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Franchising in the India Luxury Industry

The business of becoming a franchisee in India for the many international, glamourous luxury brands is not easy. We study the problems and challenges they have to face in 2014

The business of becoming a franchisee in India for the many international, glamourous luxury brands is not easy. We study the problems and challenges that they have to face in 2014.

2013 draws to a eventful end. Not a great year for many businesses in India… Retail and luxury retail are no different. With every success story of a Zara, there is also the debacle of a Walmart! With a trail blazing success of Audi, there is also the failure story of a Nano. With the rise of ‘Infinity Fashions’ as the new kid on the luxury landscape, there is the dismal and alarming collapse of a ‘Blues Clothing Company’.

Yet, the Indian luxury industry has grown steadily at a consistent rate of 18-20 per cent per annum and is presumed to stand at almost 10 billion USD in 2014.

So what really is the best way to remain a part of the luxury industry and be safe? What product category to choose? Which city to target? Who is the consumer and how to target him? How to meet the varied challenges? Where do I source the talent? These are burning issues, which every potential franchisee wanting to enter the luxury ecosystem is worried about.

The Indian luxury market is currently undergoing drastic and rapid corrections. From focused luxury malls and foray of international luxury brands and products to India specific variants in luxury cars and getting a taste of luxury through bridge brands, the Indian luxury market is developing many facets. Luxury is no longer restricted to the rich and famous alone. The new age or ‘closet consumers’, who do not typically fit into the boardroom definition of luxury consumers, are staking claims on luxury products, brands and services as well, but on their own terms. It is with this backdrop that one needs to study the changing face of luxury in India.

Product categories driving growth
The last three years has witnessed luxury products segment growing faster than both services and assets with a CAGR of 21.8 per cent. Key reasons attributed to this growth is the increased footprint of luxury players geographically and increasing aspirations among consumers with little impact from the market slowdown. Luxury services grew at a CAGR of ~15 per cent while luxury assets are growing at a visibly slower pace with a CAGR of 9.4 percent, contributed primarily by stunted growth in the real estate segment.

Fashion, apparels, accessories, footwear, eyewear and jewellery are sectors which have continued to charm the urban as well as not so urban consumer. A new phenomenon of ‘ Urbanisation of the Mind’ has been reported from the smallest towns – thanks to the boom of digital media, television reach and socio-economic changes – because of which the youth desires products even before they are physically available to him. Services boomed by travel, tourism, health and wellness, beauty and skincare, etc., are fuelling growth.

Products and assets have seen a new demand in unheard sectors of branded residences; high end automobiles, yachts, private jets and helicopters, etc., while the traditional jewellery and watches has seen demands from new consumer sectors.

Key challenges

Value proposition: One of the key challenges for luxury industry is to establish a right value equation in the Indian consumer’s mind. Commensurate value with the craftsmanship of the product, the brand pedigree and heritage, and therefore its impact on their status professionally and in society. In a country obsessed with ‘quantity over quality’, the ‘kitna deti hai’ (‘how much mileage does it give’) syndrome cannot be ignored.

Targeting a first time buyer: India throws up surprises to one and all. Even the fast food giant McDonalds had to invent a McAaloo tikki (potato patty) burger priced at INR 25, especially for India! BMW, Audi, Mercedes-Benz have all realised the potential of this ‘first time luxury buyer’. He cannot be ignored and yet needs to be treated well like any other luxury consumer. The definition of luxury consumer is changing rapidly in India. Intimidation created by the aura of the brand, lack of brand knowledge and enthusiasm to obtain a social status symbol are key elements that a franchisee needs to cater to and balance.

Mental barrier to conspicuous consumption: While a set of customers want to flaunt their luxury purchase, there is another who is vary of conspicuous consumption. The ‘nazar lag jayegi’ syndrome drives away many a shy customer. This is a mindset issue which brands/franchisees need to tackle. Rewarding oneself for his success needs to be a celebrated moment.

Retail environment: More brands, more services, more customers – they all need the right retail environment. ‘Hybrid malls’ – the Select CityWalk in New Delhi and The Palladium in Mumbai – are the best examples of transitional customer behaviour when the customer moves up the value chain by seeing realistic value propositions from the next tier of brands.

Talent: With varied customers shopping luxury, a key challenge is talent! A luxury professional can’t be too sophisticated to scare away the new customer and not too ordinary to not make a aristocratic customer slink away! Driving this balance in line with the brand’s cultural customer experience is perhaps the biggest operational challenge for any franchisee or brand.

To conclude, while luxury will continue its foray via mainly the franchisee route, it’s the franchisee that needs to do a thorough study and analysis before venturing into the industry, and ensure success for its brand step-by-step.

** Inputs from IMRB-CII report on ‘Changing face of Luxury in India’.

Abhay Gupta is the founder, promoter and CEO of Luxury Connect (a boutique consulting organization) and Luxury Connect Business School (LCBS). He has helped establish luxury brands like Versace, Versace Home, Versace Collection, Corneliani, Arredo Classic, etc in India. Luxury publication Blackbook recently recognized him as one of the ‘Top 100 Indian Luxury’s Most Influential 2013’. He is also a recipient of the ‘Luxury Retail Icon 2012’ title by Asia Retail Congress. Having being featured in Forbes Luxury Trend Report 2012 as one of the industry leaders, he has also been widely recognized as a luxury expert by many media organisations. Fondazione Altagama has also recognized his contribution to the growth of Italian luxury industry by his pioneering efforts in India.