With European economies str uggling to regain their momentum, luxury houses are looking closely at emerging African markets as a potential new frontier. For many luxury brands, expansion into China and India has yielded handsome rewards (the luxury market in these two countries reached $18bn and $3bn respectively by the end of 2012) – but with the growth in both nations cooling off considerably, high-end brands are exploring whether Africa has the potential to be the next frontier.
The statistics are certainly promising. According to Cap Gemini’s 2012 World Wealth Report, the total investable wealth of high net worth individuals in Africa totalled $1.1tr by 2011. In SA, the luxury goods market is forecasted to grow between 20%-30% over the next five years – driven in part by the emergence of a black middle class that favours conspicuous consumption. On the rest of the continent, the explosive growth of the likes of Nigeria, Angola, Kenya and Ghana is creating small but demanding groups of consumers with expensive tastes. Nigeria, for example, was the second fastest growing market in the world for champagne between 2006 and 2011, according to Euromonitor International. Total consumption reached 752 879 bottles in 2011 (higher than in Russia or Mexico), and placed Nigeria among the top 20 champagne markets in the world. In luxury cosmetics, SA was one of the world’s top performers over the period 2006-2011, with the value of its total premium cosmetics market at around $773m by the end of 2011.
Yet with only a handful of luxury houses having made the leap into Africa, brands are still looking for the right formula – and perhaps the right moment – to make their move. Says Silvana Bottega, CEO of the Southern Africa Luxury Association, “the primary concern of many luxury players is the capacity of African markets to generate real returns. While the numbers may look good on paper, brands have a lot of work to do before turning potential into profit. “Unlike in Europe or the US, there’s a big educational role that luxury brands have to play – for example, storytelling about their heritage and traditions.” She explains further, “while in other markets where consumers already have a sense of the brand, in Africa you are starting from afresh – and many high end brands tend to get ‘ lost’ because of a general lack of knowledge.”
Another obstacle for luxury brands is placement – with relatively few options to choose from, brands struggle to get the exposure they are accustomed to in other markets. In SA, for example, high-end brands usually choose from just three locations: the slick shopping hubs of Sandton, Hyde Park and the V& A Waterfront in Cape Town – slim pickings indeed. One way that luxury houses are working to get around the placement issue is by developing multi-retailers – or department stores – where various luxury brands are offered, thereby attracting greater footfall. “Planning for multi-retail stores is far down the line with certain brands, with two on the cards for Nigeria,” says Bottega. In addition, as new shopping malls spring up and investment in commercial real estate grows, luxury brands will find certain markets far more appealing.
Rob Walker, Senior FMCG Analyst at Euromonitor International, points to Nairobi’s Garden City as an example. This 129 500sq m mixed-use retail development will be the largest retail mall in East Africa when it opens in mid-2014. “This type of modern retail initiative will be key to the potential accessibility of luxury brands,” says Walker.
While it is evident that luxury houses have Africa on their radars, we will mostly likely see a slow trickle of new entrants as opposed to a wave. Italian menswear brand Ermenegildo Zegna plans to open a store in Lagos, and fashion house Gucci is reportedly looking at entering Nigeria and Angola. It will join the likes of Hugo Boss and Cartier, who are already active in various African markets. “What seems clear is that any new luxury goods venture into frontier Africa need to be motivated by long-term rather than short-term potential,” adds Walker. “The most significant growth stories – and returns on investment – will probably not happen until post 2020.” For those who can be patient, it will very likely be worth the wait.