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Inadequate Infrastructure Stifles India’s Luxury Industry

Survey projects Indian luxury industry to cross $14 billion by 2015.
Nov 27, 2012 6:32 AM   By Dilipp S Nag
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RAPAPORT... The lack of adequate infrastructure is a key barrier confronting the growth of luxury goods industry in India, according to a joint survey by ASSOCHAM and Yes Bank. This was opined by a whopping 95 percent of chief executives representing the global luxury industry, the survey noted.

The report titled ''India Luxury Top Management Survey 2012" concluded that 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 rents thereby leading to a demand-supply mismatch.

The Indian market for high-end products and services, estimated to be worth more than $8 billion, is currently growing at annual rate of about 20 percent and is expected to cross $14 billion over the course of next three years on the back of rising per-capita income and evolving consumer trends, the survey highlighted.

The ASSOCHAM-Yes Bank surveyed about 300 global business leaders, stakeholders and influencers, representing the global luxury industry from France, India, Italy and the U.K. between August and November. The survey was revealed last week at the India Luxury Summit-2012 in New Delhi.

Finding a space with  quality infrastructure has been the biggest impediment for global luxury firms, which in turn forces the firms to  slow expansion plans. Additionally, steep rental rates coupled with inordinately high duties and varying tax structures  impede the growth and development of the sector. Bureaucratic delays, red tape, the rupee's volatility,  and political and regulatory issues are other significant challenges.

The survey stated that majority of global retail management still views the government’s recently proposed 100 percent approval for single brand retail in foreign direct investment (FDI) with a certain amount of apprehension and they await clarification. The proposed FDI reforms are a ''golden opportunity'' to incubate the luxury sector in India and this should be followed by the effort to lower import duties to make luxury business more sustainable in India, according to the survey's recommendations.

In addition, they suggested better availability of adequate commercial areas, reasonable rent levels and increasing cooperation for more effective enforcement of intellectual property rights. Respondents added that clarity over India's regulatory system would benefit the sector's  growth.

About 66 percent of respondents believed 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.  About 65 percent agreed that tier II cities in India are ready to become hubs of consumption followed by the ecommerce sector. About 36 percent said that quality, exclusivity and social appeal are key drivers for luxury purchases in India followed by price and perceived value, while about 32 percent said that Indian consumers are badge conscious.

Some of the significant players across various vertical markets who participated in the 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, Gitanjali Group, The Bauers, Starwood Asia Pacific Hotels & Resorts, Da Milano Leathers, Reliance Brands and Hidesign, among others.
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Tags: ASSOCHAM, Canali India, Christian Dior, Dilipp S Nag, Gitanjali Reliance Brands, gucci, Hidesign, India, Infrastructure, L’Oreal Luxe India, Louis Vuitton, luxury, LVMH India, retail, YES Bank
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