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    India vs. China: Who Will Win The Luxury Race?

    In the wake of last year's economic slump, the world's top luxury brands have intensified their efforts in developing a strong foothold in the emerging world, particularly in the BRIC markets of Brazil, Russia, India and China. In recent months, however, it is becoming clear that most major luxury brands see their futures (at least in the short- to medium-term) resting on the rapid growth of the "I-C" markets of India and China.
    Jing DailyAuthor
      Published   in Fashion

    Global Luxury Brands Are Pinning Hopes On These Two Growing Markets, But Which Will Emerge As The Clear Leader?#

    In the wake of last year's economic slump, which continues to eat into the profits of the world's top luxury brands in developed markets like North America and Japan, these brands have intensified their efforts in developing a strong foothold in the emerging world, particularly in the BRIC markets of Brazil, Russia, India and China. In recent months, however, it is becoming clear that most major luxury brands see their futures (at least in the short- to medium-term) resting on the rapid growth of the "I-C" markets of India and China.

    Due to the number of potential customers in these two countries -- with a collective population of more than 2.5 billion people -- and the rapid development of domestic consumer cultures, the decision to home in on India and China is logical. But which country will "win" the luxury race, becoming -- and, perhaps most importantly, remaining the top luxury market in the world? While the smart money rests on China, as the country surpassed the United States as the world's second-largest luxury market this summer and is expected to surpass Japan for the top spot by 2015, India might be something of a dark horse. According to an India Infoline article, luxury executives converged this week on Mumbai for Luxurion 2009, "India’s first Ultra Luxury Lifestyle Event," to discuss the potential of the Indian market and whether the India/China luxury competition will be a marathon or a sprint for the top. From the article:

    The Indian Luxury Market is estimated to be to be USD 4.35 billion and this forms only 2% of the global share. The growth of luxury markets is on the basis of GDP per-capita growth and the High Networth Individuals (HNI’s) in a country. India will be the second largest economy by 2040. Factors like Consumer Attitudes, Real Estate, Regulatory Environment and Ecosystem are important for the growth of luxury market and these are improving in the country.



    India has 83,000 millionaires and every year 16,000 more are getting added to this. The main trigger behind Indians indulging in luxury is to flaunt status, and the consumers here are becoming aware of leading global brands in the space, but tend to be extremely value conscious. There is a sizeable population engaging in outbound travel and getting exposure to global luxury market. The Indian consumer wants not just to be pampered, but entertained, excited and Inspired by Luxury brands and hence global players will have to look at innovative methods of reaching and engaging customers to succeed in the Indian market.

    This article brings up an interesting point. As the economies of China and India continue to grow, along with the numbers of both ultra-rich and middle class, it follows that the buyer base grows as well. As a result, looking at projections of two factors -- GDP and population -- should give us a clue as to who could ultimately emerge as the clear leader in luxury sales. As the following graph indicates, while China's GDP will outpace India's well into the century, India's population will become the largest in the world by around 2030 while China's will plateau around the same time.

    Although quantitative graphs like this can't tell us much about consumer behavior, China still looks like the best bet for the luxury industry for the next 30-40 years. However, it would be premature and naive to count India out. With India's growing population and steadily growing GDP -- which is, unlike China's, being built at the foundation level more on high-tech and service industries than exports -- it remains highly possible that India's luxury market could outpace China's over the long term.

    Sustained growth in the China luxury market will depend highly on whether luxury brands can penetrate the second- and third-tier markets as these markets grow and produce more middle- and upper-middle class consumers (a development still years in the making) while ensuring top-tier customers in China's marquee cities do not display the symptoms of luxury fatigue. Considering foreign luxury brands entered the China market in cities like Beijing and Shanghai well over 20 years ago, the possibility that consumers in these cities won't seek other luxury options 30 years from now verges on the absurd.

    What will probably set the Chinese and Indian luxury markets apart over the long term -- aside from probable luxury fatigue in their richest cities -- might be the emergence of home-grown luxury brands. While domestic Indian and Chinese domestic luxury brands have yet to really make their mark, mainland Chinese luxury brands have begun to enter the market in earnest, following the lead of Hong Kong brands that got their start in the 1980s and 1990s. Ultimately, foreign luxury brands can't assume that combination of a high GDP (which should become the largest in the world by 2040) and large population (which will plateau at around 1.4 billion by that time) in China to bring them sustainable profits. On the contrary, by 2040, most major European, American and Japanese luxury brands will probably find their greatest competition coming out of China and possibly India.

    At this point it is all speculation, but rather than becoming the biggest consumer or importer of luxury goods, the winner of the luxury footrace will probably be the country that develops a strong domestic luxury industry -- and provides stiff competition to foreign brands while exporting globally.

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