COVID-19 pandemic: Luxury sector bets on revenge spending to revive sales

'Revenge buying’ was recently seen in China’s Guangzhou where French luxury goods-maker Hermes announced a record of $2.7 million in sales on the day its store re-opened in the city in April.
A recently opened store of Hermes. (Photo | Hermes, Twitter)
A recently opened store of Hermes. (Photo | Hermes, Twitter)

NEW DELHI: After weeks of shutdowns and snowballing losses, the $6.25 billion luxury goods market in India is betting on ‘revenge spending’ to revive business as stores begin reopening in many parts of the country. A bout of aggressive spending across the small luxury segment, such as premium lipsticks, as well as high-end purchases like property may give demand a leg-up as shopping-starved consumers flush with cash indulge in retail therapy, say industry executives.

“We do see a drop in demand, but it may not be as significant for luxury residential properties. With the return of the market to normalcy, we expect a rebound in the luxury sector to be faster since, for wealthy families, this is also the best time to buy at attractive valuations,” said Amit Goyal, CEO of India Sotheby’s International Realty.

In the medium to long-term, however, developers expect buyers to invest in bigger residences with more space for demarcated workspaces and wide-ranging amenities such as gyms, yoga studios and recreational areas given the increased desire among high net-worth individuals to seek larger and spacious homes post the coronavirus pandemic.

While developers are looking for innovative ways to attract buyers, the availability of options -- lower mortgage rates and reduced pricing -- would be an attractive proposition for buyers who have been sitting on the fence, Goyal added.

A common term in the retail space, ‘revenge buying’ was recently seen in China’s Guangzhou where French luxury goods-maker Hermes announced a record of $2.7 million in sales on the day its store re-opened in the city in April. Retailers are pinning hopes on a similar trend in India with consumers overindulging in luxury purchases particularly around the festive season, i.e. September-December period, this year. Categories like fashion, wellness and beauty are expected to be the biggest beneficiary of this trend.

“The revenge spending phenomenon, however, is a very short term spending behaviour and this cannot be sustained,” warned Dillon Bhatt of Millwood Kane International, an investment consulting firm.

In the case of high-end fashion brands, companies are already leveraging digital mediums, which Bhatt believes will be able to bring a luxury experience to consumers at home whilst making substantial sales online. He also says that the personal luxury segment would recover faster fuelled by demand from Generation Z and digital sales channels.

Sundeep Chugh, CEO and MD of Benetton India says that the firm has opened most high-street stores and that demand has been steady. “Our casual wear offerings like t-shirts, woven tops, denim shorts as well as innerwear are the most coveted given that most people continue to work from home,” Chugh said, adding the high street stores will run the show till malls re-open when the situation stabilizes.

Within the luxury car market, the aspirational segment will outperform with business getting back to ‘normal’ in 4-6 months, says Lamborghini India chief Sharad Agarwal.

"The luxury segment is all about dreams and aspirations and even during these uncertain times, the aspirations of the buyers may not alter. We continue to hold a strong order bank and have not experienced any cancellations in the past two months. As we slowly re-open our operations in India, there could be some delay in dispatches but we are trying to minimise them," Agarwal added.

According to market data portal Statista, India’s luxury goods market is expected to be worth $8 billion in 2020 (after adjusting for potential covid-19 losses) and is projected to grow at CAGR 10.6 per cent until 2023.

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