Last frontier of luxury retail: small-town India
The evidence was staring them in the face. But it has taken the global luxury brands a long time to realise just how much money is tucked away behind the grime, ugliness and squalor of India's small towns.
Having spent years camped inside the five-star hotels of the big cities, the penny has dropped. A new report by A.T.Kearney, a consultancy firm, reveals that one out of every four new luxury outlets is opening in a small town.
Names such as Mont Blanc, Hermes, Burberry, Audi and BMW are moving to small towns to enjoy first-mover advantage and to try to build lasting consumer loyalty. The consultancy estimates that the global luxury goods market will be worth from US$25 billion to US$30 billion in 2015, of which US$10 billion will be accounted for by small-town India.
I'm bemused as to why it has taken them so long to figure this out. Even a cursory acquaintance with small-town India will tell you that the real money is in the so-called Tier II and Tier III cities. Drive around Ludhiana in Punjab, north India, for example, and you'll see endless luxury cars on the roads: it boasts the largest number of Mercedes in the country and the highest sales of US$20,000 watches.
It's odd how the luxury brand-name companies' behaviour in India contrasts with their activities in China; while they've been reluctant to move into Tier II and Tier III towns here, in China, they have done so willingly. And while they scornfully refuse to advertise in Hindi-language magazines and on Hindi TV channels, they happily advertise in Putonghua.
However, it does seem that Indians and Chinese are rushing to the purveyors of luxury goods for similar reasons, according to my friends in the business. Just as success, wealth and social status are highly regarded in Chinese culture, so they are in India. And the ways of displaying wealth - with jewellery, watches, clothes and cars - are the same.
Yet there is one area where these luxury consumers differ. The behaviour of rich Indians baffles the big brands. In China, people go out and splurge on a luxury product. No agonising. No extensive cost-price analysis. No research comparing prices and quality.
But Indian consumers are obsessed with getting maximum value for minimum cost. In their price-consciousness, the rich are no different from the middle class. I'm not sure why. Perhaps it's just the primal need to haggle. I have seen corpulent, over-fed rich women beat a poor auto rickshaw driver down by a few rupees. And it must be the same syndrome that explains why, even inside the expensive, perfumed interiors of a luxury outlet, they will ask for a 15 per cent discount. I'm not sure which is cheaper.
Amrit Dhillon is a freelance writer in India