Five years ago, the press predicted that the Indian luxury market would be booming by now. But that potential has not yet been realized; India accounts for only 1% to 2% of the global luxury market, behind countries such as Brazil and Poland. And India is behind China on luxury goods consumption by about 15 years.

But analysts are still upbeat. They say that the Indian market for high-end goods will quadruple in the next five years. What needs to be done to realize that potential? What has been holding India back? These questions were addressed at a panel on the Indian luxury consumer at the Wharton India Economic Forum in Philadelphia. According to panelists, exorbitant duties stemming from a government mindset that luxuries are low priority, the lack of adequate range and service levels, and a culture that discourages people from flaunting their wealth are some of the factors impeding the growth of the industry.

Tikka Shatrujit Singh, chief representative in Asia for Moet-Hennessy and advisor to Louis Vuitton, said poor infrastructure, high real estate costs and foreign direct investment (FDI) regulations create an atmosphere that is unattractive to many high-end brands. “There are a lot of brands that are withholding investments,” he noted.

The Indian consumer is also staying away, opting instead to shop abroad because tariffs and duties can add up to 40% to 50% to the cost of an item. “The government should understand that the discerning Indian customer who is traveling is shopping in Dubai, London and Singapore,” according to Singh. These and other cities promote shopping festivals where wealthy Indians can stock up on designer clothing, jewelry and anything else that fits into a suitcase.

Affluent Indians are extremely cost-conscious, even when buying luxury goods, Mumbai-based jewelry designer Viren Bhagat noted. “They want to know what constitutes that value — stones, everything. They want the entire breakdown of the jewel,” he said.

Service is also a problem. Anoop Prakash, managing director of Harley-Davidson India, noted that many luxury brands are distributed through local dealers in India. Luxury retailers prefer this to coming to the country as a subsidiary of the parent company. The result, however, is consumers don’t always receive the same high-quality brand experience they get elsewhere. Often the salespeople in these venues are not trained to serve the luxury customer. “Frankly, there’s an unfortunate tendency to consider retail jobs and jobs in automotive dealerships as low-level jobs, as opposed to respected jobs where they are delivering very valuable services and experiences,” Prakash said.

A bad experience at the store devalues the brand and alienates the Indian customer — a big mistake, according to Prakash. “This customer is extremely global and can be difficult. The best way to show respect is by bringing the full experience that your brand promises anywhere in the world. Too many companies come in with a shortcut experience.”

Bhagat agreed that service was just as important as the product. “Luxury is an experience. People are looking for the whole experience of walking through that beautiful store, being pampered by the staff, buying that product which makes you feel very special, and being reassured that this is timeless. It is not just acquiring big brands, flashy cars and clothes,” he noted.

Of course, not all wealthy Indians are clamoring for expensive goods and upscale services. According to Prakash, the long-term effects of socialism and what he calls an “anti-flaunting mentality” still hold many back, and prestige brands must help customers give themselves the permission to purchase luxury products and engage in high-end services. “There is the discomfort — can I express myself? What will mom think when I show up with a Rs. 10-lakh (around US$20,000) motorcycle on her doorstep?” he said.

But Sanjiv Gupta, director of the public sector telecom service provider Bharat Sanchar Nigam and former president and CEO of Coca-Cola South Asia, noted that this attitude is quickly changing. “Indians, after having been deprived of everything for so long, are in this great frenzy to consume luxury brands and pamper their senses. The mindset has changed from being frugal and living within their means to much more ‘Let’s have a life.’”

For this reason, Gupta is extremely optimistic about the future of luxury brands in India and predicts that there will be a significant luxury segment in almost all categories — everything from alcohol to kitchens to services. “I think this market will surprise us all,” he said. “Every category now has to plan for a significant luxury segment. That’s vastly different from five years ago, when every marketer was just chasing the mass market.”

The Digital Infrastructure

India’s new digital infrastructure will also have a tremendous impact on this market, according to Gupta. As fiber is laid down and networks gain 3G and 4G capabilities, 300 million users will soon have access to data-rich video and other mediums that go far beyond voice. Up until now, Internet penetration and speed has been too slow for brands to create successful online experiences. “That is changing as we speak,” said Gupta.

The digital infrastructure can also help raise the awareness of luxury brands, which are not always well-known in India. At Harley-Davidson India, Prakash noted, it wasn’t enough to polish the windows and wait for customers to stream in when they see the gleaming bikes; the brand also must have relevance to the consumer. Digital media, he said, is an opportunity to educate consumers about these brands, their history and their heritage. “There’s no better way to do that than with mobile or Internet,” he added.

While Singh also sees the cultural bias against luxury changing, he noted that the Indian taste for the finer things is not entirely new. He pointed out that wealthy Indians are the No. 1 consumers of bespoke pieces — custom-designed pieces with the family coat of arms, family colors and initials written in local languages. “Indian consumers are the ultimate luxury consumers,” he said.

Bhagat added that the Indian customer is very well traveled, well educated and difficult to please. For foreign brands to succeed in this market, they must first understand Indian taste. If they can do that, they can tap into a very lucrative market. “The Indian market for luxury clothing is driven by the Indian wedding — a huge market of more than US$1 billion,” according to Bhagat. Western brands can tap into the desire for India-inspired wedding clothing and jewelry, but only if they take the time to understand the Indian mindset and realize, for example, that Northern and Southern India have two completely different cultures. “For them to market a product in India, they will have to take a strategy that encompasses all of that,” he said.

Of course, this is one of many cultural distinctions Western brands will need to understand. Prakash noted, for example, that in India, purchasing a motorcycle is a family decision, rather than an individual choice. For Indian businesses, the challenge is to leverage their cultural understanding of their own countrymen, while at the same time provide the level of service the Indian customer would receive in London or Dubai.

In fact, with proper training, sales staff in India can deliver a far superior brand experience than their overseas counterparts could offer, panelists said. One big advantage: They know who their customers are. Singh notes that while Indian VIPs — politicians, executives, Bollywood stars — may be anonymous in New York or Tokyo, they can go into a store in New Delhi or Bangalore and be welcomed by name, offered a seat and a glass of champagne. “It’s more personalized,” he noted. “And luxury shopping is all about that very personalized experience.”