India’s strong consumption story relies on 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 25–30 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 the rising income and household spending would provide a significant boost to the consumption-driven growth story of India. A glimpse of the changing pattern of India’s 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 on essentials has only remained stable.
International retailers are well aware of these 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 India’s attractive retail sector. This is very well reflected in AT Kearney’s 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%–2% of the global luxury market. Luxury retailers, both national and international, are in a spree to foray or expand their footprint in India. The increasing foreign travels of Indians have significantly increased the brand awareness of India. Along with this, the increasing upper-middle class in India are the country’s 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 20% 1. From luxury cars and apparels to furnishings, all are paving their way into the choices of Indian consumers. The definition of luxury is very relative and changes from country to country and among different income groups. However, most households earning more than INR 1 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.
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 drivers and also the socio-psychological parameters. As a result, Delhi NCR stood first in rank and we can deduce that it has the most enriching retail legacy among the Indian cities.
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.
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—have helped the 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 Chennai migrate 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 penetration of the retailers difficult.
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.
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 supply per capita in the pipeline. However, low household income and expenditure compared to most other cities has ranked it the lowest.
About the Author:
Ashutosh Limaye is Head – Research and REIS at JLL India