Desi brands strut in moolah as India goes luxe

While most countries in the BRIC block are struggling to gather pace, India is confidently growing in the luxury markets, according to the second annual 'Global Powers of Luxury Goods' report issued by Deloitte Touche Tohmatsu (DTTL).

According to the report, the world's 100 largest luxury goods companies generated sales of $214.2 billion through the end of the last fiscal despite currency headwinds and intense technological disruption.

The report pointed out that developed economies like the US and Europe appear to be on the rebound, thus boosting the purchasing power of upscale customers.

"Decelerated Chinese economy still managed to lead the composite luxury sales growth in 2013, with a 33.4% growth. The Indian economy, too, is recovering from its slump. However, reform legislation can help unleash India's true growth potential. The central bank has managed to reduce inflationary expectations, hence developing a positive impact on growth with lower oil prices encouraging deflation and growth," it said.

Ira Kalish, DTTL's chief global economist, said, "The global economy in 2015 has provided ups and downs for luxury purveyors. The US economy has accelerated and will likely grow faster in 2015 than at any time since 2005. In Europe and Japan, more aggressive monetary policies are boosting growth as well as asset prices. Comparatively, China's economy continues to decelerate, even as the government takes steps to boost credit activity. Looking ahead to the second half of 2015, we expect to see increased growth in India, slow growth in China, and recession in Russia and Brazil which may have an impact on the luxury sector more broadly."

Gaurav Gupta, senior director, Deloitte India, said, "Several key aspects of the luxury sector will be unrecognizable in the next few years. The traveling luxury consumer will change the concept of national boundaries; millennial consumers will represent a significant percentage of sales volume in luxury; and the competitive forces driven by technology will continue to disrupt at a faster pace. In India, with growing disposable income of the Indian consumers and the high aspiration towards luxury goods, the sector is expected to see a healthy surge in the coming times."

The report also said the jewellery and watch companies are producing the second-largest share of top 100's luxury goods sale.

"Fourteen jewellery and watch companies achieved double digit luxury goods sales growth in 2013 - half of them with growth in excess of 20%. The top six performers were all jewellery groups, four of them China/Hong Kong-based, led by Luk Fook with 46.6%, and Denmark's Pandora with 35.4%. Indian companies such as Titan, Gitanjali Gems and PC Jeweller all make the cut as new comers in the Deloitte's top 100 luxury brands.

PC Jeweller was the most consistent high performer, with the highest Compounded Annual Growth Rate (CAGR) from 2011-13, at 32.3%. On the contrary, Gitanjali Gems was the weakest performer in 2013 whose sales slumped by 35.4%, due to an increase in customs duty and restrictions on gold imports imposed by the Indian government, the report added.

Luxury brands must keep up with evolving technology and refine their products, but without detracting from their unique core product offering and expertise, the report further said. Industry executives identified reputational risk from social media as one of the highest risks in online marketing and distribution, according to Deloitte's 2014 Swiss Watch report.

Around 58% of millennials currently go online to search for information on luxury items and 31% use social media for gathering information around discounts and promotions, compared with 10% for older luxury consumers.

The report also examined the composite Q ratio for those countries from which there are three or more companies on our list. The highest composite Q ratio is in the UK followed by Italy and then France. The lowest Q ratio is in Japan followed by India and then the United States. India's Q ratio is 1.580 with the USA being 1.790 and Japan's 0.857.

The Q ratio is the ratio of a publicly traded company's market capitalization to the value of its tangible assets. If this ratio is greater than one, it means that financial market participants believe that a company's non-tangible assets have value. The higher the Q ratio, the greater share of a company's value that stems from such intangibles. A Q ratio of less than one, on the other hand, indicates failure to generate value on the basis of even tangible assets. It indicates that the financial markets view a luxury goods company's strategy as unable to generate a sufficient return on physical assets. It indicates that the company may, in fact, be destroying brand equity.