Bulgari, or Bvlgari, the Italian maker of luxury jewellery, watches, fragrances, accessories, and leather goods, is looking at India to make up for falling demand in China. Bulgari is expanding its footprint in India to take advantage of strong growth and favorable demographics, Bulgari chief executive officer Jean Christophe Babin said in an interview with Bloomberg TV.
In October, Bulgari announced the launch of its first digital boutique in India in partnership with Tata CLiQ Luxury. “There are other promising markets for luxury, but the size and potential are a fraction of what India might become for western luxury,” Babin had said in an interview. “The luxury market has grown a lot over the last decade and, driven by China, the boom has been extraordinary,” he said. “But China has reached a certain maturity, and it is undergoing a slowdown which is related not only to oversupply in real estate, but an oversupply across the board. We will get out of it, but given the maturity and the demographics, China like many other territories will normalise to single-digit growth.”
After manufacturers such as Apple, it’s now time for luxury brands to go for China+1. It is a businesses strategy being followed by Western companies wanting to diversify their operations beyond China after the covid disruption and rising geopolitical risks. India is one of the popular Plus One options for global giants. Bulgari’s decision to bet on India to balance its China business can show the way to other global luxury brands to diversify into India or raise their bets on the country known for its recent boom in luxury spending.
Why is China’s luxury market losing sheen?
Global luxury giants from LVMH Moet Hennessy Louis Vuitton SE (Which owns Bulgari) to Kering SA (the owner of Gucci) saw their sales in China slump in the first nine months of this year as the economy struggled to recover from housing crisis. The Financial Times reported in July that luxury goods were being discounted at rates as high as 50 per cent in China. The discounts in the country are being offered primarily by aspirational brands such as Versace and Burberry, as China’s once-voracious middle-class consumers become more frugal, industry insiders and experts had told FT.The value of some of the world’s best-known luxury companies plunged as Chinese consumers pulled back on spending, with even the most exclusive brands feeling the pain, CNN had reported in July. First-half sales at Bernard Arnault’s luxury powerhouse LVMH dropped 10% year over year in Asia excluding Japan, a region dominated by China. Europe’s top 10 luxury companies had lost $250 billion in market value since March, Reuters reported in July.
The fall in luxury demand is part of the overall consumption slump in China. Businesses and consumers in China found the annual Singles’ Day shopping festival, a popular event every November started by Alibaba in 2009, less attractive this year amid a sluggish economy, forcing e-commerce firms to look abroad for growth.
Amid China’s lagging domestic economy, dragged down by a real estate crisis and deflationary pressures, consumers no longer go all out during the shopping extravaganza. “People are not interested in spending and are cutting back on big-ticket items,” Shaun Rein, founder and managing director of China Market Research Group in Shanghai told AP during the shopping extravaganza, also known as “Double 11”, last month. “Since October 2022, the weak economy means that everything has been on discount year-round, 11.11 is not going to bring in more discounts than the month before.”
Besides the overall economic gloom, luxury brands in China face another growing challenge. Second-hand and grey markets for luxury goods are booming, as price hikes from luxury brands in a weak economy are prompting some shoppers to look for cheaper ways to buy them, deepening concerns for the likes of LVMH. LVMH, the world’s biggest luxury group, reported a 3% fall in quarterly sales last week, undershooting estimates in its first decline in quarterly sales since the pandemic as demand in China and Japan weakened. Italy’s Salvatore Ferragamo also reported a fall in quarterly revenue, hit by a slowdown in demand from China.
“The elephant in the room is that, in China, as long as price gaps (between China and other countries) exist, there is the opportunity for price sensitive consumers to go to the grey market,” Max Piero, CEO of luxury intelligence consultancy Re-Hub, which tracks grey market luxury purchases in China, told Reuters in October.
The luxury grey market, estimated to be worth $57 billion a year, has been fuelled in recent years by the rise of platforms such as DeWu, where luxury products, often sourced overseas, are sold at discounts from 20% to over 50% to prices at Chinese flagship stores. Re-Hub estimates that sales across 48 brands on DeWu rose 19% year on year in the second quarter to more than 7 billion yuan ($984.4 million).
The second-hand luxury market in China – which includes platforms such as Plum, ZZER and Alibaba-owned Xianyu – has grown at a compound annual growth rate of over 30% since 2020, according to consultancy iResearch estimates, although Zhu personally thinks this year the sector as a whole in China is more likely to grow around 20% this year.
As China falls, India rises in luxury demand
Though urban consumption is down in India and rural consumption has just started recovering, demand for luxury has been on a constant upswing, especially after covid. That’s why India could be a ready option for big luxury brands that see their business going down in China. And a lot of global luxury brands are already betting big on India.
As India’s economy expands, disposable incomes rise and the size of the affluent population grows, consumers are increasingly gravitating toward premium products and luxury brands. This trend, which accelerated during the pandemic, shows no signs of slowing down. From luxury cars to high-end beauty products, India’s affluent class is willing to spend on premium items that offer quality and exclusivity. This trend is also catching up in small towns where people are getting richer and are more willing to splurge on luxury.
India minted a new billionaire every five days in the last one year and took the total count of US dollar billionaires to cross the triple-century mark for the first time, as per the 2024 Hurun India Rich List which showed that India now has 334 billionaires by adding 75 compared to the last year.
Hurun India report found a total of 1,539 individuals in India with a wealth of at least Rs 1,000 crore. If Rs 5,000 crore is taken as the threshold, the rich list has 534 HNIs. “Assuming that for every one Hurun rich lister we have found, we have probably missed two, India today likely has 5,000 individuals worth Rs 1,000 crore,” Anas Rahman Junaid, Founder and Chief Researcher, Hurun India, said. The cumulative wealth of India’s richest rose 46%, while average wealth has increased by 25%.
The list reflected the China-India gap. While China saw a 25% decline in its number of billionaires, India experienced a 29% increase.
McKinsey & Company has said in a recent report that India will be a focus for high-street fashion brands, as the players will look to Asian growth markets such as India for manufacturing. The main reason behind this phenomenon in China. The global consultancy firm said that China’s economic deceleration, changing consumer preferences and the return of international travel are making growth in the country highly challenging, leading international fashion brands to look to other Asian markets.
The report added highlighting the opportunity in the luxury segment that India’s population of ultra-high-net-worth individuals (UHNWI), with over USD 30 million in assets, is expected to grow 50 percent from 2023 to 2028, making it the fastest-growing UHNWI population in the world. “Aspirational customers, who make up about half of global luxury sales, are expected to grow from 60 million in 2023 to 100 million in 2027,” it added.
In some luxury categories, India is already outperforming China. As per Simon Joseph, a senior luxury brand builder and consumer experience expert based in Zurich, India’s rising affluent class is fuelling a surge in high-end spirits sales, with Scotch whisky and fine wines registering double-digit growth, outpacing consumption rates in the US and China. Joseph told PTI in September, “One subcategory where India surpasses China and is growing at double the rate of the USA over a five-year CAGR is Scotch luxury whisky.”
(With inputs from agencies)
