The luxury goods sector has shown a shifting in the focal point of what’s being pronounced as the ‘decade of change.’ The first half was characterised by the Chinese consumers and the extent of digital technology, shifting to the West, and now expanding to the Middle East. This feature aims to identify factors in the external environment that are likely to change a number of crucial areas.
The Middle East luxury goods segment is estimated to hike by approximately 8.5 per cent (2020-2025) despite the ongoing changes (Mordor Intelligence Report). On the other hand, the report titled Global Powers of Luxury Goods 2020 by Deloitte points to the slowing luxury goods business in the West. The major reason for this shift is being accounted to the fast-growing economy of countries in the region and demand for sustainability by luxury customers. “The Middle East represents a big opportunity for luxury brands,” said Herve Ballantyne, Consumer and Industrial products leader, Deloitte (Middle East). Deloitte’s annual report also highlighted India and Mexico as important markets that are gaining momentum. The pandemic outbreak, acceptance of digitisation by luxury retailers and innovative comeback added up to leverage revenue growth in countries like United Arab Emirates, Dubai and Riyadh. “Luxury malls in Abu Dhabi and Dubai have helped put these cities on the map for the industry, and the United Arab Emirates as a whole continues to enjoy strong growth,” said Herve Ballantyne.
As per the report by Goldstein Research Analysts, even during COVID-19 pandemic and global lockdown, demand for luxury and above-the-line goods and services in the Gulf Cooperation Council (GCC) region remained flourishing. The survey mentioned in the same report shows that 70 per cent of luxury goods consumers from Middle East mentioned an upsurge in the monthly expenditure on luxury products, whereas those in European countries, United States and Japan, claimed to have increased the expenses by 53 per cent. A forecast by Goldstein Market Intelligence predicts an expansion in middle eastern luxury market with a CAGR of about 8.1 per cent during 2017-2030.
Already deteriorating call got even more tethered as European countries braced for the second gigantic wave of the SARS-COVID-19 virus, and then the third wave introducing the mutant strain. Majority of the handful wealthy tourists from developing nations who were caught up in the continent started shifting from a European expense spree, cancelling their scheduled flights. The solution is being found in encouraging them to find luxury stores near or at home grounds, thus working out just alright in middle eastern and Asian countries.
Luxury suppliers have shown relative success in renovating the luxe foundation of exclusivity. Elite customers are more convinced to shift their focus from Western countries (where they would have normally spent on luxury products and services) to the more domestic marketplaces. According to Deutsche Bank, luxury and leisure expenses by elite consumers from Europe and China are forecasted to be dipping by 8 per cent after the year 2020 compared to previous years.
Another reason for the upsurging demand in Middle East countries is that the millennial population and youngsters in this region are richer than the global average. Iran and Saudi Arabia are two of the major leather producers with many widespread tannery industries in the region. The United Arab Emirates is the hub for luxury segment in the Middle East with a major share of population (almost 90 per cent) residing in the urban areas and increased per capita income. Dubai and Abu Dhabi make up for more than 50 per cent of the country’s entire population. The major players are Prada S.p.A., Rolex SA, Burberry Group plc, Christian Dior SE, and Chanel S.A.
What’s the fuss about?
Accessories account for the major share in most sought after product market share, when it comes to buying of luxury, with more than 30 per cent share, followed by designerwear and footwear. Speaking about the geographical distinction, The Kingdom of Saudi Arabia accounts for the largest luxury market forming more than 35 per cent of the entire middle eastern market share. Besides, the GCC region is the fastest growing luxury zone of Middle East. According to the study, major reasons for the shift are accounted to the higher disposable income of people, considerable elite tourism from different parts of the world and rapid urbanisation. Further, the Goldstein report poses luxury brand awareness as a major challenge for luxury companies in the region.
The new normal for luxury
“Empowered by social networks and digital devices, luxury goods consumers are dictating increasingly when, where and how they engage with luxury brands,” said Ira Kalish, Chief Economist of Deloitte Global. The worldwide lockdown forced the luxury brands to go beyond ‘limited availability’ of luxury goods. Moreover, as people have started realising the extent of importance played by environmental well-being on human societies, critics have started questioning the procurement of luxury raw material especially for products like footwear and accessories. According to the CBS news report, critics raise bars on thousands of wildlife crocodiles and alligators being farmed for supplying brands with skins for bags and shoes. “They have become both critics and creators, demanding a more personalised luxury experience, and expect to be given the opportunity to shape the products and services they consumer.”
The challenges for wealthier middle eastern cities are also huge in terms of meeting the needs of elite natives who are staying away from hotspots of major cities like Dubai. According to D. Salbak, luxury consumers are still avoiding travel within the region. An overflow of supply from retail shutdown during COVID-19 has been evident and still continues to suppress the market. On an average, the rental rates for retailers in cities like Dubai and Abu Dhabi have gone down by over 17 and 20 per cent after the second quarter of 2020. A number of major retail construction projects are expected to be delayed. Though challenges are colossal, the growth of luxury goods market in the GCC region and other cities in the Middle East has shown a new hope to the sector.