Key factors encouraging big spenders to splurge on luxury beauty brands

When it comes to quality and result, luxury products reign supreme. Usually associated with a big price tag, luxury brands ensure that the consumers dig deep into their wallets and indulge in their high-end products.

Premium brands flocking the high streets, seeing heavy wallets of high spenders who are demanding and getting extraordinary results from the products offered by them, have acute focus on capturing attention of their target consumers by providing ‘just the way you like’ products.

Arjun Khurana, Managing Director, OFI India, Bottega Di LungaVita said, “The high spending consumers in India are knowledgeable and well aware of the various skincare and wellness brands and their products available. They at the same time are conscious of what ingredients and processes are being used in the manufacture of the product. They tend to choose what best suits their body and so are open to trying new products. This facet of the Indian consumers proves beneficial to our brand. The wide range of our products ensures that there is a definite product for every individual and thus helps us gain their loyalty.”

Key growth contributing factors

An insatiable appetite for high-end merchandise is fueling a boom in luxury spending. Also, with the rise in income level and growing awareness, the demand for luxury products has been growing by over US$255 million a year in absolute terms, at par with the United Arab Emirates and considerably stronger than Singapore and Australia.

As per a recent report of Euromonitor International, while China has been spearheading the BRICs growth surge and whetting the emerging market appetite of the world’s leading luxury goods companies, India is by far the fastest-growing market and is predicted to grow by an additional 86 per cent in constant value terms between 2013 and 2018, to reach a value of US$3.5 billion.

Moreover, the report also mentions that the total luxury goods retail value in India is expected to grow by 63 per cent during the period. Increasing disposable incomes and rise in the number of high net worth individuals will provide an opportunity for luxury goods players in India.

Commenting on the same, Gilles Moutounet, Country Head, L'Occitane en Provence India, said “The level of awareness has grown in five years subsequently. We have witnessed in these five years, the arrival of much high-end brands in India and the opening of many new high-end retail locations which have helped develop the level of awareness.”

On the same, Khurana shared, “We as a brand are just two years old in the Indian market and yet we have noticed major changes among the Indian consumers. They are now more aware and focused on maintaining a healthy lifestyle and are keen on using solutions that help them lead a hale and hearty life.”

Similarly, some big market players believe that economic growth and optimism has played a pivotal role in luxury retail boom.

“The primary driver for this is indeed the growing economic influence of India not only in Asia but worldwide. Overall there is immense economic optimism championed by a young Indian population that is more aware, more well-travelled and more exposed and connected than ever before. This growth can also be attributed to the increased initiatives by both domestic and international beauty players who are ensuring that the country is aligned to the global products and services offered,” added Benjamin Suzuki, Managing Director, Shiseido India Pvt Ltd.

It’s not just the demand that is surprising the experts. An unexpected new shopping trend where men and women are equally conscious of their looks and wellbeing is pushing luxury brands to new heights.

A new breed of high spenders is out in full force, where women spend like men and men shop like ladies. Beyond the role reversal there's a new group of shoppers with a spending habit that's setting the luxury world on fire.

Elaborating on the same, Smriti Malhotra, COO, The Body Shop said, “There has been a significant change in consumer behaviour and attitude from the time we entered into India eight years back. There has been a huge development in terms of purchasing power of consumer and the new emerging market trends made people more aware and more conscious towards beauty and grooming. The women beauty care industry was growing since a long time but the men grooming market is the new emerging market. Nowadays, men are more conscious about their looks and demand for new beauty products specially created for men’s skin. Even tier II, III and IV cities have consumers, who are well aware and demand good quality products to take care of themselves.”

Importance of stores

Stores are another essential element that encourages the growing demand of luxury products. The ambience, expensive décor and high-end products on display make a luxury retail outlet attractive enough to lure big spenders. Even in-store cafes and lounges are also a new trend introduced by both international and high-end Indian brands.

As, consumers do not wish to compromise on the connoisseurs of luxury, high-end luxury retail outlets provide ‘frills' to the well-travelled Indian consumer. Thus, all the big brands have opened their stores in the country with unique décor, inspired from their global outlets.

Khurana informed, “The average size of our stores is about 350 sq ft. We try to maintain a budget, which depends on the city and the prevailing rents we spend, which is approximately Rs 8-10 lakh on the furniture and fixtures of each store. Our store formats range from kiosks to self-owned stores and shop-in-shops. In tier-II and -III cities, the company prefers shop-in-shops with a ready loyal customer base who always make a bee line to that particular store for all their cosmetics needs. These stores have the complete range of products offered by Bottega-di-Lungavita. Their store design is aqua green themed inspired by flowing water, as the brand’s USP is using water from San Pellegrino.”

On the same line Moutounet explained, “L'Occitane stores are well planned and follow an international concept which has been well thought about to avoid any problems. All small details have been taken into consideration while building up the store in order to have a lasting and good looking store and avoid heavy maintenance. As a result the maintenance cost is very marginal, compared to the business generated by the store.”

Staff training and management

The most pivotal part of luxury retail is the staff which not only addresses the demand of consumers, but ensures that the consumer makes bulk purchases on every visit. Thereby, these luxury brands are willing to spend good money on the staff training. Not only this, even the process of staff selection has become critical. The candidate must have good communication skills, be well groomed, have a sense of marketing and zeal to achieve targets.

e-Tailing- new prime business location

Online may seem to be the new prime location for sellers in India. However, the high-end luxury brands are still keeping away from the virtual retail world, for reasons ranging from brand exclusivity and fear of fakes to rule of the land.

Still, some players who have entered this category to capture the growing market share have seen rampant growth in this area.

“We have already started e-tailing in India with strong associations with main renowned portals. Otherwise our expansion plan is to still grow our store portfolio by opening new boutiques whenever there is a good project in hand,” informed Moutounet.

Similarly, Benzamin said, “We saw immense demand for our brand coming from cities beyond the metros where we are present, and we addressed this demand by going online with our e-tail partner Nykaa in order to serve these consumers.”

Direct marketing

Not only showrooms, high-end stores and e-tailing, but direct marketing brands are also witnessing good growth and in turn reaping high return on investment on luxury products.

Shweta Paul, Head, beauty Category, Amway India unveiled the substantial growth in advance skin care and colour cosmetics range – Artistry.

Paul said, “In India, so far, Artistry has witnessed a growth of 6 per cent of macro Amway business, ever since it entered India in 2010. It has been a substantial growth at the CAGR of about 20 per cent as per the data of last 9 to 10 years. The brand has retained its no. 2 position in the luxury beauty products category. In the last quarter, the brand saw a growth of 9-10 per cent of its total portfolio.”

Customer retention

To woo the high-spenders, luxury brands also offer complimentary maintenance products and styling help and other related services. Estee Lauder offer personal stylist and makeover help to the high-end regular customers likewise other brands often introduce additional services or products in the kitty of their regular clients.

Moutounet opined, “We run a VIP club for all loyal customers and entitle them to cumulate points with all purchases leading to special offers which will only be available for them.”

On the same, Paul said, “We do not promote Artistry as often as the other products of the brand, however, to retain our potential high spending clients, we often reward them with small gifts on the purchase of their favourite luxury product. For instance, on the purchase of the second jar of anti-ageing cream, we give them a pouch or kit or Derma spa travel kit kind of rewards.”

Revenue ratio

The growing demand of luxury retail brands in India contributes significantly to their revenue ratio as well. “Growing on a marginal ratio, L’Occitane has more than 2,300 stores worldwide with only 14 doors in India,” said Moutounet.

Likewise, Khurrana said, “Bottega di LungaVita under OFI holds about 20 per cent share of the European market. In India, the growth is slow yet steady. We are still in a phase where we are trying to reach out to majority of consumers.”

Future ahead

Historically, kings and Nawabs were connoisseurs of luxury and never used to compromise on their comfort products. Similarly, the high spenders’ lot of Indian market garners huge attention and in return they prefer luxury retail brands to splurge on.

Reportedly, the overall luxury retail market has grown at 23 per cent since 2006. The luxury products market which includes apparel, watches, jewellery, electronics, perfumes and beauty products has grown at 30 per cent, reaching a market size of $2 billion.

As per Euromonitor International data, the Beauty and Personal Care market is expected to register value growth of CAGR 14 per cent in real terms over the forecast period 2015-2020. Interestingly, the market is expected to almost double itself from Rs748 billion in 2015 to Rs1440 billion by 2020.

“If you further split Rs 1 lakh crore, the beauty sector is positioned at Rs 49, 000 - Rs50, 000 crore. Of which, Rs 25,000 crore is occupied by fitness, health and other regular therapies, while the remaining Rs 25,000 crore is occupied by other alternative therapies,” predicted G Ramachandran, Director- Promoter, Gold’s Gym India.

Overview

Even though India’s overall per household expenditure is low in comparison with the country’s BRIC counterparts, there are large variations in household spending levels and consumption patterns in richer regions like Delhi, Goa and Mizoram, with great capacity for luxury spending.

Thereby, experts suggest the marketers of luxury goods must implement multiple business strategies, tailoring to each region and target high-spending lot, in a bid to successfully harness the tremendous potential of the Indian luxury goods market, also to retain the existing consumers in the category.

Overall, a bright future of luxury retail in Indian beauty and wellness market is foreseen in the upcoming years.