Picture: REUTERS
Purveyors of luxury goods such as Louis Vuitton, Burberry, Fendi, Gucci and Salvatore Ferragamo have a presence in South Africa. Picture: REUTERS

SUB-Saharan Africa, where investment interest has grown further this year, is set to become a key battleground for the luxury goods industry, according to Euromonitor International.

The region, long considered unstable due to political tensions, has seen its fortunes improve due to the spate of oil and gas discoveries which are fuelling economic growth and giving rise to a set of super-wealthy individuals with expensive tastes in countries such as Nigeria, Angola, Ghana, Mozambique and Kenya.

Between 2008 and 2013, sales of luxury goods in this region grew by 35% in current value terms, and they are set to increase by a further 33% in the next five years in constant terms.

London-based Euromonitor says sub-Saharan Africa is experiencing the second-fastest global economic growth — behind Asia-Pacific — and is home to five of the 10 fastest-growing economies in the world.

"This is set to translate into higher incomes and subsequent consumer spending growth. To this end, many African consumers will move into the categories of discretionary spending for the first time offering significant potential investment returns," the research firm said.

Purveyors of luxury goods such as Louis Vuitton, Burberry, Fendi, Gucci and Salvatore Ferragamo have a presence in South Africa. Montblanc, owned by the world’s second-largest luxury goods group, Richemont, will open its fourth store in South Africa next week.

In April this year, Ermenegildo Zegna, which makes made-to-measure suits worn by Hollywood stars Tom Cruise and Robert de Niro, opened a franchise store in Nigeria’s capital city Lagos, on the same strip as German luxury car manufacturer Porsche and, two months earlier, Hugo Boss opened a franchise store in the Capitals Palms shopping mall, also in Lagos.

South Africa and Nigeria are the region’s main emerging markets and, as such, afford some insight into regional luxury goods demand.

While in 2013, South Africa accounted for only 10% of regional and less that 0.5% of global luxury goods consumption respectively, it is the largest market in the Middle East and Africa region, both in terms of total disposable income and total consumer expenditure in 2012.

"South Africa offers extremely strong prospects and diverse opportunities to luxury marketers, as the country’s large size and population, 50.8-million people in 2011, provide a diverse and multilayered consumer market.

However, there is a strong divide in South Africa, with the country being one of the most unequal countries in the world in terms of income, and marketers must tailor their products in geographical, income and ethnic terms," Fflur Roberts, head of luxury goods research at Euromonitor says.

According to global consultancy Bain & Company, South Africa’s luxury goods market was expected to grow between 20% and 30% over the next five years. Claudia D’Arpizio, a Bain partner in Milan, says the country will continue to attract international brands, and the potential for luxury players elsewhere on the continent is "big".

Nigeria was the third-fastest growing market in the world for champagne between 2007 and 2012, with a compound annual growth rate of 26% in value terms.

This impressive sales growth is forecast to increase by a further 78% in constant value terms in the five years to 2017.

Euromonitor data shows that total consumption reached 750-million bottles in 2012 — higher than in Canada and United Arab Emirates, and placed Nigeria among the top 20 champagne markets in the world.

Ms Roberts says that for luxury brands and retailers there were many challenges to overcome in the region, because although the middle class was expanding, poverty remained widespread, infrastructure was weak, retail markets undeveloped and brand awareness was lacking.

"Corruption can also be a problem as can political stability in some countries. However, other luxury brands are certain to follow the likes of Zegna, Hugo Boss and Porsche opening new outlets in the Sub-Saharan Africa region.

Prada, for example, has already confirmed plans to open in Angola, which could be a good bet for Nigeria next year. However, in order to succeed, brands will need to overcome these challenges through careful research of suppliers, local partners, end consumers and the business environment," she says.

Luxury goods sales are expected to exceed $317bn worldwide this year. This represents a year-on-year real value gain of more than 3% on 2012.

Interestingly, Euromonitor’s findings show that luxury spending in China is still rising steeply.

Luxury players have been concerned that demand had cooled with the Chinese government’s anticorruption clampdown on extravagant gift-giving as part of business practice.