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Tier II Cities—Emerging Opportunities for Luxury Beauty Brands in India

By: Priyanka Bhattacharya
Posted: November 19, 2010, from the December 2010 issue of GCI Magazine.

Luxury brands have new regions and outlets to sell to in India as the demand from second tier areas increase. Cities and towns such as Ludhiana, Amritsar, Chandigarh, Kanpur, Indore, Nagpur, Jaipur, Coimbatore, Lucknow and Bhopal now have consumers looking for high-end skin care and makeup products. The aspiration and disposable income of consumers in these areas are on the rise.

The overall luxury market in India is worth approximately $ 4.5 billion, and one third of that revenue comes from the emerging regions in the country. This market is actually growing 15–20% annually. This proves that an increasing number of people in the smaller towns is ready to spend on high- end products and services. Market research by PriceWaterhouseCoopers shows that the wealthy customers from smaller town—entrepreneurs, big farmers, established families—typically travel to India's metropolitan cities to purchase luxury products. This signals a big opportunity for the brands. Players such as L’Occitane and The Body Shop are entering directly, while some luxury brands selling fragrance, notably, Hermes, and skin care are looking to enter through department stores and large retail chains. By 2011, consumers in smaller towns will see many more luxury brands reaching out to them. However, experts from research firm Technopak think that it’s difficult to predict whether these smaller cities can sustain “exclusive brand outlets” at this stage. The brands need to choose the smaller business format. At least for the next five years, multibrand outlets should be a more successful format for these luxury brands, says an industry watcher.

What marks the difference between the buying patterns between the clientele in the tier I and tier II cities is that the buyers from the latter market are very focused and pre-decided about what they want to buy. In these areas, skin care and hair care products (followed by fragrance) are more in demand, as opposed to makeup, since consumers are still looking for the best value for the money—to a certain extent. However, in color cosmetics, lipsticks are the most widely sold product segment, followed by eye liners. This means that brands looking to enter the tier II cities need to understand the needs of consumers in these markets, even for products not yet in demand, and reposition the brand accordingly. Brands may have to modify merchandise to suit the mindset of these smaller cities, as consumers there are price-sensitive and non-impulsive buyers, says an expert.

The Body Shop Expands Footprint in India

Within four years of launching the brand in the country, The Body Shop has opened its 50th Indian store, and expanded its presence in tier II cities. The new locations include Bangalore, Lucknow and in Gurgaon, near New Delhi. According to Shriti Malhotra, general manager, The Body Shop India, the beauty and skin care brand will increase its presence in 30 cities in the country by 60 shops by the end of fiscal 2010–2011. Currently The Body Shop operates 20 India doors.

To draw more customers, it has also launched its “Love Your Body” campaign, which offers skin and makeup consultation and products at reduced prices. Customers can now sign up for The Body Shop Loyalty Card at a nominal fee to enjoy year round discounts, special offers and many other privileges all through the year. To help customers make informed decision about product purchase, the company has introduced its free makeup tips and makeup application from trained makeup artist and skin care consultants.

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