LUXURY, an industry whose new growth is being driven by developing markets in Brazil, Indonesia, China, Kazakhstan and India, is now beginning to get a slice of Africa action, with markets such as Nigeria, South Africa, Angola, Kenya and Mozambique at the fore.
The growth is in both products and services. In a 2014 report by consulting firm Bain & Company, the global luxury market is on target to reach $$279.5 billion this year, due to rising tourism spending.
The luxury industry ranges from cars, timepieces, house-ware, apparel, and other products. They include Rolls-Royces, La Prairie caviar creams, Vertu phones, Mikimoto pearls, Beluga caviar, Michelin star restaurants, and haute couture.
The industry is set for even greater fortune as more people become wealthier globally their tastes become highly sophisticated and spending increases. In addition, though not at the level activists and progressives are pushing for, many women are in positions of power and influence, ranging from chief executive officers, managing directors and board members to business owners.
This has allowed a greater number of women more access to financial resources, swelling the ranks of people with the purchasing power for luxury goods and services. Women have been to known to be huge consumers of luxury in markets such as Japan; they purchased Louis Vuitton bags not just as a fashion item, but also a statement of financially independence.
Louis Vuitton Moet & Hennessey (LVMH) group, the largest luxury group in the world, recorded revenue of $36.44 billion for the year 2013.
It is also an unusual business with its own strategies that differ from other businesses. The marketing strategies applied at L’Oreal or Proctor & Gamble cannot be simulated on a luxury brand.
Making and selling dreams
Luxury products are products of heritage, craftsmanship, history, and emotion over functionality. One does not buy a Lamborghini to drive it to buy groceries or because they really need that car. It is an object of art, you buy it for its beauty and status, not for its function. That is why when a Lamborghini or Ferrari drives up next to you, you regard it with respect. The luxury industry creates and sells dreams.
Notably, 2014 has been an interesting year for the industry with big losses and even bigger profits, a slew of mergers and acquisitions, and a more intense focus on Africa.
Music heavyweight Jay-Z has just purchased champagne brand Armand de Brignac in a deal whose value remains undisclosed. A bottle of Armand de Brignac Brut Gold sells at $300. By purchasing this brand, known to be consumed by Russian oligarchs and, now, him, he has carved out his position in the group of wealthy global players; a business participant in the luxury universe and not just a consumer.
Another recent famous deal was the initial public offering (IPO) by the well-known luxury shoe business Jimmy Choo, loved by women round the world. The IPO was valued at £545.6 million ($877 million) on the London Stock Exchange (LSE).
Globally, the number of luxury consumers has more than tripled in less than 20 years, to around 330 million people as shown by Bain & Company. Spending has risen at a similar rate, to an estimated €217 billion ($300 billion) in 2013. About 130 million of these consumers are in emerging markets, with 50 million in China.
More luxury companies are repositioning their offerings to capture the ever increasing luxury consumers, globally. Mercedes Benz stopped being a luxury brand after launching the A and B class cars which targeted everyone, a mistake in the universe of luxury. Another mistake it made was to launch the Maybach as a separate brand, which led to the closure of the business. Mercedes Benz has since re-launched the Maybach as the S-class, instead of as a separate brand, in an attempt to return the car to the luxury universe.
A good bet on Africa?
It is worth asking, though, whether in a continent with other urgent priorities, is the luxury industry a bet for Africa?
The continent has its traditional luxury markets: Morocco and South Africa, but now has emerging new luxury markets that are becoming important: Nigeria and Angola.
This year, Global Blue 2014, the company responsible for tax reimbursements on “tax free” products, reported Nigerian tourists as the third largest foreign spenders in the United Kingdom. The top four spending tourists there are Middle East Arabs, Chinese, Nigerians and Russians. Their data stated showed Nigerians spend an average of £628 ($985) per transaction. One of their shopping destinations, Harrods, is now in search of Yoruba-speaking staff to cater to Yorubas from Nigeria.
Another African country with high consumption abroad is Angola. Global Blue further reported in a report this year that revenues generated by Angolan tourists in Portugal reached a new record in 2013 of 513.9 million euros.
When it comes to alcohol, Nigeria has the second highest sales of champagne in the world after France. It was reported by Euromonitor that between 2006 and 20011, Nigerians consumed 752,870 bottles of champagne.
Data on luxury travel consumers by markets such as Nigerians, Angolans and other Africans who shop abroad has led luxury companies to ramp up their interest in the continent, as seen by the launches of German car maker Porsche in various African cities, Italian fashion designer Zegna in Nigeria, with speculation of Gucci setting up in Lagos and Luanda.
Africa plays an important role in producing necessary products for luxury goods such as crocodile skins, Maasai blankets used in Spring and Summer collections and other ingredients.
Africa’s piece of the action
How should Africa play in luxury? Every African country has unique aspects that can be turned into a source of revenue from luxury consumers. We need to create goods that have quality and craftsmanship, that can be placed in a luxury store in Hong Kong or Paris.
Bernard Arnault, the Group CEO of LVMH has been quoted saying that “In order to be able to sell a product at a relatively high price, you have to offer the craftsmanship and quality that goes along with it.”
Markets that are driven from tourism need to ensure their entry points have products of exquisite quality and craftsmanship.
Airports are an important sales point for luxury companies. The airport needs to be of an international status to host a luxury store which is aesthetically driven (calling it an “international” airport doesn’t necessarily make it one).
Markets that have business travellers such as Nairobi, Lagos, Johannesburg, Luanda, Abidjan, need to have hotels that cater for the wealthiest clientele with services comparable to luxury hotels in Paris, Dubai, or Geneva. If it is a country that produces the highest quality coffee or cocoa for chocolates, it can be packaged into a luxury product with luxury packaging and sold in Harrods or luxury hotels globally.
“My relationship to luxury goods is really very rational. It is the only area in which it is possible to make luxury profit margins,” Arnault noted.
—The author is a luxury consultant on Africa based in Paris. Twitter:@njerimaina