On our India wealth watch report we note that Cruise Norway’s Antarctic voyages cost as much as $10,000 an expensive proposition from anyone. It’s interesting that Indians have been perusing the company’s website by the thousands thus prompting the cruise line to act. In the past, only the extremely wealthy could dream of spending their disposable income on a $10,000 boat trip.
“We were getting so many hits from India that we felt that there was a market here,” says John Ambat of Cruise Norway, which has now opened offices in several Indian cities. “Indians were booking suites and the most expensive cabins.”
While India’s share of the global luxury market is still small, these small signs of spending largesse add to the growing trend of high net worth Indians looking for ways to spend their hard earned money. The luxury trend is being noticed by companies such as Bang & Olufsen (high end audio equipment) and fashion designers Escada and Brioni have recently opened shops in New Delhi and Mumbai, joining Fendi, Versace, Chanel, Louis Vuitton, and Valentino. Ermenegildo Zegna (luxury clothing retailer), has launched the India’s largest luxury store, a 3,000-square-foot shop at the Taj Mahal Palace and Tower Hotel in Mumbai.
Car makers Bentley, BMW, Maybach (Mercedes) and Rolls Royce are opening dealerships in India which actually surprises me since the roads are very bad in India. I can’t see maintaining those cars (a Bentley cost almost $500,000 in India) in any meaningful way. Those that are buying them must have disposable income because it will be very expensive to fix the cars due to the lack of qualified mechanics and access to parts. Can you imagine having only one place (the dealership) in the country to fix your car? The dealership will be able to charge any price they want since in the short term there will be a lack of competition.
It’s estimated that 1 million Indians buy luxury products and services. Another 8 million can afford to buy the same services, but many either don’t want to show off their wealth or don’t recognize the benefits of Western style luxury goods.
Therefore luxury sellers will have to spend a lot of time building their brand image and advertising the luxury goods and services in such a way that makes high net worth (HNW) Indians feel motivated to spend high amounts of money. Like any emerging market, many of the newly wealthy like to “advertise” their wealth by buying expensive cars, clothing or jewelry. HNW’s also recognize that using their wealth can buy status and in India that means power, influence, and social cachet. This trend will increasingly happen more in India, but we’re still at the very early stages.
"India tends to be very status-conscious," says Raman Mangalorkar, a consumer market analyst in Mumbai for A.T. Kearney (global managerial consulting company). "A subtle hierarchy gets established in one's mind … and people use these symbols to put themselves in different levels of standing."
As India's middle class increases in wealth and is exposed to more Western products and services, it will increasingly seek to copy the buying habits of wealthy Westerners. We’re seeing that trend now, but the Indian Government’s restriction on foreign single brand retail is slowing progress.
In a recent study, Global Consulting firm McKinsey discovered the following trends:
•Overall Indian consumption will triple by 2025, and 80 percent of the spending will come through income growth.
•Spending across all economic segments is up 40 to 50 percent.
•The global class of consumers, who buy top-branded and luxury items is expected to grow tenfold by 2025 to 23 million.
The first Electronically Traded Fund (ETF) to follow this trend is Claymore (NYSE:VOY) (NYSE:CZC) (NYSE:RYJ) /Robb Report Global Luxury Index ROB. Claymore Securities based the ETF on an index created by CurtCo Robb Media, publisher of the Robb Report, a life-style magazine catering to the ultra-rich.
The smart money will follow the trend “a rising tide floats all boats” and make strategic investments in equities and real estate to capture higher returns. Moreover, the HNW economic class rarely stops spending money in slow periods of growth (in fact it increases in some cases due to lower prices) so finding the right investment mix to follow this trend will do you well over the long run.
- The Editor
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