There are over 169,000 millionaires in Africa
Wealthy individuals are expected to spend more on luxury goods in the coming years
South Africa could be the gateway for luxury brands in Africa
The millionaires’ club is growing in Africa.
At the end of 2014 there were 169,000 millionaires in the continent – a number expected to rise by 53% over the next 10 years, according to the Knight Frank Wealth Report 2015.
In addition, the total wealth held by Ultra High Net Worth Individuals, or UHNWIs - those with a net worth of at least $30 million - was $200 billion.
Wealth advisers expect their UHNWIs in Africa to spend more on luxury goods than the previous year as a result.
But it’s not just the super-wealthy with money to burn.
Sections of Africa’s rising middle class are increasingly finding themselves with greater spending power – although debate remains about how to define Africa’s middle class and whether it is resilient as middle classes elsewhere in the world.
Luxury brands such as Italian menswear label Ermenegildo Zegna have been investing heavily in Africa over recent years.
‘Bling-fuelled’ spending patterns
“Despite the numerous challenges to overcome in the region, other luxury brands are certain to follow the likes of Zegna, Hugo Boss and Porsche in opening new outlets in the Sub-Saharan Africa region,” says Fflur Roberts, Head of Luxury Goods at Euromonitor International.
“Prada, for example, has already confirmed plans to open in Angola.”
Roberts believes the rising aspirational classes on the continent are key customers for these new designer stores.
“There has been a lot of enthusiasm about a burgeoning middle class with a rising disposable income in the youthful and populous continent of Africa,” Roberts continues.
“As often seen in developing markets, luxury brands are used as a symbol of status and wealth, creating demand for designer labels and heavily logoed products.
“This bling-fuelled consumption culture is being driven by a young population, urbanization and a growing middle class.
“As aspirational consumers place a premium on appearance, retailers have responded to this by introducing credit schemes enabling consumers to purchase products they otherwise could not afford.”
Brands face challenges
Despite this huge growth in wealth on the continent, luxury brands are advised to do their research before rushing in and opening stores.
The gap between the rich and the poor in Africa often makes it difficult for brands to expand.
“Adding to the problem of market segregation is the challenge of a poor retail infrastructure, with supermarkets and shopping malls present only in large urban areas,” says Roberts.
“In order to succeed, brands will need to overcome these challenges through the careful research of suppliers, local partners, end consumers and the business environment.”
“The African middle class is growing but their purchasing power is still relatively low in international terms.
“The African Development Bank loosely defines the middle class as those spending between US$2 and US$20 a day in PPP terms.
“This level of per capita daily consumption is low in comparison to many consumer markets in other parts of the world.”
South Africa as a gateway
Despite these challenges, South Africa is tipped as “the gateway to the continents luxury market” by Euromonitor.
This is largely due to its well-established luxury market, good transport and supplier links and high quality shopping centers.
Kenyan luxury blogger and luxury consultant on Africa Maryanne Maina defines further areas of growth within the luxury sector.
She says we could see “the creation of concept stores to house art, luxury and premium brands. Ignored opportunities by luxury brands include the African wedding market and wedding and honeymoon destinations.”
Roberts predicts high-end companies will start to change the types of products they offer.
“Luxury goods companies, formerly aiming exclusively at the rich, can start changing some product offerings to cater for the continent’s expanding middle class.”
“Although they will also need to adapt their products to meet the taste, needs and budgets of the local middle class, the fact that the African middle class has been so far overlooked and underserved means a relatively empty marketplace with a very receptive audience.”