There are a few economics in every industry that an investor likes such as high entry barriers, shift from unorganized to organized, change in consumer preference towards a branded product and efficient distribution model. Luggage industry tends to check all the boxes.
Largest player in the industry is VIP with a market capitalization of under 4,000 crores. Followed by Samsonite and Safari. Samsonite is a private company while Safari whose shares are traded on the exchanges boast a market capitalization of under 1,000 crores. So yes, the industry does look small at the first glance. But things are changing fast. India is changing.
Firstly, India will have the highest young population that enters workforce from now till 2050. That’s a super 30 years of runway for growth. We have witnessed in the USA, Japan, China and Europe what happens when youngsters form the biggest pile of work population. It’s simple, consumption goes through the roof. Preferences start to shift and the line between necessity and luxury becomes thinner until one day an investor cannot even find that line anymore.
Consider the luxury of owning a four wheeler in the 1980s. It was a luxury few people could afford. And now, in metro cities four wheeler has become a common phenomenon. To the extent that most people prefer traveling in an Uber or Ola rather than public transport in metro cities due to lack of parking. The shift is real from mass transport to personal transport in a span of 40 years. Observes would say, that shift is accelerating at a higher pace now.
Secondly, most businesses have realized this shift in consumer preference. That people would like to pay more if there is a deep value embedded in it. So when it comes to luggage, if you can get a light travel bag with long handle and wheels which looks cool too, then why worry about spending a couple of thousands extra. Few changes that make all the difference.
Thirdly, air travel is now gaining momentum. Millennials don’t like to waste time. They like speed. And it’s not just millennials anymore, the entire ecosystem is geared up for speed. So if a person can work the entire day, take a flight and reach another city in a few hours and start working there for the next day, then they will take it. It’s all about balancing their work with life, if it helps to come back on the weekend and party with family and friends.
Fourthly, tourism is picking up. Indians are travelling more than the earlier generations. Not just by air but also through railways and road. Vacations are now becoming more of a necessity than a luxury. Most people we interact with these days say 1 vacation a year is mandatory while 2 vacations are bliss.
Lastly, the shift of consumer preference is now slowly gearing towards a product that talks about them. The world of social media has accelerated this pattern. Instagram posts are about having a lifestyle that speaks about who a person is, what they can afford to spend on and what is their idea of living life fully. Luggage too can be seen with a similar lens.
Apart from regulatory changes such as introduction of Goods and Services Tax, there is now a level playing field in the industry.
New luggage categories such as polycarbonate uprights, duffels and backpacks have been well received by customers. Traditional categories such as PP Hard luggage continues to decline. E-commerce and retail stores have picked up well.
India, currently the 2nd most populous country across the globe, is expected to grow its population at a CAGR of 1.1% over CY17- CY22, according to EIU.
The middle class, whose share in total population is expected to rise by an additional 13 points to 20% over the next 20 years.
There is a strong chance for the sector to really perform well due to increasing connectivity. Although there are fears that COVID-19 may change how we do business completely by staying at one place and not moving around. But man is a social animal and by nature gets bored staying at one place for a long period of time. If given time, resources and freedom then definitely the choice will be to discover multiple places over boredom.
With youngsters joining the workforce and travel industry booming, it’s just a matter of time before we see this sector see new highs.