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

Priyanka Bhattacharya

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.

Guthy-Renker Pushes Proactiv Skin Care System in India

Direct response marketing company Guthy-Renker, with distribution in 61 countries, has generated quite a buzz in India with its Proactiv skin care range to treat acne. The company set up shop here in 2009, and has since won more than 50,000 repeat users for the skin care system. Today, it sells three skin care products in India in addition to Proactiv—Sheer Cover, a mineral makeup system; Meaningful Beauty, an antiaging skin care system; and Youthful Essence, a home microdermabrasion and skin brightening system.

In India, too, Guthy-Renker is using the not so evolved (for this market) teleshopping channel to sell its products. However, a company spokesperson claimed that, through the sophisticated level of content, the company looks to drive up the quality of teleshopping in India. The five products available from the company through this channel (the four skin care lines plus an exercise DVD) generate more than 100,000 calls a month. Guthy-Renker has also outsourced its call center and customer service to meet the volume of calls being handled every day.

Indian Beauty Brands Expand Global Reach Through Buyouts; Retail Expansion

Even as the big Indian brands worry about competition at home from major international brands, they are executing their own strategies to sell in the global market and make their presence felt. Beauty brands such as Kaya Skin Clinic, VLCC, Dabur, Wipro Consumer products and Godrej Consumer Products are setting up shops or acquiring brands in Europe, the Middle East, South America and Southeast Asia to grow their businesses. The increasing number of non-resident Indians in these markets looking for Indian products to buy is one of the key reasons for this expansion.

While brands such as Kaya, VLCC and Lotus Herbals are looking at growing by setting up beauty shops, others like Dabur, Wipro Consumer Products and Godrej Consumer products are looking to grow through acquisitions. Wipro, for instance, has acquired the soap and fragrance of Yardley to push the brand, which is losing market share, in India and South East Asia, while Dabur recently bought Turkey’s leading personal care products maker, Hobi Kozmetik Group. The company has acquired 100% stake in three Hobi Group firms—Hobi Kozmetik, Zeki Plastik and Ra Pazarlama. This is an important step towards further consolidating and expanding Dabur's already substantial presence in the Middle East and North Africa region. Hobi manufactures and markets hair gel and hair care and skin care products under the Hobby and New Era brands.

Marico, which also owns Kaya Skin Clinic, has acquired the skin care business of Derma Rx Asia Pacific, an $11 million aesthetics business in Singapore. This gives Kaya ready access to markets such as Singapore and Malaysia. At present, Kaya has 19 outlets across the Middle East and Bangladesh.

P&G Enters India's At-home Hair Color Market

In a bid to shake up L’Oréal’s and Garnier’s leading positions in India's at-home hair color market, P&G, which owns Wella Professional, launched Wella Kolestint in the retail market. This is P&G’s way to strengthen its health and beauty business in India. According to market analysts, this move will not overtake hair color-market leader L’Oréal, but it will give P&G some advantage over HUL, which does not have a presence in India's hair color market.

India's hair color category is estimated at $271 million, and growing at a healthy 25%. Apart from L’Oréal and P&G, other brand owners operating in the category include Godrej Consumer Products’ Renew and Revlon.

Priyanka Bhattacharya is a writer and journalist covering the beauty, health and wellness industries in India. She is the contributing beauty features writer for several leading Indian women’s magazines.

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