Africa’s elite

Finweek English Edition - - BUSINESS - Jes­sica Hub­bard

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.

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