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RETAIL: Women and Foreign Visitors Drive Steady Growth in Luxury Brands Market - Deloitte


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South Africa’s luxury goods market is posting stable growth during 2014, despite weakness in the local currency and domestic economy
Luxury goods growth came from increased demand from foreign visitors to the country, who took advantage of the weaker rand which made some products relatively cheaper
Millennial consumers will grow to represent a significant percentage of sales volume in luxury goods – 58% go online and 31% use social media when gathering information on luxury items

Despite anemic growth in the South African economy, the appetite among high-end consumers for luxury goods and products – which include designer clothing, accessories, handbags, fine jewellery, watches, and cosmetics and fragrances - remains stable, according to Deloitte’s analysis of the Global Powers of Luxury Goods 2015 report.

The luxury Italian brand Prada earlier this year established a retail presence in South Africa’s largest shopping mall, Sandton City, while other luxury brands such as Zegna and Hugo are simultaneously bolstering their presence in several African countries to meet the demand for luxury goods.

The report provided an outlook on the global economy, including South Africa and sub-Saharan Africa. Jolandi Grace, Africa Fashion and Luxury Brand Leader at Deloitte, commented that the strength of the sub-Saharan Africa market can be attributed to three key trends, among others: the growth in the South African middle class; the growing numbers of women consumers who have become more actively involved in the economy of sub-Saharan Africa with well-paying jobs; and large numbers of foreign visitors to South Africa, primarily from sub-Saharan Africa.

Grace identified these three trends as among the key reasons for South Africa’s luxury goods market posting stable growth during 2014, despite weakness in the local currency and domestic economy.

According to Euromonitor luxury goods report titled: ‘Passport: Luxury Goods in South Africa’, total luxury goods market has grown by 65,2% between 2009 and 2014 representing a CAGR of 10,6%. Commenting on this report, Grace said that much of the growth came from increased demand from foreign visitors to the country, who in many cases took advantage of the weaker rand which made some products relatively cheaper than those to be found in their respective home countries.

Additionally, premium beauty and personal care statistics in Euromonitor indicate 86,1% growth in the past five years.

Regarding the buoyant women market, the Euromonitor report stated: “Categories, such as luxury accessories and luxury timepieces, have greatly benefited from this trend as more female consumers in South Africa are embracing global fashion trends. These manifest in South Africa in a variety of ways ranging from reality TV to fashion magazines as well as travel to other parts of the world.” The Deloitte 2014 Year – end Holiday Survey also highlighted this fact.

The report stated that demand for luxury goods in South Africa was expected to remain stable over the coming year at least, as market expansion was likely to remain stable in terms of volume growth, while value of sales would most likely fluctuate commensurate with respective exchange rate volatility. The rand has weakened by approximately 6,5% over the past 12 months, and the Nigerian currency has similarly weakened.

Grace said that global brands continued to dominate the market. Deloitte’s Global Powers of Luxury Goods report expressed the view that evolving technological and consumer demands would help global luxury brands to boost profits and remain competitive. The world’s 100 largest luxury goods companies generated sales of US$214, 2 billion through the end of the last fiscal year (to June 2014) “despite currency headwinds and intense technological disruption”.

Referring to the Deloitte report, Grace commented: “Several key aspects of the luxury goods sector will become unrecognisable over the next few years. For instance, the traveling luxury consumer is expected to change the concept of national boundaries; millennial consumers will grow to represent a significant percentage of sales volume in luxury goods; and the competitive forces driven by technology will disrupt at an accelerated pace. As such, global luxury brands must overcome significant challenges in order to maximise engagement with their digitally-savvy, time-sensitive and socially aware consumers or risk being left behind.”

Andreas le Roux, the Consumer Business Leader within the Strategy and Innovation Practice at Deloitte SA, says that Deloitte’s Global Powers of Luxury Goods report pointed to sub-Saharan Africa as becoming a promising market for luxury goods. This has already become a reality in 2015 as urbanisation; economic development and increased affluence among the expanding middle class have driven growth across the sector.

Key findings from the report include:

Adoption of technology as a competitive advantage - Luxury brands must keep up with evolving technology and refine their products without detracting from their unique core product offering and expertise. “The luxury sector in South Africa needs to maintain strong relationships with diverse technologies, which are influencing the luxury goods value chain. The legitimate fear of diluting a brand’s exclusivity in the broadly accessible online world requires brands to move carefully to ensure sustainable, long-term value creation,” said Le Roux.

Engaging the millennial shopper – The report estimated that 58% of millennials currently go online to search for information on luxury items and 31% use social media when gathering information around discounts and promotions, compared with just 10% of older luxury consumers. Luxury brands can benefit by fully understanding the spectrum of buying habits and influencers. According to Deloitte Consumer Review – Africa: a 21st Century View, mobile phones are now the main source of access to the internet for young consumers in Africa. “Seven in 10 young Africans surveyed use social media sites on their mobile phones,” the report stated.

The global make up of luxury demand is changing – Results from Deloitte’s Luxury Consumption among European High Earners 2014 survey of over 1,000 high-income earners across Europe illustrated that while traditional marketing channels such as magazines and store browsing continue to be relevant for consumers gathering information on new luxury brands, 45% of participants indicated that they search online for information.


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