This blog post is a detailed rationale behind the smallcase Bringing the Bling. This smallcase is an intelligently weighted portfolio of stocks from segments like apparel, jewellery & watches, casinos & gaming, hotels & resorts and wellness services companies which are most likely to benefit from increasing demand for luxury goods.
What are luxury goods?
Indian luxury goods and services segment mainly comprise of :goods – apparel, accessories like jewellery, handbags & watches, high brand food, home decor, pens, wines & spirits, fine arts, yachts and automobiles & services – fine dining, international travel, hotels and spas.
Current Market Size
Market for luxurious goods and services in India is till perceived to be in nascent stage and constitutes just about 1-2% of global market. This is compared to China’s 20% share of global luxury goods market. However, Indian luxury goods market is growing at a fast pace and is expected to reach $180.0 billion by 2025 from the current size of $18.5 billion.
- Rising disposable income, increasing brand awareness and greater than ever purchasing power have led to a huge surge in demand for luxury segment products and services.
- Increasing number of India’s millionaires now hail from tier 2 cities and non metro regions like Kanpur and Chandigarh. For example growth rate of high net worth individuals (HNI’s) in Kanpur is greater than in Mumbai. They have high appetite for luxury products and services.
- Growing number of traditional luxury goods buyers now prefer to buy in India rather than travelling abroad for shopping.
- Governments’ policy initiatives like allowing 100% foreign direct investment (FDI) in single brand retail and 51% in multi brand retail are providing tailwind to the segment.
- In order to build long term relationship, many players in the segment have been introducing luxury products at relatively low prices aimed at first time purchaser.
- Luxury segment players are reaching out to tier 2 and tier 3 cities by tying up with local retailers and partners.
- At each stage of value chain, designs and styles are being tweaked to match local tastes by hiring local talent.
Demand for luxury goods and services comes in from many quarters like traditionally wealthy individuals (HNI’s & affluent), growing middle class (young people who earn high salary, but are not part of the affluent segment) and individuals who witness sudden change in their consumption pattern due to windfall gains such as entrepreneurs, agriculturists selling their farmlands at exorbitant prices. The consumption pattern might involve lavish expenditure for marriage, on items like jewellery, apparel and footwear or consuming prestigious brands for self-esteem and status like high end SUV’s , sports cars and camera’s by youth. Spending on arts and paintings and collectibles is also increasingly becoming popular.
Evidence of increasing disposable income
In 2015, India for the first time surpassed Russia in terms of number of billionaires. The country now stands 4th in billionaire numbers, behind USA, Germany and China. Number of billionaires in the country grew 9 times, from 9 in 2004 to over 84 in 2016, displaying a strong trend of wealth accumulation.
Increasing urbanisation, growing number of affluent population & high net worth individuals’ , increasing purchasing power amongst middle class population and demographic change in population all combined have brought about structural change in consumption of luxury products.