While India's demonetization push delivered an initial hard blow to the country's luxury sector, a report by Luxury Connect says the negative effects are to be short-lived
By: Dimitria Vitanova
Posted on: May 4, 2017
A recent report by Indian advisor Luxury Connect shows that although the country’s luxury market suffered an initial jolt from Prime Minister Narendra Modi’s demonization policy, it is steadily recovering.
Based on desk research and interviews with top store executives, the study indicates that a little less than a half of its respondents registered sale slumps as large as 40 per cent in the wake of demonetization. Meanwhile, over 70 per cent of the surveyed professionals assessed the government’s move as negative in the short term.
This steep decrease stems from the sudden withdrawal of 86 per cent of the circulated cash (Rs 500 and Rs 1,000 notes amounting to Rs 12.44 lakh crore), which the luxury industry has historically relied on. With their wallets pared down, high-end consumers cut their purchases rather than immediately switch to digital and mobile transaction that the prime minister favors.
The worst impacted sector is high-end real estate, which felt the repercussions of the crackdown on “black money” across the gamut – from land transactions to construction. Home sales have spiraled down by as much as 25 per cent. Jewelry and watches, as well as automobiles fared bad too, seeing a drastic reduction in demand.
While Luxury Connect acknowledges that the industry requires time to bounce back and that many business owners view the Cabinet as anti-luxury, it is not all gloom. Only 25 per cent of its interviewees anticipate a long-term drop in business. The rest seem to accept the shift to “plastic” money, be it credit and debit cards or e-wallets, and reorient accordingly.
The adjustment to India’s new monetary reality commenced in the heat of demonetization, when luxury retailers sought lower lease deals, offered discounts and boosted their service standards to offset the drop in profits. To plow through the change, brands are relying on skilled representatives to strengthen their emotional connection with loyal customers.
Currently a $18.6-billion industry, luxury is largely forecast to retain its steady, long-term growth trajectory. Experts, however, caution that counterfeit items may boom in a time of increased digitalization and argue for the creation of an association to steer the luxury sector into clear waters.