🛍️💸India's New ‘Luxury’ Obsession

Luxury products are now gaining an edge over cheap mass-built products despite rising inflation. Here’s why.

Sometimes the world defies logic.

Or rather it works according to some bizarre, twisted logic that we understand only when we closely analyse data. 

Confused? So were we, when we read that despite all the talk about inflation and recession, more Indians are buying luxury and premium products. 

So much so, that some companies are planning to stop selling cheaper entry-point (Rs. 1-Rs. 5) products now. 

So, today we are here to decode this twisted logic. ReadOn! 

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🧐 What's Going On? 

According to data from several major FMCG companies, customers are now picking up premium products more than cheaper mass-produced goods. 

So, is inflation a myth? Or do Indians just not care about rising prices. 

Well, the answer is a little complicated. 

You see, unfortunately inflation makes the poor poorer. And these poor Indians who are the most impacted by inflation are the ones who buy the mass-produced cheaper goods. 

But thanks to rising inflation, they can't afford these as well and are reducing spending.

Volume growth for rural markets for instance has been -2.4% in the June-September quarter. Yes, degrowth instead of growth. 

But premium products are purchased by the upper-middle class and richer folks. Now, inflation also impacts them.

However, they are not struggling to make ends meet. For the poor, not buying a detergent or a packet of biscuits means that they can feed their kid a little bit extra today. 

For those who are well-off it just means they will save a little less this month. 

So, premium products are still selling, while mass-produced products are not. 

Now, this seemed like a satisfying answer until we read that India's luxury market was set to grow up to $200 billion by 2025! 

That's a massive number. Now, just the sustained purchases of the upper-middle class couldn't explain this rise.

So, we decided to dig deeper. And we found out that a number of factors have had a role to play in the rise of this market. 

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🤔 What's Leading to the Rise of the Luxury Market?

One of the major reasons behind the current rise of the luxury market is Covid. 

Yes, revenge spending is real.

Covid made us realise how short life can be. So, people are going all "You Only Live Once" and buying stuff that they have always wanted to. 

In a survey 58% people said that they no longer wanted to just save for the future. They wanted to experience things now. 

And these purchases are being fuelled by the $200 billion that we managed to save during the pandemic. 

What's more, the pandemic and the stock market bull run have also made a lot of people super wealthy. 

For instance, ultra high-net worth individuals in India have grown by 11% between 2020-21, and are set to grow by 39% by 2026. 

As this population rises, so will luxury expenditure. 

But that's not all. 

You see, earlier the middle class population wasn't that aspirational. Neither did they have exposure to all the luxury items they were missing out on. 

But now thanks to Instagram and foreign TV shows, everyone knows about luxury products. 

And thanks to credit cards and buy-now-pay-later apps, the rising middle class (with their rising incomes) can easily access these luxury products. 

So, brands are shifting focus to such premium products now and are trying to make them as accessible as possible. 

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😎 The Brand Play

Now FMCG brands are so convinced that premium product sales will continue to grow that they are planning on launching more such high-end products. 

Meanwhile, they are thinking of pulling cheaper products off the shelf and experimenting more with price points. 

For instance, Mars could stop selling the cheaper Re. 1 chewing gum and instead stick to larger gum packs and bottles. 

And it is not just FMCG companies that are obsessed with premium products. 

Two companies saw this trend of luxury products gaining popularity much before and have been trying to cash in on it for the last two years: Aditya Birla Fashion and Reliance Retail. 

For the past two years, these companies have been acquiring high-end designer labels like Sabyasachi (ABFRL) , Tarun Tahiliani (ABFRL), House of Masaba (ABFRL), Ritu Kumar (RRVL) and Abu Jani Sandeep Khosla (RRVL). 

Now, both these companies already operate stores that sell affordable to premium clothing like Pantaloons and Reliance Trends. 

The aim of the acquisition game was to make super high-end luxury products a little more affordable and accessible to a larger audience. This in turn would increase the bill amount of those that walked into these stores. 

You see, when a Sabyasachi dress is worth Rs. 5 lakhs most people are definitely not going to buy it. They would rather go to their local store and buy something worth Rs. 5,000. But if that Sabyasachi is worth Rs. 15,000 now, they would probably spend that extra Rs. 10,000 because it comes with the branded tag. 

Now, most other brands have also understood Reliance and Aditya Birla's game play and are also looking to onboard more high-end brands. 

However, with major companies now laying off people and slowing down hiring, how long do you think this luxury buying trend will continue? 

And if brands do stop selling cheaper products during an inflation what will happen to those already struggling? 

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⚡In a line: Weirdly enough, inflation is causing companies to switch to premium products.

💡Quick question: What are the luxury products that you are buying?

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