Sales of luxury brands are growing, despite the shaky economy

  • However, South Africa is setting its own trends and experiencing a boom in luxury shopping, while luxury brand retailers are thriving, writes Theresa Terblanche, Property Management and Retail Leasing Executive at Broll Property Management.

The psychology behind this phenomenon and an analysis of the socioeconomic dynamics that fuel it reveal statistics that the commercial real estate market could take note of.

The Luxury Brands Index showed South African trading density of R356,851 per square meter – beating the All Centers Index by a whopping 795%. And the growth in the sector of 15.8% was 7.4% higher than the growth for all centers.

South Africa has the largest market for luxury brands in Africa, and together with a weak Rand and a significant increase in the cost of international travel, the expansion of luxury brand shopping has found fertile ground in the country.

Technology has also influenced this growth by facilitating online marketplaces. And since Africa hosts the largest percentage of self-enhancing middle-class consumers, acquiring luxury brands as a status symbol supports their desire to own these high-end items. It is also a self-indulgent experience from end to end of imagining and browsing, to enjoying the joy of owning the item.

There are several other drivers of this buying behavior. This includes influencers, bloggers and vloggers, who promote branded items as must-haves; and reality TV shows that promote the glamor of celebrities dressed in designer clothes and lounging in elegant homes.

South Africa is recognized as providing limitless growth opportunities for luxury brands. This has given newly planned or existing malls the opportunity to attract these brands, which in turn leads to higher turnover from leases as well as an exclusive tenant mix.

In some South African centres, the writable area for these brands represents 18%-20% of the total turnover contribution of 38% to 40%. This highlights the huge impact on retailers’ distribution or leverage.

Business tenants require a premium image; therefore, higher rents are realized and even the surrounding residential properties retain their market value better and also sell faster. Vacancies in the usual commercial establishments surrounding luxury brand shopping centers are also significantly lower.

Centers that have existing luxury brands are continuously striving to increase the presence of these brands, but if these owners do not have available space that can be rented for brand expansion, then it can afford neighboring shopping centers the opportunity to attract these brands, especially in the same catchment area . The investment that landlords make to secure luxury brands in terms of tenant accommodation fees is significantly higher than ordinary stores, but the higher traffic generated usually justifies this investment.

Cape Town is still the leader in luxury retail, due to tourism and rich markets; Gauteng has a significant retail market for luxury brands, especially in more affluent areas. KZN is certainly not far behind, with 16 new luxury brand stores opening at Oceans Mall in the last year, with five more to follow, along with the Gateway Theater of Shopping, which offers several luxury brand stores.

Luxury brands have extremely high expectations, so they will not accept a lease in a shopping center or node that is not in line with their identity. Therefore, urban development in these areas is a high priority. This in turn elevates the area and raises property values.

The Lipstick Index, a financial indicator of projected sales in a recession, describes well the growing market for luxury brands in South Africa. The aspirations of a rapidly growing middle class, along with cultural traditions, are playing a big role in increasing sales of luxury brands, despite the country’s faltering economy.

An interesting dimension in this trend is the study of demographic groups that are enthusiastic buyers of luxury goods. They are primarily members of South Africa’s fast-growing, affluent and influential black community, the emerging middle class, and women in urban areas with high disposable income.

Certain cultures communicate their social status by flaunting their success, which leads to an emphasis on material possessions. They have a strong desire for unique styles and are valued for expensive clothes, cars and houses.

In difficult economic times, consumers’ desire for luxury items sometimes increases as they strive to create a better life. This phenomenon significantly affects the commercial real estate market, and in turn the residential real estate market, making it even more important for developers, investors and retailers to analyze and take advantage of the opportunities it offers.

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About Broll Property Group

Broll Property Group is South Africa’s largest independently owned commercial property services company. With operations in 13 African countries and more than 2,000 employees, we offer high-performance solutions built on a culture of innovation, distinguished by service excellence and long-term client relationships – which is why we’re known as ‘Progressive Real Estate People’.

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