Luxury brand sales decline as consumers run out of hard cash

India’s luxury market is likely to take a beating in the coming months as consumers are reluctant to spend after the government’s decision to demonetize Rs500 and Rs1000 banknotes.

High taxation coupled with other measures like customers having to show their PAN cards for cash transactions of more than Rs50,000 and any transactions over Rs2 lakh has already affected the luxury sector.

“There will be an impact on luxury retail in the short term, essentially because most of luxury sales in India constitute a large amount of cash, and consumers will put a hold on large spends,” said Dhanraj Bhagat, partner at consulting firm Grant Thornton India LLP in a Mint report.

Dinaz Madhukar, senior vice president at DLF Luxury Retail, which operates luxury shopping mall DLF Emporio, agreed: “There will be impact. But it is too early to quantify the quantum. We have to wait and see how things streamline over the next couple of months.”

Such measures have a short term effect and do not impact the underlying demand for luxury products, said Pranav Saboo, co-founder of Ethos Watch Studios, who also recognises the positive effect of the move.

"When the PAN-card rule came out in January, there was a short-term hit for three months. In this case, there will be an impact till 31 December. Things will shape up after that. I think it is a very fortunate and positive step because our biggest competition today is the black market in watches,” Saboo said.

Sanjay Kothari, vice-chairman of luxury gems and jewellery retailer KGK Group, also believes the government’s decision will have a positive impact on luxury retailers in the longer term.

“Initial disquiet is supremely temporary and that too for a particular group. But while following the global path, India has promisingly announced the channelized reformation, which ultimately leads to the survival of the fittest and that is delightfully commendable. Putting an end to lawbreaking formats will not only earn great benefits for luxury retail brands like Entice, but will determinedly augment the entire economy of the nation,” Kothari said.

“There could be some decline in cash sales because people won’t have liquidity,” said Rajesh Jain, managing director and chief executive of Sports and Leisure Apparel Ltd, which markets premium French brand Lacoste in India.

Jain also said that in the long run, the move would stabilize and benefit the economy on the whole.

Luxury brand sales decline as consumers run out of hard cash

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