Chikaosoro Ugwu

Luxury Market in Nigeria A REPORT ON THE LUXURY GOODS INDUSTRY IN NIGERIA CONTENTS  INTRODUCTION  LUXURY PRODUCTS AND CATEGORIES  MARKET SIZE  CONSUMER DEMOGRAPHICS  CONSUMER PURCHASING BEHAVIOR  CONSUMER TRENDS  CONCLUSION INTRODUCTION Over the past years, Nigeria's high-net-worth individuals prefer to shop for luxury products in London, Dubai, and Paris. These high-net-worth individuals include owners of booming consumer-driven businesses, entrepreneurs, politicians, millionaire pastors, music stars and oil industry executives. Today, smart entrepreneurs are taking advantage of the fastgrowing Nigerian luxury market by producing exclusive luxury products using the country's abundant natural resources and the skills of crafters. Some International brands like Porsche, Ermenegildo Zegna, Hugo Boss, Moet Hennessy, Burberry and Louis Vuitton have stores in Lagos and Abuja and are even major suppliers to other sellers of luxury goods. However, Nigerian made luxury products are in high end stores in Nigeria and other countries of the world. For example, the Kano tannery supplying the world’s largest brand leather hides and skin stripped from slain animals like snake, crocodile, and sheep. As regards to the level of revenue generated from the luxury industry, the federal government has recently introduced tax on luxury but some legal processes have limited the implementation of this law. LUXURY PRODUCTS AND CATEGORIES In the Nigerian luxury market, below are well know luxury products and their categories:  Luxury leather goods such as bags, wallets, belts, clothing, suitcases and briefcases  Luxury accessories such as watches, jewelry, scarf, stockings, ties  Luxury fashion such as apparel, footwear, eyewear, bags, headwear  Luxury cosmetics such as fragrances, skin care creams, face makeup  Luxury sanitary wares such as bath tubs, sinks, washbasins, cisterns  Luxury furniture such as office chairs, sofas, doors, tables, wardrobe  Luxury drinks such as vintage wines, beverages, spirit, whisky, rum  Luxury apartment, hotels, real estates  Luxury automobile such as cars, bikes  Luxury electronics such as phone, smartwatches, air pods, computer The major characteristics of the above luxury products lies in their extraordinariness, rarity, price, symbolism, quality, and aesthetics. It is important to note that some products possess all characteristics while some products may have either half, more or less of these characteristics. MARKET SIZE Based on the analysis of Giovanni, Xu, & Thomas, the Nigerian luxury market is currently worth $213 million with 10 to 15 percent increase in domestic sales expected over the next five years based on sales forecasts. The truth is that the local market is still relatively “untapped” so to speak. The reason behind this assertion lies in the fact that nearly 70% of all luxury product sales within the country are primarily concentrated on automobiles and hospitality. This entails not only sports cars, apartments, luxury automobiles and SUVs for the upper class of the society but also for members of the growing middle class of the country. For the extremely rich, up to 12 percent of the Nigerian luxury industry focuses on private jets (i.e. renting or buying private jets) while for the middle-class sales of expensive watches, wines and spirits (mostly champagne) encompass 5 percent of total sales for luxury items. Going over the sales data, it can be seen that 87 percent of the local luxury goods industry focuses primarily on a select group of products, namely: automobiles, private jets, watches, luxury wines and spirits. On the other end of the spectrum, luxury branded goods encompassing fashion (ex: Louis Vuitton, Christian Dior, etc.), jewelry, and premium banking options (i.e. American Express), only encompass 13 percent of the local luxury industry and are the least developed in terms of the number of shops and options available to local buyers. The sales of luxury products in various markets, the skewed nature of Nigeria’s local market is highly unusual since it is usually the case that luxury brands would, on average, encompass 45 percent of the local luxury goods market within a country. Giovannini, Xu & Thomas helped to explain this by pointing out that compared to cars, jets and other types of luxury items (except for some high-quality wines and spirits), high-end fashion brands are more accessible. This is due to the purchasing power associated with the middle class where in due to their lower level of income as compared to the upper tier of their society. They can only afford a limited quantity of truly expensive luxury goods. As such, it is this consumer class that usually makes up a large percentage of the consumer market for high-end luxury brands since it is in this type of product market that the middle class tends to spend their excess income. Thus, it is highly unusual that the local market for high-end luxury brands is the least developed aspect of the Nigerian luxury goods industry. It would be understandable if it were primarily based on low levels of demand for branded luxury within the country; however, based on surveys and reports analyzed by Hagtvedt & Patrick, it was noted that there is a significant level of demand for branded luxury goods, particularly those of European brands, within Nigeria. CONSUMER DEMOGRAPHICS Although the Generation Z consumers together with Millennials are making up more than 40 percent of all luxury spending and have generated 100 percent of the global luxury growth, the demographic break down of the Nigerian luxury market consists primarily of upper to middle-class earners. These individuals are within the working ages with high income positions and either reside in Lagos or Abuja. They normalize spending excess money on luxury purchases. Due to their experience in purchasing products from the local luxury market, this population set most likely has a more “in-depth” perspective regarding the issues that they would encounter when it comes to buying particular types of fashion. However, women, both married and unmarried, are major consumers of luxury products as well as the other gender. About 80 percent of these consumers are highly educated while the remaining 20 percent are above average. CONSUMER PURCHASING BEHAVIOR The theory of consumer purchasing behavior and how it impacts sales of luxury goods in Nigeria; the first aspect to be considered is the assumption that consumers pass through distinct stages before, during, and after the process of product utilization. For instance, in the case of consumers of luxury goods in Nigeria, they tend to evaluate the cost of the product, whether it’s style is appropriate for them, and what the brand is in correlation to the image that they are trying to present. This shows that customers in Nigeria is influenced by different factors that impact how they patronize a particular product. For instance, there are psychological reactions that are based on brand perception and how customers think about a product. Going back to the concept of luxury product shopping, Beverland (2005) explains that buying such items are not classified under the category of necessities since luxuries are not necessary to live; rather, the type of purchasing behavior associated with this type of product entails fulfillment of what can be described as a “higher need” based on cultural and social identification (Beverland 2005, p. 1003).What this means is that purchasing luxury items is due to the inherent desire of consumers in higher income brackets to showcase how “superior” they are to other members of the society by their purchasing power. As such, while concepts related to price, demand, and supply still do impact the consumer decision-making process, it is far different than the mindset that encompasses people that pay for necessities such as food, shelter, normal clothing, etc. (Beverland 2005, p. 1005). For instance, product choice in the case of luxury products is not necessarily governed by just price and quality; instead, it is also subject to the processes that go into the creation of a product that consumers with high levels of purchasing power take into consideration before purchasing certain brands from a particular company. One concept behind this is the marketing tactic of advertising some high-end luxury products as being handmade or that they were crafted by traditional experts of that particular product (‘Europeans Dominate Online Luxury Survey 2015). This is a common marketing tactic used to justify the prices of certain luxury goods as if to indicate that the product being made by human hands it is thus superior to similar products that are made from factory designs. The inherent problem with this assumption is that studies such as those by Socha (2009) have shown that the difference in quality between handmade luxury fashion items and those that come straight from a factory is relatively small and hardly noticeable by the naked eye. As such, even though such items are considered far superior to their counterparts; the truth is far from the reality that is being espoused (Socha 2009, p. 13). CONSUMER TRENDS The most recent trend in Nigerian luxury goods includes high-end hotels, resorts, cruises, and restaurants with killer food. These luxury experiences are highly sought after and are one of the most dynamic and fast-growing components of the luxury industry in Nigeria. Although the market is changing and evolving, brands have always been important but now, buying is more purposeful. Luxury buying has become socially involved, and that should only increase over the years to come. By 2025, Millennials and Generation Z should represent more than 70% of the luxury sales, creating a market growth of over 130%. But not all luxury brands know how to talk the talk that these generations speak. Luxury brands will either have to turn to specialists who can do this for them or they will need to consider collaborations with other top brands who have mastered the language and worldview of this particular market segment. Technological innovation and a world driven by data moves at lightening speed and luxury brands in Nigeria will have to keep up. It’s all very well sticking to a time-honored tradition in places since the 1700s, but there’s a new language out there among socially-engaged market segments. Also, consumers of luxury products are defined by the latest trends and are believing luxury brands to understand their needs so as to remain at the top of their game in the luxury market. Some of the main reasons for this growth in trends are local geography, convenience, authenticity, innovations, inclusivity, environment, consumer-centricity and relevance. CONCLUSION In conclusion, the development of the luxury goods industry in Nigeria has not kept pace with the wealthy population growth. While its luxuries related to automobiles, watches, and wines have kept pace with growth, the other segment such as the high-end fashion brand has not. One of the reasons why luxury fashion brands are lagging is as a result of the 60% import tax placed on luxury products that enter the country, this has resulted in the regular activities of consumers shopping for fashion products abroad. Also, distinct lack of sufficient investments into infrastructures and retail blocks that are exclusively for the rich. What are present are malls and retail locations that are oriented more towards mass-market appeal than they are towards catering to the rich. There is a relative absence of sufficiently developed locations and malls that cater specifically to individuals that have high levels of purchasing power while there are a few locations where some luxury shops do cluster to a certain extent. What this report has proven is that Nigeria lacks sufficiently experienced local organizations as well as the necessary established infrastructure for luxury brand operations for it to be an attractive location for more foreign investors. While it is true that there are locations where establishing high-end luxury brands are feasible, such as the Hilton hotel in Lagos, the fact remains that the infrastructure of the hotel was never meant to cater for significant amounts of foot traffic as seen in the average mall.