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Luxury goods in South Africa

Mixed reactions

The general weakening of the South African rand against major currencies was received with mixed reactions from retailers during the review period. Some luxury retailers enjoyed growth in volume sales from foreign visitors as it became generally cheaper to purchase luxury products with global coverage in South Africa, as opposed to purchasing from their respective home countries. On another note, it became fairly expensive for local consumers of luxury products, as most retailers would often escalate their prices due to most luxury products being imported and the cost was passed on to consumers.

South Africa remains a prime African shopping destination

South Africa remained a fairly stable economy during 2013 when contrasted with most African countries. The overall effect has been a general increase in the number of people visiting from other African nations with an intention to tour the country as well as do some shopping. The retail environment in South Africa is highly competitive due to multiple players in various segments of the retail industry. The presence of some global luxury brands in the country also made South Africa an alternative destination for luxury consumers from other African states.

Brand uniqueness continues to influence luxury product demand

The luxury market in South Africa continues to be highly fragmented with multiple brands present. Brand differentiation continues to shape the success of most brands in the country, some retail brands often find value in word of mouth promotion by consumers instead of advertising their products and it has worked well for them, while some brands would differentiate themselves through pricing relative to other similar luxury items. Such distinction has been seen to be highly prevalent in categories such as luxury timepieces where brand heritage often helps justify premiums added to certain brands,

Luxury boutiques remained an important channel

Luxury retailers remained vigilant to use their own stores to distribute luxury products in South Africa. The increased desire to control products’ quality and brand integrity led to most retailers resorting to the use of their own boutiques to distribute brands. The bulk of luxury product items in South Africa are sold in the upmarket shopping malls that include Sandton city mall in Johannesburg as well as the V&A Waterfront in Cape Town.

International brands expected to influence demand and fashion trends

Consumer demand trends in South Africa are expected to be well in line with global fashion trends as dictated by established global brands. Categories such as personal accessories as well designer apparel are expected to be highly driven by such brands. Brands such as Gucci, Burberry, and Louis Vuitton are expected to remain as key consumer benchmarks for any product which may enter the market over the forecast period. The use of celebrities to endorse brands would be expected to also help influence fashion trends in South Africa where fashion magazines currently play a huge role in informing consumers.

Aspirational consumers continue driving value sales of luxury products

Many South Africans continue to be aspirational in terms of brand and product choice despite economic challenges which threaten their disposable income. The growth in the general population of the consumer middle class has gone a long way in changing consumer tastes, as well as creating opportunities for retailers and manufacturers in different segments of the economy. Nevertheless, there have been numerous reports of a worrying debt situation in South Africa as more consumers continue to live lives that do not match their spending abilities. The general increase in unsecured lending across different financial institutions has been cited as one of the key reasons why consumers continue to be in debt.

Current impact                                                                                                                                                                                                                              

Luxury retailers have seen significant growth in volume sales over the past few years in line with changing consumer income as well as taste. Since the country’s first democratic election in 1994, South Africa’s government has embarked on economic reforms aimed at addressing previous economic imbalances. One notable result has been access to better jobs by citizens from the previously disadvantaged communities. The subsequent result of this income growth has been increased demand for luxury goods. The growth in the desire to show career success has been through purchasing luxury items ranging from fast cars to clothing. While these developments have had a positive impact on the luxury retail revenue, it has also resulted in soaring debt levels from aspirational consumers wishing to keep up with other citizens who may afford to periodically spoil themselves with luxury items.

While there would be some consumer groups failing to align their spending to their earnings, there is also a group of consumers with more than enough spending capacity as long as the brand or product gives them what they deem to be value for money. Demand for luxury products in South Africa has been highly driven by factors such as strong brand heritage while celebrities have also helped stimulate luxury product demand. The increased production of reality shows across the world has had a positive impact on changing consumer fashion tastes as well as influencing shopping habits. Women in South Africa have been seen to respond well to trends driven by reality shows. Categories such as luxury accessories have seen an increase in demand, with brands such as Louis Vuitton and Gucci gaining significant value share

Outlook

Luxury brand sales are expected to see continued value sales growth over the forecast period, although volume sales growth may be affected by weaker economic conditions. If the South African rand weakens against the major currencies, the volume sales for luxury products may be boosted by increased demand from tourists or visitors to South Africa who tend to capitalise on making purchases when the local currency is struggling against other currencies. Sales growth for high value personal accessories may however take a knock if the current debt situation in South Africa prevails. South Africa currently faces high debt levels amongst citizens which restricts the amounts that consumers can spend and it is highly likely that they would trade down on accessory spending if the debt levels continue to rise. Annual household disposable income is expected to post a 2.4% CAGR by the year 2017 and this growth is far less when compared with the review period when a 7.5% CAGR was recorded. Increases in living expenses, such as electricity and transport costs, are expected to discourage disposable income growth for consumers over the forecast period.

Future impact

South African consumers are expected to remain aspirational beyond the forecast period and such notions are expected to help retain market growth for luxury personal accessories which often carry lower value when contrasted with other luxury items. The middle class is expected to grow in population in the country as the government continues to address the economic disparities that existed prior to the country’s independence in 1994. Lifestyle changes are expected to influence product offerings from manufacturers for personal accessories while luxury luggage and handbags is expected to remain as one of the biggest categories with female products driving volume sales. Segments such as luxury timepieces are, however, expected to see more sales growth from male timepieces. Luxury timepieces are perceived as a status symbol in South Africa and brand choice is usually driven by the message the brand is deemed to send to the surroundings.

Female participation in the economy stimulates growth

Women are increasingly being seen as one of the key reasons why volume sales are increasing within the retail industry in South Africa. The demographic splits have seen significant transformation with the growth of the female population across all age groups. The middle-aged female population grew at a 3% CAGR for the 25-29-year-old and the 31-39-year-old age ranges from 2007 until the year 2012. Such growth has also been complemented by an increase in the number of females reaching higher education where the population grew at a 3% CAGR from 2007 until 2012. This transformation has resulted in women getting access to better jobs as part of the productive population. This has helped in boosting volume sales for various categories within the retailing industry. Women were culturally seen as housewives, especially within the black society, and household income was only restricted to the breadwinner who would usually be the father of the house.

Current impact

The black population forms the majority of the country’s population and the participation of women from such groups has helped boost volume sales in the retailing industry and the economy as a whole. Many retailers are adopting a culture of constantly having in-store sales promotions that offer discounts to customers across the country. The female population is well known for responding well to most offers that indicate any form of discount. The participation of women in the economy has also boosted sales activities for retailers in periods where a lot of festivities take place in South Africa. Ceremonial days, such as the St Valentine’s Day, tend to get more attention from females looking for gifts for their partners as a way to encourage them to get something in return. The market is also seeing growth in the number of partnerships between personal accessories retailers and magazines that specifically target women. Magazines in South Africa have proved to be more influential when it comes to fashion trends as well as improving product image for brand owners. The use of female celebrities trending on TV has been one way in which brand owners have been trying to reach out to women across the country.

Outlook

The family dynamics in South Africa are expected to continue shifting over the forecast period. More women are expected to participate in the growth of the retail industry over the forecast period. The growth in female participation is expected to be stimulated by increased access to jobs which were previously deemed to be only suitable for men. Successful woman who hold executive positions in various industries are expected to play a pivotal role in encouraging other women to actively participate in the economy through access to better jobs. This is likely going to help increase household incomes across the country which would in turn help increase volume sales across various segments within the retailing industry

Future impact

Retailers are expected to demand more from suppliers beyond the forecast period in terms of providing products that stimulate female buying behaviour. Such a development is likely to help retailers boost volumes sales for products targeting both male and female consumers, since women are increasingly seen to play a key role in terms of product choice. Retailers are however, expected to face a challenge in terms of trying to maintain a balance between affordable price and quality of the product. Price is expected to be the key driver to volume sales for retailers of products targeted for women. This is likely to mean increased sales promotion activities across various industries.

International brands dominate the luxury market in South Africa

The market for luxury products in South Africa is highly dominated by international brands. It is often the norm that consumers perceive any international product to be of good quality when contrasted with similar goods in South Africa. This has been mainly as a result of the brand heritage that has been built by many global brands over the years. International brands often have a marketing edge as they can easily promote products in different countries at the same time due to the fact that most of these luxury products are not unique to individual countries. A typical example would be the luxury timepieces category where brands such as Tag, Cartier and many others have made their name across the globe and they require less effort for consumers to relate to such products.

Current impact

It has become extremely difficult for new local players to enter the market to try and compete with these international brands. The main challenge in the luxury industry is low stock turnover rate which may not be ideal for smaller players with limited funding. Established international brands often have their own luxury boutiques which exclusively distribute their respective brands and some of them have a facility where they could sell the goods on consignment thereby lessening the need for working capital to finance restocking and cater for operational expenses. International brands such as Louis Vuitton only have two retail outlets across South Africa which exclusively sell the Louis Vuitton brand. No other retailer is authorised to sell their brands in South Africa. Such arrangements often help in retaining brand integrity as well as assuring consumers of consistency. Consumers in South Africa also see exclusivity as a sign of brand strength; this therefore, makes most international brands more competitive in the eyes of luxury consumers. Global brands such as Hugo Boss, however, dominate the majority of luxury brands as they have wider coverage in terms of outlets as well as distribution partnerships which ensure that their brands are available in other retail outlets wishing to stock their brands. Hugo Boss products also have a wider appeal to consumers as their products are generally considered as affordable luxuries, particularly in categories such as designer apparel and luxury accessories.

Outlook

The luxury product market is expected to be highly dominated by international products over the forecast period. The success of the international brands is likely to remain pinned to their established brand heritage as well as effective marketing. Brand uniqueness is expected to define success for most products in the luxury market, while fashion trends are likely to be driven by reality TV thereby stimulating growth in categories such as designer apparel and luxury accessories. Growth in internet retailing is expected to play a major role in creating product awareness for most retailers while consumers would still be expected to prefer transacting in the physical store rather than doing it online. International retailers would be expected to eventually create local websites with brand information unique to South Africa rather than the current situation where consumers often get referred to international websites to get product information.

Future impact

The market for luxury items is expected to remain extremely challenging for local players beyond the forecast period. Brand success for smaller players is expected to be driven by being innovative through creation of niche products which could be unique to South Africa or possibly the African continent. Such products are likely to emerge from categories such as accessories where unique bags made from the rare Springbok skin have been successful in generating interest from both local and international consumers. While international players would be expected to influence products entering the market, they are expected to eventually focus on trying to tailor-make luxury items that relate to the African continent as the market would be expected to gain ground in terms of being highly competitive. Categories such as luxury timepieces are expected to remain dominated by global brands while luxury jewellery items are expected to be highly influenced by the global market for precious metals.

Lifestyle changes influencing innovation in a competitive environment

Product differentiation is often a fundamental tool in attracting consumer attention across all industries. But this principle has been slowly changing as competition intensifies within the personal accessories industry. Consumers are demanding more in terms of value for money product offers as their lifestyles continue to change. Manufacturers are now being forced to closely understand consumer lifestyles and how quickly they are changing in line with global trends. South Africa is a multi-cultural country where the taste is sometimes shaped along cultural lines and this has often been the core focus for manufacturers. This idea is slowly slipping away as the citizens continue to integrate and embrace other cultural practices. One way taste and lifestyle has changed has been through interracial marriages where cultural clashes have often resulted in new tastes as couples and families try to find common ground in terms of dressing as well as the general lifestyle.

Current impact

Much transformation has been seen in terms of how people dress across all genders in South Africa. Previously there were certain items that used to be deemed to belong to a certain gender and anyone else would not be expected to wear such products. One good example is that of earrings which used to be seen as something that only women would wear and men were not expected to buy such products in many cultures in South Africa. With increased integration, this is fast changing as more men are also seen to wear products which were previously expected to be worn by only women, such as earrings and certain bag types. Such trends have helped push up the market in terms volume sales across various categories that include bags and luggage and also watches where consumers are seen to shift their focus towards higher value items with an anticipation to get the quality deemed to come along with a higher unit price. Euromonitor International estimated that watches volume sales increased by 6% during 2013; such growth is considered fair when contrasted with the 4% volume CAGR recorded from 2008 up until 2013. The emergence of smartphones has also resulted in loss of volume share for categories such as watches, this has forced watch makers to shift their focus towards offering products that do not just serve the basic purpose of time but instead give extra value which cannot be obtained anywhere else. Such changes have been in the form of products such as mechanical watches that have a vintage touch in terms of how they look and where they originate from. When it comes to bags, the main focus has been to provide convenience to people with different lifestyles in terms of bag sizes.

Outlook

Personal accessory manufacturers are expected to shift their focus towards niche categories drawn along consumer lifestyles previously considered insignificant in terms of business opportunities. More product designs are expected to be seen in categories such as bags and luggage as the competition intensifies. Companies such as Busby Trading are expected to remain dominant in such a category, although some of their share might be lost to new players targeting consumers aspiring for products which are not present in the market. Increased presence of small businesses that tailor make products for customers is expected over the forecast period. Product success across all categories is expected to be driven by product uniqueness in relation to the price and how it is positioned in the market.

Future impact

Competition is expected to remain intense beyond the forecast period as more players are expected to enter the market. International brands may lose share to local brands offering similar types of products in most categories within personal accessories. Brand success is however, still expected to be restricted to specific income groups in relation to different categories. Categories such as jewellery are expected to retain sales from the middle- to higher-income groups of the economy, although some aspirational low-income consumers may sacrifice to buy such products. Categories such as writing instruments are expected to remain stable in terms of growth, and product success is likely to remain pinned to effective distribution and marketing rather than innovation.