Politics, greed, currency hits…trading luxury in Africa no bed of roses, but riches await those who dare

Being based in Africa has it benefits - a location on the continent can be a good selling point for products.

THE rich are usually thought of as insulated from regular shocks, but those who sell to them are not as carefree, with the African terrain tough proving a tough customer to please, but for those who tough it out, it can be a fulfilling journey.

The global luxury industry is estimated to have been worth $279.5 billon last year, with just $4 billion of that going to Africa.

But it is a number that will continue to rise, as the African millionaires—and billionaires—who are driving consumption for luxury products and services such as  private jets, champagne, timepieces and other items continue to swell.

This has created a niche for retailers, who can enter the business line through various options such as joint ventures, franchises or owning their store outright.

It is a business that requires high capital, from set-up costs to production of items and salaries, rent and other overheads.

But while largely profitable, they have not been immune to the chills associated with trading on the continent.

Coscharis Group Ltd. in Nigeria retails various luxury brands, including Rolls-Royce and Jaguar.

Its client base ranges from entrepreneurs and Ultra-High Networth Individuals to Very Very Important People (VVIPs), who include royal families. Some of these individuals purchase the luxury cars as collectors’ items.

While the business has been successful, there have also been a few bumps on the road.

“We are faced with several challenges in the market in selling our cars in the country,” Cosmas Maduka Junior, executive director of the company, said.

“The Nigerian currency has been devalued by over 45% in 3 months which has led to an increase in prices. Cash flow is very tight. We also have the election period and the violence by Boko Haram which has led to a very tough business environment in the country.”

There is the additional challenge of grey market products, a thriving market both in Africa and further out.

“There are car dealers who retail Jaguars, BMWs and other cars but they are not official retailers, which hampers official franchises,” Maduka said. “Therefore, if the car breaks down, you will not get service as those are not franchises.”

That was some weeks, because the Nigerian outlook now looks very sunny.

On Tuesday former general Muhammadu Buhari was declared of Nigeria’s weekend election, the first opposition figure in the country’s history to defeat an incumbent, and on Tuesday these were the headlines: “MTN Shares Gain Most in Five Years After Peaceful Nigerian Vote”, a Bloomberg story reported  that;  “MTN Group Ltd., Africa’s biggest wireless operator, increased the most in almost five years after former military ruler Muhammadu Buhari won a largely peaceful vote in Nigeria, the South African company’s biggest market.”

Another said, “Tough Talking Nigerian General Now Overseeing Best Stock Rally”, revealed that; “Buhari won the race to lead Africa’s biggest economy by talking tough… Nigerian stocks were the world’s best performers over the five days through Tuesday. At the end of February, they were global laggards.”

Hanneli Rupert, a trained painter, founded Okapi in 2008 in Cape Town, South Africa with the aim of sustainable development by using natural resources from the country to create luxury products. Okapi is the name of an African antelope.

An Okapi wallet

Her products include women’s bags and wallets and purses made from various exotic skins such as the crocodile. She also uses the skin from the Blesbok—a type of antelope—and springbok horns, to make charms and cuffs. Some of her products go for $3,000.

“Making a crocodile skin bag can take 3 to 6 months, from beginning to the end of the product, said Rupert. “Because each our crocodile pieces are hand made…they have to be priced individually.”

She has had her successes, and challenges.

“The biggest challenges I face are government greed and inefficiency,” she said, adding that she would not contemplate moving as her brand drew its appeal from being African.

“But it would be beneficial if the African countries dropped their trade barriers to create a larger local marketplace across the continent for sourcing materials and selling finished products.” 

Okapi products are also retailed online, but surprisingly very few African luxury brands use the Internet to retail their products.

“Most African luxury brands are focused on ready to wear which is still psychologically a hurdle for people to purchase online. Our success with online is that we can communicate to a very wide audience befitting a global brand instantly. The biggest shortcoming is that prospective clients still want to feel and see the product before purchasing it,” she said.

Net-a-Porter site is one of the retail points used by Okapi to increase sales from an international market.

Meet Yswara, a luxury company that retails products such as tea, chocolates, home accessories and artisan jewellery. The products are created using natural resources with the aim of preserving and promoting Africa’s cultural heritage. A tea post  here can cost from $300.

The company is based in Johannesburg, South Africa and is in 10 African markets, including Nigeria, Kenya, France and Cote d’Ivoire.

 “For the global luxury industry, Africa has always been a source of raw materials and inspiration for wealthy consumers globally,” founder and CEO of the company, Swaady Martin-Leke, said.

“It is important for Africa to play an active role in this global luxury market. We need more African luxury brands as there is a growing need for such products and services.”

Creating her company has brought her joys to celebrate, and mountains to climb.

“Sourcing financing for my company was tough. I managed to raise $20,000 for the start-up capital that was used to finance the basic and essential business costs,” she said.

“As luxury is a new sector in Africa, access to capital is difficult. But this has been a positive situation for us as it has prompted us to be innovative, solutions driven and think very creatively in the business.”

There are industry specific challenges that Martin-Leke has encountered.

The logistics of exporting luxury products out of Africa present a high bill to the business thus affecting sales for consumers who would like to purchase the goods online.

In addition, it costs 10 – 15 times more in Africa to produce ceramic teapots in Africa than in Asia.

 “There is a huge skills gap in the continent for the luxury industry because it is new. We need luxury trained professionals such as designers, communications, retail and brand experts,” Martin-Leke said.

The high cost of production in Africa has been a setback for small and medium sized luxury companies seeking to compete with international luxury companies.

“We don’t have many high-end retail outlets in the continent, which can be stifling if you are selling luxury products and want to expand in Africa,” she said.

“Product sourcing, supply chains, export and logistics are our toughest challenges in Africa. In our kind of business luxury, we can’t compromise with quality or integrity of our products as we are competing with international brands in the luxury sector and shifting perceptions of Africa from negative to positive.

Currently, Yswara has a store in Johannesburg while retailing through various options in the continent and using an online platform.

“Our intention is to make our products accessible globally but we are challenged by export, import and logistics for our online consumers. Costs for international shipping are high and sometimes discourage consumers.”

Yswara products have won several awards in Africa and Europe for quality and aesthetics, thus playing a role in turning Africa’s name from negative to positive.

—The author is a luxury consultant on Africa based in Paris. Twitter:@njerimaina

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