India’s luggage industry revenue is expected to grow by ~15% in the current fiscal year, despite a high-base effect of 40% growth in the previous year 2021-22. The evolving trends and changing consumer preferences have set the stage for growth, resilience, and adaptation.
Notably, the market share of hard luggage has shot up to ~55% from 33%. Operating margins are relatively better on them since these are manufactured locally. On the other hand, the fragmented unorganised sector largely imports soft luggage from China. They have been impacted by supply-chain disruptions and implementation of the Goods and Services Tax, leading to loss of market share. The future for the hard luggage industry looks positive on strong demand and supply drivers in the coming years, as this report explores.
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The India’s luggage industry thrived in 2022 due to a 50% -70% increase in sales growth as compared to the pre-pandemic period of 2019 which was historically the best year for the Indian luggage industry. According to estimates, the Indian luggage market size is worth about INR 50,000 crore (US$ 6.03 billion), with branded luggage accounting for 25% of the total market share.
According to CRISIL rating agency, India’s luggage industry is on course to record a remarkable ~15% growth in revenue this fiscal year, owing to rising penetration of hard luggage made by the organised sector and continuing growth in tourism and corporate travel.
The industry is seeing a shift from unorganized to organized – some reasons include increasing disposable income, e-commerce penetration in the Bharat market, and brand awareness. Further, changes in the way consumers travel like solo travel, multiple trips in a year, weekend getaways, and international travel, have induced shorter replacement cycles in the industry. In this oligopolistic industry, the top 3 companies VIP, Samsonite, and Safari control about 70% of the organized market.
Key drivers of growth
The Indian luggage industry is expected to continue to grow robustly in the coming years. Some of the key drivers of luggage industry growth are as follows:
- Consumer preference for hard luggage: One of the key drivers of growth is the increasing preference of consumers for hard luggage. Hard luggage is perceived to be more durable and stylish than soft luggage, and is also lighter in weight, which is a major consideration for travellers. As a result, the market share of hard luggage in India has increased from 33% in FY18 to 55% in FY22.
- Growing tourism and corporate travel: The growth of the tourism and corporate travel sectors is also driving demand for luggage. The number of international tourists visiting India is expected to reach 100 million by 2025, and the domestic travel market is also expected to grow rapidly.
- Improved operating efficiency and capacity utilisation: The organised sector is also benefiting from improved operating efficiency and capacity utilisation, which is driving margin expansion. The organised players have better sourcing channels and economies of scale, which allows them to offer competitive prices and better quality.
- Rise of omnichannel retailing: The Indian luggage industry is seeing the rise of omnichannel retailing in recent years. This means that consumers can purchase luggage through a variety of channels, including physical stores, online retailers, and social media.
- The use of technology in luggage: Luggage manufacturers are using technology to make luggage more functional and convenient, such as by incorporating GPS tracking and smart locks.
Opportunity for organised players
The growth of the luggage industry is positive for the organised players, as they have a higher market share of hard luggage and benefit from stronger sourcing channels, competitive pricing, better quality, and extended warranties.
The organised sector’s operating efficiencies and capacity utilisation have increased due to consumer preference for hard luggage. As a result, their operating margin should increase by 150–200 basis points (bps) year over year to 16% this fiscal.
Since the cost of three important raw materials—polypropylene, polycarbonate, and polyamide—declined by about 20%, margin improvement would have been even sharper if organised players had invested more in marketing and promotions. For the record, 40–45% of the cost for baggage manufacturers is accounted for by the primary raw material costs, which are mostly determined by the price of petroleum.
According to Rushabh Borkar, Associate Director at CRISIL Ratings, “Apart from doubling capacity, organised manufacturers are set to ramp up retail presence by 35-40%, which would involve a capital expenditure of ~Rs 700 crore (US$ 84.49) this fiscal. While this will increase their debt levels, overall capital structure and coverage metrics will not be materially impacted because of improved cash accruals. Gearing and interest coverage of our sample set will remain comfortable at 0.6 time and 11.5 times, respectively.’’
Organised luggage makers have ~40% share of the ~Rs 15,000 crore (US$ 1.81 billion) annual sales of the industry. They benefit from relatively stronger sourcing channels, competitive pricing, better quality and extended warranties. 90% of the revenue in the organised sector comes from luggage manufacturers, according to an analysis by CRISIL Ratings.
Consumers are shifting towards hard luggage because of better looks and durability. Hard luggage getting lighter in weight, which is a key consideration in travel. Consequently, organised luggage makers have been proactively turning their revenue mix towards hard luggage across retail and online.
“In the past five fiscals, the market share of hard luggage has shot up to ~55% from 33%. Operating margins are relatively better on them since these are manufactured locally. On the other hand, the fragmented unorganised sector largely imports soft luggage from China. They have been impacted by supply-chain disruptions and implementation of the Goods and Services Tax, leading to loss of market share,” Says Jaya Mirpuri, Director at CRISIL Ratings.
Source: CRISIL
Future outlook
Overall, the outlook for the Indian luggage industry is positive. The industry is expected to grow at a healthy pace in the coming years, driven by a number of factors such as new product variants, investment in smart luggage products, online distribution, rising penetration of hard luggage made by the organised sector, and continuing growth in tourism and corporate travel will drive the Indian luggage market in the near future both in terms of revenue and sales volume. But the industry’s fortunes depend on travel trends. It is important to keep an eye on any decrease in this and any significant price fluctuations for imported raw materials.
