consumer confidence and an economic slowdown. Non-

traditional markets - regions beyond metros and tier one cities - and a growing number

of HENRYs (High Earning Not Rich Yet individuals) spending on luxury goods are

largely responsible for the growth of this market.

In 2013, several players expanded their business in the Indian market and we expect2014 to be equally - if not more - buoyant for the industry. We also expect competition

in the bridge to luxury segment to intensify with increasing number of consumers

joining the luxury segment. While some of the foreseeable challenges include those

related to shortage of quality staff and real estate, the industry is already trying some

business models whose success is likely to overcome them. The sector has also

witnessed the emergence of Indian players who have risen to fame by capitalising on

traditional Indian strengths in areas such as arts, crafts and medicine.

These are exciting times for the luxury sector in India, which is buzzing with activity.

Players are increasingly walking the extra mile to overcome barriers typically

associated with operating in India. Traditional definitions and characteristics of luxury

consumers are evolving with increasing awareness among consumers; this is creating

a host of opportunities for the existing and new players.

KPMG in India is elated to be a part of the Second India Luxury Summit that provides

a common platform to various industry stakeholders to share leading practices, plan

the way forward and address the common challenges hampering the sectors growth.

This report incorporates extensive discussions with senior stakeholders of the industry

and aims to present an all-encompassing view of the opportunities and issues present

before the sector. KPMG in India and ASSOCHAM acknowledge and appreciate

everyone who has contributed to this report.

Rajat Wahi

Partner

KPMG in India

Foreword - KPMG in India



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Overview of the Indian luxury market 4

The concept of luxury and the key trends 4

Emergence of Indian luxury 7

Key consumer segments 7

Luxury clusters in India 8

Challenges highlighted by luxury retailers in India 10

Success stories in luxury space 14

Manufacturing success with luxury ayurveda: Forest Essentials 14

Crafting success: Goodearth 17

Driving to success: BMW India 20

Industry views on the Indian luxury market 24

The way Ahead: Indian Luxury Brands Going Global- by Franois Arpels 24

India's Luxury Retail Quotient- by Research and REIS, Jones Lang LaSalle India 27

Table of content

Note: Names of brands / companies used as

examples in this report are without any prejudice

to any specific brand / company



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1 | India Luxury Summit 2014



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India Luxury Summit 2014 | 2

Section 1

Overview of the Indianluxury market

The concept of luxury and the key trends

Emergence of Indian luxuryKey consumer segments

Luxury clusters in India

Challenges highlighted by luxury retailers in India



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The concept of luxury and the key trends

The global luxury market was buoyantthrough 2012-13; a period characterised

by global economic recovery in

developed economies such as the

U.S. and positive recovery signals from

Europe. In consonance with this trend,

the wealth of the worlds richest grew by

17 per cent as 210 new entrants joined

the ever-increasing Forbes Billionaires

List1.

India continued to hold its position in theglobal billionaire list with a contribution of

55 billionaires, accounting for a total net

worth of USD194 billion. This is a marked

improvement over 2004, when there

were just nine Indians in the list. The year

2013 was marked by a slowing Indian

economy and diminishing consumer

confidence, but it seemed to have little or

no impact on the growth of Indias luxury

market, with the countrys wealthiest

continuing to spend unabated on luxury

goods through the year.

The Indian luxury market grew at a

healthy rate of 30 per cent in 2013 to

reach USD8.5 billion in 2013. It is likely

to continue growing at a healthy pace to

reach USD14 billion by 20162. The sectorincludes luxury products such as apparel,

accessories, home decor, pens, watches,

wines and spirits, and jewelry; services

such as fine dining, concierge services,

travel, hotels and spas; as well as assets

such as fine art, yachts, and automobiles.

Growth was driven by lifestyle segments

such as fine dining, gadgets, hotels,

jewelry, personal care and wines;growing at 30 to 35 per cent as the luxury

consumer refused to compromise on the

luxe' life.

Global billionaires' wealth

Source: http://forbesindia.com/article worlds billionaires-2013/forbes-billionaires-list-2013/34951/1,

accessed 14 January 2014

1. Forbes Billionaires List 2013, Forbes website, http://

forbesindia.com/article worlds billionaires-2013/

forbes-billionaires-list-2013/34951/1, accessed 14January 2014

2. India's luxury market up in 2013 and likely to break all

times record in 2014, http: www.assocham.org/prels/

shownews.php?id=4327, accessed 14 January 2014



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Urban India's average household income

Geographical spread of ultra HNHs in India

Source: Living in India, The Financial Express, 12 June 2011

Source: Luxury carmakers change lanes to cruise in a slow market, Business Standard website, http://wap.business-standard.com/wapnew/storypage.

php?id=2&autono=113110200441, accessed 10 January 2014

Luxury car-makers set to double used auto sales this year, Indian Express website, accessed 10 January 2014

India shows Hidesign how to bag buyers, Business Standard website, http://www.business-standard.com/article/management/india-shows-hidesign-how-

to-bag-buyers-113082901082_1.html, accessed 10 January 2014

Source: Kotak Wealth Management Report 2013

Growing focus beyond the metros and tier-I cities

Home to nearly half of the countrys ultra

HNHs, Indias non-metro regions offer

lucrative growth opportunities for luxury

segment players. Players with a long-

term perspective have already started

investing in establishing a connection

with consumers in these areas.

Infrastructure, which includes a proper

retail environment, is a key challenge that

players in these regions face. Players

are overcoming this through innovative

models and local tie-ups in order to

optimise investments and minimise

risks. Such innovative means are gaining

popularity amid a thriving franchising

sector, stringent investment norms and

limited knowledge of local preferences.

Brands such as Judith Lieber are

reaching out to tier-II consumers through

local partners and exhibitors to build

awareness and to induce consumer trial6.

Players are also using these channels

to educate potential consumers about

luxury and thereby, position their brand

as relevant for the consumer.

Luxury car maker BMWlaunched the 1 series at an entryprice of INR 2,090,000,(ex-showroom, India)positioned at just 2 to 3 percent higher than the entry-levelvariants of various premiumbrands.

Around 70 per centof luxury handbagplayer Judith Leiberscustomers nowcome from tier-II andtier-III cities withoutdepending on store-based expansion.Its local partners

showcase selectproducts to potentialconsumers throughexhibitions7.

Mercedes-Benz launched its'Proven Exclusivity' programmein June 2010 to targetconsumers interested in usedluxury cars, playing on thelegacy of the Mercedes brandname and superior shoppingand service experience.

Hidesign is moving beyond thetraditional luxury consumerand is increasingly positioningits products for youngachievers with high incomes.These are typically people whoare extremely status-conscious.

6. Luxury market to reach

$15 bn by 2015 in India,

marketers try new

ways to woo buyers in

non-metros, Economic

Times website, http://

articles.economictimes.

indiatimes.com/2013-03-21/

news/37903575_1_luxury-

market-brand-smaller-cities,


7. Betting on India, Outlook

magazine website, _http://

business.outlookindia.com/

printarticle.aspx?288331,




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Evolving channels and relationships

As the consumers evolve, so do these

channels; as a result, many luxury players

have switched partners to suit specific

needs8. Examples include players such

as Corneliani, Villeroy & Boch, Versace

and Guess. At present, only a handfulof Indian companies continue to be

the preferred choice of luxury players,

primarily in segments such as clothes

and accessories. This trend is likely to

continue as luxury brands continue to

assess their strategy.

High degree of Indianisation and localisation

Indianisation and localisation are

increasingly becoming differentiators of

success with new consumers in new

markets. Luxury brands no longer deal

with just the elite and well-traveled

urbane customer. New segments with

varied profiles may now constitute

potential targets for luxury brands;

examples include segments such as

farmers selling their lands to developers

and entrepreneurs experiencing

windfall gains. Brands are responding by

introducing local, Indian elements to their

products - lifestyle brands are signing up

with Indian designers, hiring relationship

managers who speak local languages

and tweaking offerings for Indian

festivities, weddings, to name a few.

While several luxury players have

launched wedding ranges in India,

many are increasingly targeting

Indian weddings with custom-

made products such as handbags,

scarves, food hampers and liquor

for guests.

Highlighting the state of flux,

more than 150 international

fashion brands launched in

India during 2004-11 have either

changed partners or exited India9.

8. Global luxury brands scout for new partners in India,

Fashion United website, www.fashionunited.com/

executive/management/global-luxury-brands-

scout-for-new-partners-in-india-20122903488800,


9. Twist in Tale: Global luxe brands scout for new

partners, Fashion United website, _http://

www.fashionunited.in/news/fashion/

twist-in-tale-global-luxe-brands-scout-for-

new-partners-290320123357, accessed 10

January 2014



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Emergence of Indian luxury

In 2013, luxury champagne player Moet

Hennessy, who previously offeredonly imported products, launched its

first Indian-made wine10. The strategy

is aimed at targeting a new breed of

consumers -urbane youth.

Similarly, brands such as Hidesign

thrive on situating their manufacturing

facilities in India while catering to the

market. These trends are indicative of

a growing comfort around the concept

and quality products being made in India.

This sentiment now extends beyond

entry-level shoppers and is shared by

traditional luxury shoppers as well10. This

augurs well for Indian luxury players. The

traditional Indian luxury shopper is now

more aware than before and is willing to

look beyond the geographic limitations

that once determined purchase

decisions. The traditional Indian luxury

consumer is also increasingly focussed

on multiple aspects such as cost, after

sales service, etc. while making the

choice.

Homegrown players have capitalised on

traditional Indian strengths in areas such

as textiles, leather, jewelry and personal

care to gain popularity both in India

and abroad. These players have often

capitalised on aspects such as traditional

craftsmanship, unique aesthetics

or heritage value to identify with

consumers. The international presence

and popularity of these brands have only

reinforced their position in the luxury

market in India. Examples include fashiondesigners such as Ritu Kumar and

Sabyasachi; high-end ayurvedic personal

care company Forest Essentials; and

hospitality players such as Taj, Oberoi and

ITC.

Luxury consumers preferring to shop in India over abroad (%)

Source: Kotak Wealth Management Report 2012

10. French champagne group Moet Hennessylaunches made in India bubbly, Mint website,

http://www.livemint.com/Companies/

t9oWBhX504U3gpRHIu83JL/French-champagne-

group-Moet-Hennessy-launches-made-in-India.html,




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Key consumer segments

The moneyed class in India has always

had exposure to luxury brands throughimports or overseas travel. In addition,

economic growth of the country has

created a new generation of consumers

as diverse as senior corporate

professionals, young working women

who live with their families and are liberal

spenders, successful entrepreneurs,

and farmers who have sold their land

to developers. The word luxury itselfhas different shades of meaning for

each segment (as depicted in the

figure below). Each of these segments

constitutes a potential luxury consumer

group with distinctive behavioral

characteristics.

Thus, owing to Indias consumer diversity, luxury players eyeing this market need to

apply a segmented approach and sharpen their brand strategies.

Source: KPMG in India analysis as on 17 January 2014



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Challenges highlighted by luxury

retailers in India

Lack of quality luxury space and environment

The presence of luxury brands in India is

primarily restricted to malls, high streets

and countable luxurious hotels. While

there are limited luxury malls (only three -

UB City, DLF Emporio, and Palladium) in

India at present, setting up stores in high

streets affects retailers profitability due

to sky-rocketing rental costs. Moreover,

high streets such as Churchgate (Colaba,

Mumbai) are very cluttered and crowded

and are unsuitable due to the absence

of the exclusive ambience that luxury

retail demands. Thus, there is a dire need

for modernised and dedicated luxury

retail areas in protected vicinities such as

airports.

Despite this challenge, multiple luxury

retailers have successfully established

in India, with out-of-box marketing

strategies and innovative ideas that

capture the potential luxury customer.

Fragmented and diversified consumer base

Indian HNI consumers are highly

fragmented and, thus, are not easy to

reach. Further, this HNI consumer class

can be classified into three different

categories - the inheritors (traditionally

wealthy) who are habitual spenders; the

professional elite who are discerning

spenders; a large segment of business

giants (entrepreneurs, owners of small

and medium enterprises) who havethe money but lack appreciation for

fine luxury goods because of no prior

exposure to such products.

Luxury brands need to strategically

design their growth plans to tap demand

across these three categories. This not

only necessitates expansion in the type

and nature of product offerings of brands,

but also calls for increasingly innovative

marketing plans to tap rapidly evolving

consumer behavioral trends.

Most international luxury brands need

products that are tailor-made to suit thewhims and fancies of Indian customers.

Lacking policy support

Despite strong demand momentum,

Indian luxury market has not been

viewed as policies and regulations

friendly for the luxury retailers. Import

duties (20150 per cent) are relatively

higher in India15. This is considered as

a key apprehension factor among the

international players, who may resist

them to frame aggressive growth plans

for India.

An announcement on liberalised FDI

policy in luxury retail was considered

as a welcome move for the industry

in November 2013. However, some of

the clauses such as 100 per cent

FDI in both single and multi-brand retail

requires 30 per cent of local sourcing,

could be difficult for the international

luxury players to comply with.16

Hermes was among the first

brands to move beyond luxury

malls and hotels and to Mumbais

Horniman Circle, creating a high

street in India, and has been

performing well since 200914.

14. Herms Opens in Horniman Circle, Mumbai Boss

website, _http://mumbaiboss.com/tag/bertrand-

michaud/, accessed 10 January 2014

15. The Ascent of Money, India Today, http://indiatoday.

intoday.in/story/luxury-market-in-india-luxury-goods-products/1/228450.html, accessed on 16 January 2014

16. Believe in the India Luxury Market, Sharnoffs Global

News, www.sharnoffsglobalviews.com/luxury-

market-india-181/, accessed 16 January 2014



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Proportion of counterfiets in the luxury market

Source: ASSOCHAM-Yes Bank Report 2014

Countering the counterfeits

Sised at around INR25 billion,

counterfeits constitute a considerable 5

per cent of the Indian luxury market17. The

counterfeit market has been growing at

a rate almost double to that of genuine

products. Most of these products belongto segments such as apparel, perfumes

and accessories, which are usually lower

ticket items and can be easily placed in

gray channels. Luxury players in India

continue to face supply side issues

such as legal loopholes pertaining to

intellectual property rights, inadequate

means to monitor various emerging

channels, and a growing number of online

portals, among other factors. However,

much needs to be done at the consumer

end as well to create awareness aboutgenuine products. This is even more

important as a large number of aspirers

with diverse backgrounds and limited

knowledge of products become potential

consumers. Only a handful of players

have effectively engaged the consumer

in education and communication on the

brand. A collective, industry wide effort

is likely to have a far-reaching impact

in dealing with the issue - as seen in

other industries such as films and music.

Awareness and collaboration also needsto be built with authorities, who have

experienced major revenue losses due to

loss of taxes and duties, on how to deal

with counterfeits.

Lack of trained staff

Lack of trained staff is a well-

acknowledged challenge that the Indian

retail industry faces. The problem

intensifies when it comes to the

luxury sector, which requires greater

discretion and knowledge on the part of a

salesperson. Several luxury players have

cited excluding potential customers

as a key risk to their business. Most

brands have in-house training systems to

train staff on aspects such as etiquette,

visual merchandizing and knowledge.

Elements for such training often borrow

heavily from those of their global parents.

Recently, with the local market evolving,

several luxury brands have Indianised

their pitch to suit shoppers. This includes

focusing on educating shoppers who

are new to luxury and speaking in localdialects to make the customers feel

comfortable, separate rooms for closed

door selling, etc.

Luxury players are likely to remain

convinced about Indias demand story.

As growth in large markets continues

to saturate, the BRIC countries (Brazil,

Russia, India and China) are poised to be

the next major growth engines19.

Under French law18

, purchasingfake products may incur a fine

of up to EUR300,000 or three

years imprisonment. The French

Government also launched

an innovative campaign with

industry players against fakes,

with taglines such as Buy a fake

Cartier, get a genuine criminal

record and Real ladies dont like

fake.

Cardinal sins while selling luxury:

Stereotyping consumers

based on appearances or the

way they talk

Excluding the addressable

market, appearing

unapproachable to potential

shoppers

Trying the same pitch for all

luxury shoppers.

17. Fake luxury market to double by 15, The Statesman

website, www.thestatesman.net/news/34458-fake-

luxury-market-to-double-by-15.html, accessed 16

January 2014

18. Fake goods are fine, says EU study, Telegraph website,

_http://www.telegraph.co.uk/finance/newsbysector/

retailandconsumer/7969335/Fake-goods-are-fine-

says-EU-study.html, accessed 10 January 2014

19. KPMG in India analysis as on 30 January 2014



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Section 2

Success stories in the

luxury space- Case studies



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Case Study - I

Manufacturing success with luxury ayurveda:

Forest Essentials

Forest Essentials (FE) wasestablished with an aim to

promote traditional cosmetics

in a modern way. While various

other ayurvedic products were

available when it was launched,

there was a need for ensuring

quality by sourcing ingredients

in an appropriate manner. It was

also believed to be important toposition ayurvedic products as

utilitarian and easy to use - the

lack of it was hampering their

sale, especially among high-end

consumers.

FEs model based on ayurveda

and the absence of any Indian

brand in this prestige space

acted as a catalyst for its entryin the country. The company

started by offering soaps

and oils with high-end global

packaging, which instantly

struck a chord with consumers.

Company overview

Established in 2000, FE is a leading Indian player in the high-end personal care

segment. Its key products include a wide range of ayurvedic skin care, body care, hair

care and wellness products.

The companys manufacturing facility is in Uttarakhand and it sells products through

exclusive retail stores and institutional players (including luxury hotels and spas).

Key facts

Year started 2000

Founder Mira Kulkarni

Key brands Forest Essentials

Presence30 cities, including non-metros such as Jaipur, Ludhiana and

Chandigarh

No. of stores 26 exclusive stores

Factories Two - Haridwar and Lodsi in Uttarakhand

Revenue -

The journey so far (key milestones)




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FACTOR 1 well-defined positioning to target the white spaces in the market

FE positioned itself as a prestige or

bridge to luxury brand. The aim was to

gradually upgrade consumers from themasstige segment in the consumption

ladder by creating aspirational value for

high quality products. This segment is a

high growth segment due to increasing

incomes and growing number of

youngsters, who are typically more

receptive to trying new products.

Since this space was largely unexplored,

the company chose to enter through the

shop-in-shops model to build awarenessand promote trials. A growing luxury

market and evolving consumers have

helped the company establish exclusive

stores and increasingly offer more

personalised services.

FACTOR 2 incorporating global operating standards while operating in the

Indian environment

Evolving consumer preferences have

shifted focus from packaging to the

quality and ingredients of products. FE is

aware of this shift and has consistently

invested in infrastructure while

establishing a backend system in sync

with the growing demand.

The company has its own workshopsin Uttarakhand and in-house doctors,

experts and technicians. FEs partnership

with Estee Lauder (EL) in 2008 has

significantly helped the former upgrade

its processes and facilities to match

global standards. Constant collaboration

and factory visits from ELs teams

have helped FE improve several of

its processes, such as quality control,

vendor development and packaging and

introducing sustainable initiatives. These

initiatives have enabled FE to leverage

quality and ingredients as unique

selling proposition, while targeting the

prestige segment.

Forest Essentials positioning



Understanding key success factors

There was a need to

showcase the effectiveness

of ayurveda to represent

India.

- Samrath Bedi,

ED, Forest Essentials



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FACTOR 3 focussing on experiential marketing through stores

A significant per centage of FEs BTL

marketing is done through word-of-

mouth publicity instead of forced selling.

The company uses store environment

as an important marketing tool to

induce trial and repeat purchase byclosely managing ambience elements

such as lighting, scents and product

display. Additionally, store staff is trained

to provide expert advice and cater to

specific requirements of consumers.

FEs made-to-order solutions are

positioned in such a way that they aim

to induce repeat purchase and ensure

consumers stay loyal the brand. To avoid

excessive pressure on existing channels,

FE has a separate back end team catering

to customised solutions.

Increasing use of ayurvedic products, as

preventive remedies rather than curative

treatments, has reinvigorated interest

among consumers. FE has capitalised on

this trend by increasingly engaging with

consumers on social media platformsand making their products more relevant

to consumers.

In terms of ATL activities, FE has been

selective while choosing popular TV

shows - which reach a certain audience

or while launching TV commercials - and

has carefully planned limited period

campaigns primarily to generate

awareness and credibility.

FACTOR 4 a company-owned model of expansion

Forest Essentials follows a company-

owned model and operates through

its own standalone stores and shop-in-

shops in large format stores in India. This

model helps the organisation maintain

absolute control over its merchandise,

suppliers network and store staff

and facilitates direct contact with end

consumers.

Considering all the advantages, the

company has adopted a focussed

expansion strategy to establish new

company-operated stores. It has

optimally leveraged its partnership with

EL to select store locations, train staff

members as per international standards,

manage inventory and develop impactful

relationships with customers.

FACTOR 5 extensive training programs

The Indian luxury retail market has

faced significant manpower shortage,

especially for the front-end staff, which

interacts directly with customers. Hence,

FE has made significant investments

toward the training and development

of its human resource. Its store

staff, including managers and brand

ambassadors, have to attend extensive

training sessions and conduct virtual

store visits. These sessions are designed

to train employees on all forward and

backward operations of the company.


Key achievements and plans

Concluding remarks

A good mix of traditional and

modern can lead to a symbiotic

relationship, which could be the key

to overcoming challenges inherent

in the Indian retail environment.

Organisations such as FE

demonstrate how global standards

of operating, modern packaging

and retailing can be merged with

traditional Indian strengths.



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Case Study - II

Crafting success: Goodearth

GE entered the market in

1996 when there was a huge

demand-supply gap in terms

of quality home products. The

segment suffered from less

product innovation despite

being an integral constituent of

the consumption basket. Only

a few players had envisaged

success for export quality

products in the domestic

market.

The well-travelled Indian

luxury consumer was seeking

products that appealed to his

aesthetic sense, sold in an

environment that offered both

uniqueness and exclusivity.

Company overview

Established in 1996, Goodearth (GE) is a leading Indian luxury player that offers a wide

range of products in segments such as home accessories, wellness, skin care, bed

linen, glassware, textiles, crockery, candle lights, gift items and kids collection. GEs

values and offerings are based on the themes of nature and sustainability.

Its first store was established in Kemps Corner in Mumbai and GE currently operates

through nine stores across five cities.

Key facts

Year started 1996

Founder Anita Lal

Key brands Goodearth

Presence Five cities - Mumbai, Delhi, Chennai, Bangalore and Hyderabad

No. of stores Nine exclusive stores

Factories 1996

Revenue -



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FACTOR 1 suiting the Indian aesthetics

Goodearths unique selling proposition

is its design that appeals to the modern

Indian aesthetic taste. It adapts

traditional designs to suit contemporary

tastes primarily through its in-house

design team; additionally, GE alsocollaborates with several traditional

craftsmen for product development. The

companys team of designers collects

natural fabrics from multiple regional

craft communities and gives them a

fashionable look. Handwoven textiles

such as chanderi, mul and khadi are some

traditional and eco-friendly products that

the company uses extensively.

FACTOR 3 minding the backend

GE works closely with craftsmen and

various local vendors; hence, managing

supply chain is essential to deliver on the

quality proposition as well as the timely

processing of orders.

GE maintains a close relationship with

different partners such as craftsmen,small workshops and factories, and

collaborates with them for day-to-day

delivery schedules as well as for

long-term growth strategy. This has

enabled GE to put in place strong quality

standards and efficient production and

delivery systems that has helped it to

scale up rapidly in the past few years.

FACTOR 2 offering a unique and exclusive retail experience

GE has introduced several innovative

concepts for retailing its products.

One example is that of establishing

restaurants in its stores to provide

a wholesome retail experience andthereby, making people spend more time

in the stores.

Such initiatives are complemented by

steps to create a unique ambience, such

as playing soothing music and putting

relevant product assortment on display.

This has helped GE in creating anexcitement factor around its stores.


Source: KPMG in India analysis, as on 28 January 2014


Goodearth designs are

original, contemporary,

whimsical, yet rooted in

heritage.

- Simran Lal,

CEO, Goodearth

We are working closely with

our partners to ensure all

of us are in sync with our

growth projections.

- Simran Lal,CEO, Goodearth



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FACTOR 4 focussing on marketing strategy

Developing and managing a luxury

brand requires constant innovation and

an integrated marketing strategy. Like

several successful luxury brands in India,

GE has also balanced its emphasis on

Indias rich artisanal history and traditionswith contemporary design and styling.

Every year, it launches a designer

collection that is based on some tradition

or culture. For example:

2013 -GE launched the Ratnakara20

designs collection, which focussed on

the lush beauty of the islands of the

Indian Ocean.

2012 -GE introduced the Farah Baksh

design collection based on the beauty

of the Kashmir valley.

2011 -To promote the cultural values

and the crafts of Golkonda during the

reign of Tipu Sultan, GE launched itsGolkonda designs collection.

2010 -GE introduced its collection

Lotus Feet' that was influenced by

the use of lotus in Budhhist art and

architecture.

FACTOR 5 understand the importance of digital strategy

Online sales can offer better increasedcomfort and convenience to tech-

savvy consumer, thereby, providing

better shopping experience than

brick-and-mortar stores. Keeping

this in mind, Goodearth has also

made significant investments in

technology. Through its digital strategy,

it manages its merchandise on thewebsite to accommodate international

requirements. Its digital presence helps

it to provide more personalised and

excellent customer service online and

augments brand visibility internationally.


Key achievements and plans

Concluding remarks

A unique product proposition should be accompanied with key growth enablers

at the front end as well as back end. As the number of players in the luxury

market increases, creating a unique retail experience can help a brand stand

out. It is equally important to sync ones growth with that of vendors and

partners. Establishing quality standards and processes may be a difficult task insome cases in India and it can potentially make or break an organisation.20. Goodearth website, http://www.goodearth.in/Our-

Company/Design-Stories/Ratnakara-2013, accessed

on 31 January 2014



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Case Study - III

Driving to success: BMW India

BMW entered the Indian luxurycar market in 2006, when the

segment and luxury market

were still in a very nascent

stage in India. The market was

only around 3000 cars and

primarily catered to the urban

consumer, the super luxury

segment businessmen,

C-level executives and top notch

professionals with very few

options below the INR5 million

price points.

BMW started off by

establishing a strong foothold in

the high-end segment, creating

a strong aspirational value for

the entry segment. BMWs key

offering included young sporty

looking cars a major deviation

from the then industry trend.

Company overview

Established in 2006, BMW India Pvt. Ltd., a subsidiary of BMW Group, is one of

the well known players in the luxury car segment in India. Its key products include

passenger cars, multi-purpose vehicles and utility vehicles. The company has

its manufacturing facility in Chennai and cars are sold mainly through exclusive

dealerships.

Key facts

Year started 2006

President Philipp von Sahr

Key brands BMW

Presence35 cities, including small cities such as Kanpur, Raipur, Noida,

Lucknow and Faridabad

No. of stores 37 dealership stores

Sales 7,327 units in 2013


Source: BMW case study, http://www.bmw.in/in/en/, accessed on 16 January 2014Note: The information for this case is collected

through secondary research



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FACTOR 1 understand the new dimensions of the consumer landscape

The entry level luxury segment driven by

a growing number of high earning young

professionals, is adding a new dimensionto the luxury consumer landscape. BMW

launched the one series at an entry

price of INR2,090,000 (ex-showroom,

India) positioned just 2-3 per cent higher

than the entry-level variants of various

premium brands.21

BMW India has also increased potential

consumer base by the used car space

through Premium Selection offering in

2011. It is also offering finance options

to the customers (BMW India FinancialServices Pvt. Ltd.) to aid purchase. It

currently has 10 showrooms offering this

service; the vehicles sold are under five

years old and have a mileage of less than

120,000 km.22Key differentiators over the

unorganised used car market also include

adherence to defined BMW product

standards and high-end purchase and

service experience.

FACTOR 2 Establishing long term consumer connect and educating the

consumer

BMW launched Mobile Showrooms

in 2012 to help people in small cities

such as Karnal, Agra, Dehradun,

Nashik, Kottayam and Jamshedpur get

familiarised and test-drive its products23.

Typical high-end urbane shopping

experience is replicated through air-

conditioned weather proof buildings. This

strategy has helped BMW overcome

typical infrastructure challenges

associated with marketing products

in small Indian cities, while preparing

ground for BMWs entry in the future.

Target cities have been identified after

detailed demand analysis andhas been

mapped to BMWs capacity to service

these markets.

Another example of BMWs long-term

strategy to establish consumer connect

is its organizing student connect

programmes in small cities such as Agra,

Meerut and Faridabad through its dealers

to familiarise future consumers with the

brand.


How did BMW adapt to India?

To enter India, BMW made several

technical modifications to its

products. This included raising

suspension systems, changing

engine and filter systems, adapting

its air-conditioning systems to the

Indian environment and introducing

heavy-duty horns.

It focussed on local assembly

or the complete knockdown

approach in its Chennai plant right

from the beginning in India. It

was a tax-efficient approach that

helped the company offer products

at competitive prices to cover

different sub-segments of the luxuryconsumer domain and gain market

share quickly. Several models such as

1 Series, 3 Series, 5 Series, X1 and

X3 are assembled in India and the

plant capacity has been ramped up

from 3,000 cars per year in 2007 to

11,000 in 2013.

To induce purchase, BMW also

launched its in-house financing arm

in India in 2010. This has helped the

company facilitate easy financing

of its cars at competitive rates.

BMW has also developed various

customised offers for customers -

including competitive interest rates

and discounts. About 80 per cent of

BMWs clientele used this schemeas on March 2012.

21. Luxury carmakers change lanes to cruise in a

slow market, Business Standard website, http://

wap.business-standard.com/wapnew/storypage.

php?id=2&autono=113110200441, accessed 10

January 2014

22. Luxury car-makers set to double used auto sales

this year, Indian express website, http://www.

newindianexpress.com/thesundaystandard/

Luxury-car-makers-set-to-double-used-auto-sales-this-

year/2013/06/09/article1626502.ece?service=print,


23. BMW launches a mobile showroom to reach theemerging markets in India, Economic Times website,

http://articles.economictimes.indiatimes.com/2012-

08-23/news/33342336_1_bmw-india-bmw-x1-german-

auto-major-bmw, accessed 10 January 2014



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Key achievements and plans24

Concluding remarks

Indian luxury consumers are evolving rapidly and with new consumers joining

the segment or becoming addressable, players would be required to modify

their strategies accordingly. Indianising products alone is no longer enough -

players must aim to Indianise their entire strategy to increase sales. As metro

cities reach a saturation level with an increasing number of luxury brands,

mastering low-cost models would be a key to success beyond metros.

24. Discount policies will distroy brands in the long term,Economic Times website, http://m.economictimes.

com/opinion/interviews/rivals-are-undercutting-the-

market-philipp-von-sahr-bmw/articleshow/23784070.

cms




29/40




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Section 3

Industry views on theIndian luxury market

The way forward: Indian luxury brands going global

- By Franois Arpels

India's luxury retail quotient

- By Research and REIS, Jones Lang LaSalle India



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The way Ahead:

Indian Luxury Brands Going Global- by Franois Arpels

The Author

Franois Arpels is the co-founder and

Managing Partner of IndEU Capital,

a fund dedicated to investments in

the entire value chain of the branded

premium and luxury goods industry

in India, which he has witnessed

changing since 1995 when he

begun being actively involved in the

country. He has built considerable

experience and has acquired an

intimate understanding of thefashion and luxury industry thanks

to more than 25 years of experience

as an investment banker, strategic

consultant, and former shareholder

and member of the executive

committee of his family owned

jewelry company Van Cleef & Arpels.

Franois advises and is on the

Board of several fashion and luxury

companies in Europe and India. He

is a regular contributor to the media,

a guest speaker at conferences, andco-founder of The LyFe (The Luxury

Future), a think tank on the future of

the luxury industry.

Indian history is filled with stories of the

love for fine things, especially the nobility

and royalty: threads of gold, ornate

hand-carved furniture, richly embroidered

clothes, exquisitely carved accessories,

and, of course the jewelry.

Throughout its civilisation, India has been

a showcase for unprecedented levels

of refinement and has a deep tradition

of luxury that can be seen in its crafts,

architecture, rituals, festivals; and a

strong gifting culture through the ages,

as can often be seen at weddings.

As a result, India has a large pool of

skilled craftsmen, artisans and designers

from different states, skilled in producing

cultural and handmade luxury products.

It is no secret that most luxury and

fashion houses have been relying on

India for their quest for beautiful fabrics,

their access to unique handcrafting

techniques, their embroidery

requirements and their supply of

precious stones, etc. India has been

inspiring the luxury and fashion industryfor years. For example, the paisley, which

has contributed to Etros success and

is widely used today, originated in India.

Another illustration is found in some

of Hermes and Guerlains bestselling

perfumes that have been inspired by

colors, spices and fragrances from India.

Yet another illustration of Indias influence

is visible in recent advertising films such

as Guerlains La Lgende de Shalimar

which presents the beautiful landscapes

of India and shows the mogul empress

Mumtaz Mahal in her palace surrounded

by the Shalimar gardens; or in Odysse

de Cartiers epic commercial boasting

depictions of sumptuous iconic locations,

including the Taj Mahal.

It is, therefore, surprising that despiteits luxury heritage, talent and knowhow,

there are no globally recognised luxury

brands that have emerged from India.

The current state of development of

Indias luxury brands, save for the

hospitality industry, can be compared to

that of Europe during the 1950s when

the likes of Vuitton, Cartier, Van Cleef

& Arpels, Chanel, and Gucci were still

promoter-owned and mostly sold locally

in addition to a handful of international

capitals.

Several factors can, at least in part,

explain the status of the luxury industry

in India.



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India has been relying on export and manufacturing business

models rather than on branding. As a result, local businesses

may have understood the technical aspects of market share and

competitiveness; leading to large independent family-ownedand managed companies that have been built and passed on

through several generations, but taking them to the formal level

of branding has eluded most of them.

Emerging brands in India have limited financing facilities

due to the lack of interest from investors. In addition, lack of

professional management talent, due to weak educational

programmes dedicated to the industry, has led to severalplayers in the market being unawareness of international

standards by many players in the market resulting, among other

things, in nonexistent strategy towards building brand equity.

Finally, a number of inexperienced fashion journalists have

brought confusion to the market.

Rich Indian families have traditionally relied on their trusted

neighborhood shirt-maker, tailor and jeweler, as was the case 50

years ago in Italy. It is noteworthy that India continues to lack adequate retail

and distribution channels, and logistics organizations that are

essential for consistent brand rollout.

Finally, brands are faced with challenges linked to the climate.

Today, India can be said to have reached the turning point with

respect to the emergence of authentic India-influenced luxury-

lifestyle brands. Fueled by changing demographics, which

has provided greater access to this refined world, the Indian

consumer has become aware of the finer things in life.

Indian brands have been constrained in their development due

to the lack of a large middle class.

Emerging brands can neither rely on guidance from market

intelligence, which is nonexistent, nor on market studies, which

are inadequate.

Business model Ecosystem

Tradition

Infrastructure

Environment

Domestic market size

Insight



34/40

So whats the way forward for the Indian luxury brands going global?

A distinction must be made between

going global and luxury. Achieving both

status at the same time is very ambitious

and only a handful will succeed.

On the road to going global, Indian

brands should prioritise building brand

awareness at home, before looking to

expand internationally, thereby increasing

their probability of success. Which

known foreign brand has successfully

gone global - with more than a symbolic

international presence - without first

being able to rely on its domestic

market?

The good news is that a whole number

of brands should be able to prosper,

capitalizing on the boom of the middleclass in India and a mature perception of

luxury from the market, before venturing

abroad.

India has a domestic market and demand

worth millions. A significant proportion

of disposable income in India is spent on

luxury goods thanks to the rising number

of wealthy people, a growing middle

class, and affluent young consumers. It

is this market that everyone else is trying

to reach. Hence, Richemont has recently

applied to enter in the single brand retailspace with luxury brands Van Cleef &

Arpels and Cartier.

Luxury products dont necessarily

make luxury brands. Brands that will

reach luxury status are even fewer and

so are those that will understand the

challenge of finding a balance between

being timeless thanks to a strong brandconcept and heritage, being relevant -

thanks to precise brand positioning - and

being innovative going forward.

On their journey to luxury, Indian brands

can rely on a wider sophisticated

audience. Only a few years ago, any

foreign brand coming into India

from France, Italy or Spain carried

connotations of luxury. There is now

a wider understanding, among the

entire value chain of the industry, from

designers to consumers, of what keycharacteristics qualify companies for the

luxury category - heritage, quality, artisan

knowhow and selective distribution.

In this context, a new breed of

businesses are emerging with young

and talented designers at their helm.

They understand that managing a brand

effectively and helping it achieve the

luxury status is part of a painstakingly

long process. It requires a consistent

integrated strategy, innovative

techniques, strong marketing (with themore obvious ones for clients being

coherent merchandizing and product mix,

differentiated advertising and impeccable

service), rigorous management control

and constant auditing.

There is a major opportunity in the

making and extraordinary potential for

companies that master the required

branding techniques and processes

to capture the ever-growing market of

consumers.

Only with the right financial support and

professional guidance will brands be able

to capitalise on the increasing prosperity

and a more savvy value chain in India.

The time is ripe to provide the necessary

financial and managerial support to the

current crop of talented designers toensure the optimisation of the unlimited

variety of resources offered by India

- jewelry manufacturing, shawls and

sarees, silk weaving, tribal textiles,

embroideries (lace, Zardosi, Kashida,

Phulkari and Kathi, etc), block print,

leather goods and leather embroidery

and marble stonework - and proper

branding techniques to help them

become global.




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India's luxury retail quotient- by Research and REIS, Jones Lang LaSalle India

Indias strong consumption story relieson its demographic structure, which, at

this point in time, is highly favourable

compared to most other emerging

nations. As per the UN population

statistics, this favourable demographic

dividend will last for another 2530

years. Before that, most other emerging

nations would have already begun to

witness a slowdown in the growth of

young (working-age) population.

The ensuing benefits with regard to therising income and household spending

would provide a significant boost to

the consumption-driven growth story

of India. A glimpse of the changing

pattern of Indias consumption is already

visible in the breakdown of private final

consumption spending data provided

by the government. There is a marked

increase in spending on lifestyle products

and services such as hotels, mobiles,

transportation and other miscellaneous

goods. As against that, spending onessentials has only remained stable.

International retailers are well aware ofthese benefits that the Indian economy

offers. Barring few legislative challenges

that could be tackled through the policy

reforms and opening up of the retail

sector, retailers have often expressed

their intention to enter and invest in

Indias attractive retail sector. This is very

well reflected in AT Kearneys Global

Retail Development Index 2012, where

India ranks as the fifth most attractive

retail market for international retailers.

Luxury retail scenario in India

At present, India enjoys only 1 to 2 per

cent of the global luxury market. Luxury

retailers, both national and international,

are in the race to foray or expand their

footprint in India. The frequent foreign

travels of Indians have significantly

increased the brand awareness of India.

Along with this, the increasing upper-middle class in India are the countrys

key drivers of luxury retail demand. Louis

Vuitton, Prada, Gucci and Jimmy Choo

are no more unknown brands to India.

In the last decade, luxury retail has

grown significantly and is growing at a

rate of almost about 20 per cent. From

luxury cars and apparels to furnishings,

are paving their way into the choices

of Indian consumers. The definition

of luxury is very relative and changes

from country to country and amongdifferent income groups. However, most

households earning more than INR one

million or above annually opt for luxury

goods in India. With the significant

growth of this income group, luxury retail

in India is expected to witness steady

growth in the coming years.

In India, preference for luxury goods

is growing across all the metro cities,

although they are mostly concentrated

in Mumbai and Delhi. Luxury malls such

as DLF Emporio in Delhi, Palladium in

Mumbai and UB City in Bangalore are

already operational. However, luxury

retailers generally open their stores in

luxury hotels with increased preference

from consumers as they are expanding

their brand presence by starting their

stores in high-end malls and high

streets and sometimes opening their

flagship stores in high-end residential

neighbourhoods.




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Ranking Of India's Leading Luxury Retail Cities

Delhi NCR tops most of the parameters on which we base our

retail attractiveness quotient. The city tops all real estate driversand also the socio-psychological parameters. As a result, Delhi

NCR stand first in rank and we can deduce that it has the most

enriching retail legacy among the Indian cities.

Hyderabad offers attractiveness in terms of affordable rents,

which is higher only to Pune among the Tier II cities. In addition,a huge amount of upcoming supply in the next three years

would naturally keep the momentum in consumption alive in

the future. However, lesser household income and household

expenditure has ranked it lower.

With the highest in-migration and a large number of SEC A

and SEC B population, Mumbai has the highest retail demand

potential. However, a lack of availability of land parcels leading

to high rents in prime areas act as a dampener that causes

Mumbai to lag behind Delhi in terms of existing retail stock,and also against other cities when compared to the upcoming

supply. The high propensity to consume creates an inherent

shopping culture, which helps sustain the rise in demand for

retailers.

Pune provides the most affordable rents in prime areas among

the Tier I and Tier II cities. The high migration rates will be

well supported or even enhanced in the future, given that the

city has a large office space supply per capita in the pipeline.However, low household income and expenditure compared to

most other cities has ranked it the lowest.

Bangalore ranks high on the chart with its good retail

consciousness and the existing and upcoming supply. In

addition, affordable rents in the city - compared to other Tier

I and some Tier II cities - has helped retail to flourish here.

However, the city has lesser household expenditure even when

compared to Kolkata and Chennai.

Chennai, with its affordable rents and good high street stock in

contrast to the organised retail stock, has received the fourth

rank. In addition, the large number of high and upper-mid

residential units launched in the last three years would be able

to create the retail demand. However, many from Chennaimigrate to other IT destinations such as Bangalore, Hyderabad

and Pune, as indicated by their low migration rates.

The best that Kolkata can offer to retailers is the attractive

household expenditure and an illustrious high-street variety

retailing. It has a fairly high concentration of SEC A and SEC B

households whose propensity to consume is usually higher

than others. However, rents in prime areas are not affordable

and the retail stock is also low, both of which make penetrationof the retailers difficult.

Delhi NCR Hyderabad1 6

27

3

4

5

MumbaiPune

Bangalore

Chennai

Kolkata



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Acknowledgement

In order to provide a comprehensive industry

view in the study, we have interacted with various

representatives from the retailing community

including players in the industry, both domestic and

international, and industry experts. We would like

to thank the various industry participants, whoseinvaluable contributions have made this study possible.

The support provided by the ASSOCHAM and Yes Bank

has been instrumental in providing us with a platform

to base our industry discussions.

We would also like to thank the various representatives

across companies / brands with whom we interacted

during the course of the study, for providing us with

valuable inputs on the luxury sector.

We would also like to acknowledge the core team from

KPMG in India who made this report possible:

Rajat Wahi, Gaurav Nayyar, Urvashi Gupta,

Puneet Luthra, Jiten Ganatra, Subashini Rajagopalan,

Rajesh Patel and Neelima Balchandran.



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kpmg.com/in

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual

or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information

is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information

KPMG in India contacts:

Dinesh KanabarDeputy CEO - KPMG in India,Chairman - Sales & MarketsT: +91 22 3090 1661

E: [email protected]

Rajat WahiHeadConsumer Market

T: +91 124 307 5052E: [email protected]

ASSOCHAM contacts:

D. S. RawatSecretary General5, Sardar Patel Marg, Chanakyapuri,

New Delhi - 110 021

T: +91 11 46550555E: [email protected]

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