How big is the Lebanese luxury market?

Dubai Mall is the leading space for luxury in the Middle East

International business consultancy groups pay great attention to developments in global wealth and luxury markets. As yet, however, the Eastern Mediterranean region has not been researched or measured against other luxury markets, and, presently, studies of the Middle East and North Africa focus on trends in the Gulf Cooperation Council states.

Given the widening divergence between the rosy economies of the GCC and the gloomy ones of the Levant, it will be of little value for Lebanese luxury vendors to know that consulting firm Bain & Co estimates the regional luxury goods markets to be worth 6.3 billion euros ($8.37 billion), or 3 percent of the global market for luxury goods. 

According to Bain, over 40 percent of the 6.3 billion euros are generated in the United Arab Emirates alone, which together with Saudi Arabia, Kuwait, Qatar and Bahrain account for over 90 percent of the MENA region’s spending on luxury goods. This assumption leaves a very humble pie for vendors of luxury goods in other MENA countries including Lebanon, even when taking into account that the definition of luxury goods used by Bain is restricted to items of hard luxury — such as jewelry and watches — and soft luxury goods — fashion, perfumes, apparel and so forth. The Boston Consulting Group includes travel, hotels, cars, spirits, dining and spa experiences in its definition. The group’s research measured the contribution of luxury goods and services to the global economy to be near $1 trillion in 2010. 

One result of Bain research will be of interest to retail organizations in the region: upscale shopping malls have been a smashing success for marketing luxury goods in the Middle East. Dubai Mall is a particularly big magnet for big spenders, accounting for about half the luxury market in Dubai which in turn represents 30 percent, or about 2 billion euros, of the regional market by Bain’s reckoning. That means that Dubai Mall achieved luxury turnover of 1 billion euros ($1.32 billion) in 2012. 

Regional growth trends for luxury markets are hard to identify when the data is so thin, but Bain expects “important growth” for luxury in the Middle East in 2013. It says this expansion will be driven by economic growth, new malls and a dual apptetite for “traditional local” and “global luxury brands” from younger and mature consumers alike. 

As far as global numbers go, Bain sees an overall trend of slower growth after three years of double-digit annual increases from $153 billion in 2009 — a low caused by the global financial crisis — to $212 billion in 2012. Bain expects 4 to 5 percent global growth in 2013, meaning that luxury will exceed $220 billion this year. The further forecast is for the luxury goods industry to turn over $240 billion to $250 billion in 2015, with a compounded annual growth rate of 5 to 6 percent in the next two years. 

The mystery of luxury

If this data on overall size and concentration of regional luxury markets is to be trusted, the Lebanese market for goods of splendor in 2012 must be measured not in billions of dollars, but in tens or hundreds of millions. The actual annual value and growth of Lebanon’s luxury retail is a mystery, and information on specific sub-segments such as hard luxury or fashion seems to be a function of marketing more than transparency, judging from always-upbeat but also uncomfortably vague remarks by market players whose voluntary declarations on business performance appear to be focused on saving face.     

An alternative means to assess the health of luxury markets is to pore over through the plethora of wealth research reports, which discuss the evolution in the numbers of high net-worth individuals (HNWIs) and families and their behavior. Providing similar entertainment values to watching royals and celebrities, wealth reports additionally provide some insight to behavioral economics and business relevance for investment advisors and anybody targeting HNWIs, from charities to retailers.

The profile of the global HNWI population is changing in ways that have implications for the business of luxury, says the most recent edition of Barclays Wealth Insights, which the London-based banking multinational published this summer based on research conducted in the first half of 2013.

Central aspects to the change in the HNWI population according to Barclays are the shifts from developed to emerging markets, a trend that has been receiving a lot of attention, as well as a perhaps less conspicuous shift from inherited to acquired riches. Surveying HNWIs from countries representing five world regions on the sources of their wealth, Barclays found that only 26 percent named inheritance as the main source and compared that with 25 years ago when 79 percent of the rich in the United Kingdom were heirs. 

Thirty-eight percent of Middle Eastern survey respondents — nota bene all from the GCC as per the report’s maps — identified inheritance as the source of their wealth, the highest rate in the world. Leading answers for the sources of wealth in the multi-option survey were savings from earnings and personal investments, each named by over half the global respondents, followed by profits from operations or sale of businesses and profits from property. In the Middle East, 41 percent of respondents said a main source of their wealth was gained from sale or operations of a business but, as Barclays noted, technology was not the fast route to the billionaires’ club in the region that it was elsewhere. 

Behavioral implications of self-acquired wealth are more focused on control or hands-on engagement, greater familiarity with risk and on qualitative issues in the approaches to succession planning and to the sharing of wealth. At the same time, providers of luxury experiences and goods will be satisfied to learn that the HNWIs in the Barclays study named expenditures on lifestyle and experiences as a top use of their money — across all age groups.

The findings that various global wealth reports provide on the Middle East indicate that the region, along with other emerging markets, has seen an increase in its population of billionaires and millionaires. The latter group, the much larger of the two, is commonly understood as representing greater economic importance to luxury retailers because demand for most luxury goods categories is driven by the aspirations of rising wealth earners and recent HNWIs. 

 

Opening the gates

Located on the doorstep of Asia’s emerging wealth and a traditional recreation ground of wealthy Arabs, Lebanon is in a favorable position to be a luxury retail market. However, the picture is ambiguous.

An important driver of luxury spending in the region is tourism. Even as hotels and travel are not included in the conventional definition of luxury goods, tourism, according to Bain, is a key driver of luxury markets in the period through 2015. Strong inbound tourism to Dubai by-and-large explains the city’s rise to become the regional hub for jewelry among its many other hub functions. 

The centrality of tourism to luxury applies profoundly to Lebanon, a country whose domestic buying power is codependent on receipts from foreign visitors and from remittances — but the current implication appears to be negative. Revenues of high-end Lebanese retailers and commercial real estate operators in 2013 leave no doubt that receding trends in demand for high-price goods and services in places like downtown Beirut are correlated with the plunging number high net-worth visitors from the Gulf countries.     

Given Lebanon’s twinned reliance and vulnerability vis-à-vis extraneous factors, it seems not unreasonable to expect that development of its luxury markets will be decoupled from up-trends in either global or GCC luxury markets as long as detrimental security risks are buffeting the country.  Investments in luxury goods, plus cars, pleasure craft and real estate on the other hand have potential to grow irrespective of global economic environments, once the pressures have been lifted. For the moment, outbound tourism and escaping the dread of local realities seem to be prominent drivers for Lebanese luxury consumption in a time of ongoing conflict. 

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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