When did the window pane in your bedroom needed maintenance and that tap in your bathroom had been leaking is hard to remember! And even though you received no pay hike last month, you chose to purchase that Louis Vuitton shoe made from ‘authentic waxed leather’ which left you star-struck ever since you saw it. Instead of spending on the ‘necessity good’, you consciously chose to splurge on the high-end goods. American poet and critic Dorothy Parker once satirised, “Take care of the luxuries and the necessities will take care of themselves.” Such is the infatuation of the luxury goods market and the entire world seems to be captivated by it, including Africa.
Global trends
Because of borderless consumers and globetrotters, the luxury goods market has flourished tremendously all over the world. According to the 2015 Bain report on ‘Luxury Goods Worldwide’, the overall market of luxury commodities exceeded $1 trillion with America emerging as the biggest global region for personal luxury goods purchases. The luxury car market sped up 8% from 2014 in both the United States of America and Europe. The business of luxury hotels elevated showing a growth of 7%. While New York, London and Paris are cities synonymous with luxury, each representing a market of over $10 billion, mainland China also reached the number 3 spot in terms of global luxury value, trailing only behind the US and Japan. Philippines, South Korea, Romania, Poland and Germany registered an extraordinary sales growth in the luxury market in 2016.
Africa, not behind
The icing on the lavish cake, however, was the growth of the high-end market in the African continent, which has developed an elan for the ‘finer things’. Africa today houses about 50 directly operated global luxury single-brand stores, including big names such as LVMH and Richemont accounting for more than 50% of those stores. In 2014, the luxury goods retail sales reached $4 billion in Africa. The Global luxury goods sale is expected to reach about $405 billion by 2019, and as per the World Bank estimates, Africa is projected to contribute significantly to this market, growing at a rate of 5.6% per year. Nigeria, the oil-rich nation, is ‘drunk with luxury’ literally! The country, which is home to over 20 billionaires, drank a record 750 million bottles of champagne, registering a 26% growth in the market from 2007-2012 – a figure that earned it a spot among the top 20 champagne markets of the world. And as per a report by BusinessDay, this growth is expected to shoot further by 78% in the next five years. Nigeria, South Africa, Ethiopia and Morocco have emerged as the haven of luxury goods market among the 54 nations in Africa. The continent’s biggest economy South Africa leads the luxury goods and services market in the continent. In 2014, it listed a revenue of $2.8 billion, followed by Nigeria at $0.7 billion, Angola and Egypt at $0.5 billion each, Kenya and Morocco at $0.3 each and Ghana and Algeria at $0.2 billion each.
Reasons behind the glowing estimates
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About a decade ago, not many would have imagined that Africa would soon see the sunrise of a new era in the luxury market. But it happened! What led to this change in the luxury market trend in Africa? The reasons are manifold: Psychological theories have time and again proved that whenever the income of a family increases, it has a tendency to spend a portion of that income on luxury items. The same happened with the African families. With the spread of democracy and urbanisation, as the regional economies in the continent stabilised, the net disposable income (amount of money in hand), increased. More money in hand empowers people with more spending power! The economic and socio-political progress also led to the emergence of the ‘middle – classes’ in the society. This section of the society – a midway between the rich and the poor – blooming with aspirations are increasingly becoming lucrative consumers for relatively affordable high-end goods. The prime reason, however, behind the growth of the luxury market is the increase in the number of High Net Worth Individuals. Africa’s High Net Worth Individuals (people with more than $1 million in liquid financial assets) grew by 9.9% in 2012. For instance, out of the 7, 52, 349 citizens of Johannesburg, about 24,000 are millionaires. And there are estimates that the millionaires in Africa will rise 53% to a whopping 2,58,000 by 2024. An ancient Hindu adage says ‘The Guest is God’. Pouring of tourists in Africa from all over the world is definitely turning out to be a blessing for the continent’s luxury market. The extravagant hospitality industry, especially in South Africa, ballooned as the nation witnessed an 18% surge to about 8,00,000 tourists in 2016. Tax-rebates are offered in various parts of Africa to attract the tourist’s sweetener. In addition, the high-end consumer goods available in Africa are comparatively cheaper. And who doesn’t like a good bargain? The shift from the conventional belief that luxury shoppers would not buy expensive things online, made the brands foray into the digital world of e-commerce. Virtually every person uses a smartphone today and this increased access to the Internet gave the required push to the online luxury market. Globalisation, changing consumer patterns and development of second-hand or pre-owned luxury goods are other reasons for this surge.
Luxury for everyone!
A wise man once said, “Money cannot buy happiness. But it’s more comfortable to cry in a BMW than on a bicycle.” And if the current trends are anything to go by, Africa is game for a boom in the luxury market – a great time to invest in this ‘brand new haven for luxury’.