Luxury Market Boom: Hansgrohe India To Focus On Micro Markets
The local arm of the German group is expanding its footprint and has down-stretched its pricing to attract a wider audience.
The Hansgrohe Group—a luxury bathroom and kitchen fittings maker—has plans to penetrate deeper into the Indian market based on the country’s growth potential, even as the global economic landscape remains uncertain.
The local arm of the German group is expanding its footprint aggressively and has stretched down its pricing strategy to attract a wider audience, Gaurav Malhotra, managing director at Hansgrohe India Pvt., told BQ Prime.
The company is also mulling a foray in manufacturing, given India is one of the fastest growing luxury markets.
“We’ve never sold as much luxury as we have in the last two years,” Malhotra said. “Between 2020 and 2022, we have tripled our business, which helped us enter the top 10 markets globally, contributing 10% to revenues amid the economic slowdown across the world.”
According to the company, Tier-II cities are growing at a faster pace and it constitutes 22% of sales. “Just three years back, this was less than 15%."
Currently, the company has 100 stores across 58 cities and plans to add 50-80 stores a year in existing markets as well as new areas of premium consumption. But the stores will be largely smaller-sized as it penetrates deeper into micro markets in cities it is already located in, Malhotra said.
The future continues to look “solid” for the company, he said.
The optimism stems from the slowdown in China—the second largest luxury market after the U.S.—compared to its growth in the past, while mature economies—including the U.S. and Europe—are struggling with elevated inflation and implications of a war “that doesn’t seem to be ending soon”.
Malhotra expects the company to retain a compound annual growth rate of above 30% and make it to the top five by 2027.
“Driving 10% growth means your CAGR is significantly higher, compared to any other global market, especially when the customer base is small. It will take phenomenal effort to retain the trajectory, but we can do that by the end of this decade,” he said.
However, achieving economies of scale would involve significant investment in manufacturing within the country, he said.
Currently, Hansgrohe India relies entirely on imports from Germany.
India: A Winning Bet?
India has for years remained a challenge for global luxury brands due to complexities like high import duties, but it could be a winning bet at a time when surging inflation, supply-chain disruptions, the energy crisis, and the Russia-Ukraine conflict have slowed down growth in other markets post the Covid-19 pandemic.
It has led the International Monetary Fund to slash global GDP growth to 3.2% in 2022 from 6.1% last year. However, India’s GDP is projected to grow by 7.4%.
The Indian government, too, projects the economy to reach $5 trillion by 2026-27.
Moreover, India’s luxury market has been steadily growing at an impressive pace, Covid-19 or otherwise.
Market research company Euromonitor forecasts the Indian luxury goods market to be worth $8.5 billion this year, up by an impressive $2.5 billion from 2021.
Multiple factors including economic development, internet penetration, policy reforms, a growing middle-class population and soaring aspirations in the hyper-connected metaverse are expected to aid growth.
According to the latest Hurun India Wealth Report, the country was home to 4.58 lakh millionaire households in 2021 and is expected to see a 30% rise in millionaire households by 2026.
To attract more households and consolidate its position in the luxury segment, Hansgrohe is down-stretching its prices (expanding product line while introducing cheaper variants).
Malhotra gives an example: Five years ago, a full range of bathroom fittings, including faucet and shower for a single bathroom, was priced at Rs 1 lakh. It is now available at a relatively lower price of Rs 60,000-70,000. "And it could go up to Rs 30 lakh.”
According to Statista, about 7.2% of total revenue in the luxury goods market will be generated through online sales this year.
However, Malhotra doesn’t see e-commerce as a relevant channel for Hansgrohe. “A majority of sales happen offline and very little gets sold online,” he said.