Ups And Downs Of Luxury Businesses In Africa

April 16, 2015

Bain & Company stated that the luxury industry would be worth $279.5 billion this year and Euromonitor further added that Africa’s luxury market is worth $4 billion in 2015.

There is an increase in African billionaires and millionaires who are driving luxury consumption for the luxury products and services such as private jets, champagne, timepieces and other items. This creates the need for more luxury goods and services in the continent.

An individual has various options of managing a luxury brand; through a joint venture, franchise or owning the store. To achieve luxury requires high investment for capital, set-up costs, production of items, as well as salaries, rent and other operational costs. From Nigeria and South Africa business owners share their insights in the game of luxury.

Coscharis Group Ltd. in Nigeria retails various luxury brands inclusive of Rolls-Royce and Jaguars.

Their client base ranges from entrepreneurs, the Ultra-High Networth Individuals and Very Very Important People (VVIPs) who include the royal families. Some of these individuals purchase the luxury cars as collectors’ items. The business has been faring successfully with a few hitches caused by external and internal market factors.

“We are faced with several challenges in the market in selling our cars in the country,” explained Cosmas Maduka Jnr., the Executive Director of Coscharis Group Ltd. “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.”

In addition, is the challenge of grey market products, which is very common globally with apparel, and leather goods.

“There are car dealers selling Jaguars, BMWs and other cars but they are not official retailers, which hamper official franchises,” Maduka further added. “Therefore, if the car breaks down, you will not get service as those are not franchises. We ensured that we provided services even to the individuals who purchased cars from other dealers.”

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 South Africa to create luxury products. Okapi is the name of an African antelope.

Her products included women’s bags, wallets and purses made from various exotic skins such as crocodile. She also uses the skin from the Blesbok which is a type of antelope with strong skin suitable for bags and springbok horns used to make charms and cuffs. The range of luxury items include the Ayesha bag made from Scarlet Red Blesbok and gold hardware retails at $1 238.24, Yemaja made from Ostrich skin with Gold Hardware is $3 018.21 and the wallet made from crocodile skin and gold hardware is $1 408.50.

“Making a crocodile skin bag can take 3 to 6 months, from beginning to the end of the product. I work with the best crocodile farm and tannery in South Africa and skins are hand selected,” explained Rupert.“Because each our crocodile pieces are handmade one of a kind they each have to be priced individually.”

Producing beautiful luxury products has come with successes and challenges.

“The biggest challenges I face is government greed and inefficiency. As my brand is inextricably linked to Africa and South Africa in particular I will never move my sourcing and manufacturing elsewhere,” she stated, “It would be beneficial if African countries dropped their trade barriers to create a larger local marketplace across the continent for sourcing materials and selling finished products.”

Okapi also retails online which is a practice taken up by very few African luxury brands.

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

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

“This platform has brought Okapi exposure on a global scale. They have an incredibly reach because they are based online and we have managed to tap a wider customer base and our business is growing,” said Rupert.

“A luxury bag should be a timeless piece of exceptional quality which grows better with age.”

Meet Yswara, a luxury company that retails products such as tea, home accessories and artisan jewelry. The products are created using natural resources from Africa with the aim of preserving and promoting Africa’s cultural heritage. The company is based in Johannesburg, South Africa and has entered 10 African markets.

According to the Founder and CEO of the company, Swaady Martin-Leke, Yswara is focused on broad based wealth creation and providing meaningful income to the involved stakeholders who contribute to the creation of the luxury products.

“For the global luxury industry, Africa has always been a source of raw materials and inspiration for wealthy consumers globally, it is time Africa played an active role in the luxury industry,” she expounded.

Creating her company has brought 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,” said Martin-Leke. “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 creatively in the business.”

Being in the luxury industry, there are industry specific challenges that Martin-Leke has encountered.

The logistics of exporting luxury products out of Africa brings a high bill to the business thus affecting internet 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 in comparison to the costs of doing in it in Asia.

“There is a huge skills gap in the continent for the luxury industry as it is new in the continent. We need luxury trained professionals such as designers, communications, retail and brand experts,” Martin-Leke added. “These skills specific to the luxury industry are critical and almost non-existent, we need to build these skills while learning from the developed luxury markets. Being luxury we can’t compromise on quality of our products and services.”

Production of high quality goods is critical in this industry but the costs are high in Africa. This is a setback for small and medium sized luxury companies in the continent who are competing with international luxury companies.

“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.

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.

“We create products conceptualized and produced in Africa but our packaging is done in Europe. It is luxury therefore we can’t compromise the products as experience, aesthetics and quality are fundamental,” she further added. “This means that the products come at a price while providing a beautiful and very memorable moment.”

Source: AFK Insider

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