Luxury brands turn to Africa as the next growth frontier - Deloitte Bookmark has been added
Luxury brands turn to Africa as the next growth frontier - Deloitte
Sub-Saharan Africa has been identified as a promising market for luxury goods as urbanisation, economic development and increased affluence among the expanding middle class drive growth across the sector.
Johannesburg, 16 July 2014 - Sub-Saharan Africa has been identified as a promising market for luxury goods as urbanisation, economic development and increased affluence among the expanding middle class drive growth across the sector.
This is according to the inaugural ‘Global Powers of Luxury Goods’ report by professional services firm Deloitte.
Despite a slowdown in the global economy, the appetite for luxury goods and products – which include designer apparel, handbags and accessories, fine jewellery and watches, and cosmetics and fragrances, remains strong globally.
The emerging markets of Asia Pacific, Latin America, the Middle East and Africa accounted for a combined 19 percent of the global luxury goods market in 2013 – a figure projected to grow to 25 percent in 2025. Sub-Saharan Africa is second only to Asia Pacific in terms of the size of growth of consumer markets.
“Africa definitely provides a longer-term growth opportunity for luxury brands. The shifting appetite and behaviour of consumers in this segment will require luxury goods retailers to develop a sophisticated but uniquely African approach to reach and satisfy the growing demand for luxury goods in this segment,” says Rodger George, Africa Leader for Consumer Business at Deloitte. The report notes that South Africa and Nigeria are regarded as the region’s emerging markets.
South Africa remains a prime shopping destination in Africa. According to Euromonitor’s latest country report on luxury goods, shoppers from other African states regularly visit South Africa to access the wide selection of luxury brands available.
“While the South African economy faces challenges of slower economic activity, the demand for luxury goods among locals remains,” says Vanessa Borchers, Western Cape Industry Director at Deloitte South Africa.
An indicator of this is the automotive market in South Africa, which has witnessed notable growth for Porsche and Maserati purchases.
Among the findings from the Deloitte report are that the world’s largest luxury goods companies had a combined turnover of $171.8 billion through the end of the last fiscal year in June 2013. The average size of the Top 75 companies was $2.3 billion in luxury goods sales.
The report also provides an outlook for the leading luxury goods economies, insights into mergers and acquisitions (M&A) activity in the sector, and discusses the major trends affecting luxury goods companies, including the retail and e-commerce operations of the largest 75 luxury goods companies.
“We expect luxury goods market growth in developed economies to pick up speed for the rest of this year. And for those emerging markets that have not accumulated too much debt, like much of sub-Saharan Africa, the long term outlook is certainly positive,” George adds.
The report notes that although significant risk remains in emerging markets, and growth is from a low base, the appetite for luxury goods in these markets is increasing. “The growth of strong global ‘African’ luxury brands originating from the continent will continue’ says George.
China is expected to be the second-largest market for luxury goods by 2018 – as the number of households with annual gross income of more than US$150,000 to 3.5 million, increase. According to Euromonitor, Nigeria is now one of the fastest growing markets for French champagne and digital televisions.
Luxury brands are bolstering their presence in several African countries to meet the needs of these shoppers. High-end brands such as Zegna and Hugo are opening shop in several countries across the continent to meet the demand for luxury goods.
The expanding middle classes in emerging markets has a benefit for the U.S. and Europe as well as the consumers of the products travel to the world’s capitals for shopping. For such tourists, developed markets offer superior product selection and availability, and advantageous prices.
“In South Africa, the continued growth of the middle class creates a market segment where there is an aspiration for the finer things in life, which in turns creates the desire for status symbols. This is a market that luxury brands should continue to monitor closely as it is likely that the luxury buyers of the future will emerge here,” says Borchers.
The report notes that based on data collected on all tax free shopping in the U.K. – Nigerians are among the top global spenders.
“The growth in multiple retail channels, including e-commerce and social media have also leveled the playing field in the luxury goods space, consumers are now able to shop on their terms, when and where they want, sourcing the same items from a variety of sources across the globe” says George.
The Deloitte report introduces the first ‘Q-ratio’, a ratio that aims to learn how financial markets are evaluating the future prospects of the world’s largest publicly traded luxury goods companies. The Q-ratio also helps to infer whether companies are strong in areas such as brand, differentiation and innovation.The highest ratios for these, according to Deloitte, are established companies in Asia/Pacific, North America and Europe, namely Michael Kors Holdings Limited, Kate Spade LLC and Hermès International SCA.