Digitisation and capital boost fuels growth in Africa’s luxury fashion industry

“It is leapfrogging legacy infrastructure and taking a digital-first approach to growth;
Online stores and social media are the main drivers of demand for luxury fashion,” says Kouassi-Olsson.

“Many of Africa’s burgeoning luxury fashion brands have made a name for themselves – as well as a dedicated following – online, so the model is much more akin to the way in which banking and mobile money has flourished across the continent,” she says.

Like the evolution of mobile money and the rise of fintech across the continent, the fashion industry suffers from a lack of reliable infrastructure which prevents people travelling to physical shops and boutiques.

This has, in part, limited the development of the industry, says Kouassi-Olsson.

“We have a growing luxury fashion consumer base: a relatively young population, with disposable income that are driven by their African pride and want to support home-grown luxury brands,” says Kouassi-Olsson. “They hear about new and upcoming labels through their own networks and online.”

Imane Ayissi, Ozwald Boateng, Thebe Magugu, Christie Brown and many others have become household names in Africa with huge followings on Instagram, which has helped them build international brand recognition and access customers.

E-commerce boom

At the same time – buoyed by the e-commerce boom taking hold across the continent – the fashion industry in Africa has grown in value from $3.4bn in 2019 to $8.6bn in 2022 according to data compiled by Statista. Projections put the size of the industry in Africa at $13.5bn by 2025.

As recent as five years ago, we had no established e-commerce fashion platforms in Africa…Now there is a proliferation. Levering digital tools to overcome some physical and bureaucratic infrastructure and to support business plans is becoming the norm.

But the digitisation of industry catalysed by the Covid-19 pandemic has spread beyond e-commerce. The Global Fashion & Luxury Private Equity and Investors Survey 2021 by Deloitte found that luxury fashion brands are beginning to use artificial intelligence and data analytics to address and forecast demand, focussing on local consumption and reviewing collection size to make production leaner.

“As recent as five years ago, we had no established e-commerce fashion platforms in Africa,” says Emanuella Gregorio, economist and coordinator of Fashionomics Africa, an initiative of the African Development Bank that aims to increase Africa’s participation in the global textile and fashion industry value chain.

“Now there is a proliferation. Levering digital tools to overcome some physical and bureaucratic infrastructure and to support business plans is becoming the norm,” she says.

The last mile

But any comparison with fintech and mobile money is limited, says Gregorio.

“The clothing industry has a long history and involves tangible assets. Good quality fabrics, logistics and manufacturing remain key to the successful growth of the fashion industry here, so investment in infrastructure and agriculture will remain at the top of the agenda in order to unlock its potential.”

This is where targeted investment can make a difference. Earlier this month, European investment company Trail announced a partnership with Birimian, with the aim to support the development of emerging African fashion houses and premium brands.

The partnership is comprised of two parts: the first will be a cash injection by Trail into Birimian’s investment vehicle, and the second constitutes the creation of a long-term investment company to be co-managed by both Trail and Birimian.

The aim of the investment company is to channel between €5m and €7m ($5.4 and $7.6) into a handful of African luxury brands each year for the next five years. The investment company, Birimian X Trail, aims to close its first round of investment by the end of the year, with another due to close around March 2023.

“We have an accelerator programme that has identified ten African luxury fashion houses to date, which we share expertise with and have supported financially,” says Kouassi-Olsson.

“Some of these companies, and other more established brands, may then qualify for funding via our Trail X Birimian fund.”

But key to the fund is a focus on developing reliable and affordable manufacturing hubs to ensure successful implementation of the last mile, says Kouassi-Olsson. “Working with a number of fashion houses and brands, we should be able to negotiate better prices and streamline the manufacturing process for all the companies that we work with.”

The fund will also explore developing production routes throughout the continent and at the international level to overcome infrastructure and logistical challenges, she says.

Kouassi-Olsson is reluctant to divulge specific information around target investment volumes  other than to say it will be more than the €5m and €7m to support the brands themselves, given that additional funds will need to be channelled into manufacturing, infrastructure and logistics.

“I do not want to get bogged down in specific numbers, but instead want investors to be drawn to our fund given our track record and financial expertise,” says Kouassi-Olsson.

Impact

At the global level, the fashion industry is estimated to be worth $3trn according to FashionUnited, an online network for fashion news, business intelligence and jobs. Markets in Europe and the US make up the lion’s share, valued at $42.7bn and $26.9bn in 2022 respectively.

The size of the African luxury fashion industry pales in comparison.

Moreover, the industry is still plagued by a lack of capital, high transport costs for raw materials, debilitating operational costs, questions around intellectual property and a continued lack of government support.

“The luxury fashion industry is nascent – but it is growing,” says Gregorio.

“Perhaps more importantly, what we have discovered is that it could be transformative: it is labour intensive, will build out value chains, will support economic diversification and may be an important channel for foreign exchange.

“In 2015, no one was looking at Africa’s luxury fashion industry seriously. It was frivolous, for entertainment, people were not really that interested.  But seven years later we see that local and international investors are keen to harness the continent’s creativity for growth and impact. Stakeholders are beginning to realise that this is the real deal,” she says.

In recent years, development institutions have committed millions to Africa’s creative industries. In January 2020, Afreximbank set up a $500m fund to support the production and trade of African cultural and creative products.

Launched in October 2021, the €100m Impact Fund for African Creatives (IFFAC) is intended to accelerate the development of Africa’s creative industry. In December of the same year, the AfDB approved a loan of $170m to finance a digital and creative enterprises programme in Nigeria.

For impact to be felt, however, millions more will be needed. And it will need to be patient because returns on investment in Africa’s creative industry will take time. “We have found that family offices, with patient capital, are willing to buy into this narrative and have been very interested in our fund,” says Kouassi-Olsson.

Investors looking for a quick fix need not apply.

But Gregorio is hopeful that the Trail X Birimian will be a watershed moment for the sector. “Hopefully this will be the catalyst we need for more investment to flood the industry,” she says.