Although close to $2 billion worth of luxury items have been sold in the United Arab Emirates this year, looking in the windows of shopping malls today will show that luxury retailers in the UAE have redirected their energy to a more minimalist approach, away from the total opulence that dominated their showrooms in the past.
“Since the onslaught of the recession, wary consumers in the UAE have become more price-conscious and, in turn, many have changed their outlook toward luxury products and have taken on a more Westernized attitude to purchasing habits and started to down trade,” Fflur Roberts, head of luxury goods, at market research firm Euromonitor International, tells Executive.
That means that luxury is being tested for its compatibility with new economic realities in the Gulf region. However, this does not mean that luxury sales are faltering in either the UAE or other emerging markets. According to Euromonitor International’s luxury goods research, the UAE currently ranks 21st out of 32 countries covered.
The four highest-ranking countries, United States, Japan, Italy and France take up almost half of value sales, expected to exceed $302 billion this year globally, a year-on-year real-value gain of 4 percent.
Overall, the UAE is an example of the growing importance that emerging economies represent for the luxury goods industry. According to Roberts, manufacturers of luxury this year saw much-needed growth from emerging economies at a time of sluggish Western demand. At the forefront of the spending spree, consumers in the BRIC countries (Brazil, Russia, India and China), lavished on luxury in sizeable numbers. While essential goods and middle-class fundamentals top the household buying agenda in these four large economies, luxury sales in the BRIC space increased 4 percent from 2011 and 22 percent when compared with 2007.
When compared with the growth rates in the BRIC countries, however, the UAE’s crème de la crème by far topped the ranks of those who expanded their spending in the past five years. UAE luxury sales have increased by almost 43 percent since 2007, which in real terms equates to an increase of $581 million, according to Euromonitor. The per capita expenditure of luxury buyers in the UAE is a story in itself. The small country, with the help of visitor spending, is ranked eighth globally by that measure.
The market still has not exhausted its potential but Dubai’s period of economic worries did not leave it unscathed. The fall in real estate prices led to a 19 percent fall in the UAE’s high net-worth individual population in 2009, Roberts points out. “The luxury market in the UAE has a lot of ground to make up to ensure that it does not slip down the luxury market size rankings any further in the medium-to-long term,” he alerts.
The worry factor should not be too excessive though; luxury sales year-to-date for importers and traders were more akin to sailing the Arabian Gulf on a pleasure yacht than to being tossed around in a dinghy in the Gulf of Mexico during hurricane season.
An ideal region for luxury
Luxury retailers in the UAE are on course for a good year, according to Consultants A.T. Kearney. The firm’s recent GRDI report and business issue paper “Global Retail Expansion: Keeps Moving on in the UAE” pointed to the size and importance of the UAE markets for Swiss watches and for premium automobiles, citing examples such as Dubai’s imports of between 800,000 and one million premium watches per year and the UAE’s position as the fourth-biggest market worldwide for motorcar maker Rolls Royce.
When compared with retail malls in large European or North American cities, the first visual impression on the inside of malls in Abu Dhabi and Dubai is that they are teeming with outlets branded by high-end names in jewelry, watches, perfumes, accessories, fashion and the like.
Majid Al Futtaim (MAF), a big regional player in both development and operations of shopping centers, reports that confidence among its retailers has been boosted by rising consumer spending.
As of mid-summer MAF’s three shopping malls in Dubai — Deira City Center, Mirdif City Center and the Mall of the Emirates — have witnessed a 10 percent increase in traffic and 15 percent increase in sales year-to-date.
“Last year alone, Mall of the Emirates welcomed more than 36 million visitors and we anticipate a greater number this year”, MAF’s Senior Director Leasing Fareed Abdelrahman, tells Executive.
Luxury retailers standing at eye-level with the UAE market say that the demand is well segmented and growth rates differ in specific segments of their product offerings but are increasing throughout.
In the Emirati market for gold jewelry, the 22-karat product lines are sought by buyers, largely from Asia, who think of gold in terms of weight and investment, according to Anan Fakhreddin, chief executive of jewelry chain Damas, which operates 142 stores in the UAE and about the same number in other Middle Eastern markets.
“The 22k segment is very sensitive to price and demand is affected by any sudden price movements, whether up or down,” he says. The purchases of jewelry with 18-karat gold or platinum settings and precious stones, on the other hand are “mostly fashion driven and less of an investment decision,” he explains, adding that annual growth rates in this market segment are 10 to 12 percent.
An important factor for the luxury market is demographics. For Damas, the youth of the GCC population is a huge advantage, Fakhreddin says, because “all the buying occasions are still ahead of the people. In other regions, celebration points and buying occasions are more or less in the past.”
Correlating it to other world regions, he sees the luxury market in the GCC as increasing in importance because of the support provided to luxury by the troika of “strong economies, strong government spending and high oil prices. For all international players, it is a very important and very stable market, growing steadily.”
The ‘A’ Class
Prevalence of wealth cannot be wrong in a market where one wants to sell luxury. And although the inside perception of living in Dubai debunks the false stereotype of ‘rich Arabs’ quite easily, wealth is spreading in measurable ways in the UAE. The highest-grossing income group, earning above $150,000 per year, is expected to rise from 23.1 percent in 2010 to 25.4 percent in 2020, according to Euromonitor’s Roberts.
Concurrently, what Roberts calls “the social class ‘A’ consumers” will also get older, advancing from the 35-39 age group into the 40-44 bracket. Such an expanding, middle-age class of affluent consumers with changing luxury needs must be many a high-end retailer’s dream.
And it is not just the wealthy but even more the aspiring social and economic risers who value luxury and are willing to invest in status. This means retailers simply have to make sure to further nurture the ‘label me’ environment pervading in the GCC, Roberts explains.
“Brands are regarded as a symbol of social status and success. More than a third of residents in the UAE are likely to purchase a luxury product at least once a year, a proportion that is much higher than in many other markets across the world,” he says.
It also does not hurt one bit that authorities in Dubai have keen awareness of the importance of commerce and have created an entire infrastructure of retail institutions and events, beginning with the Dubai Duty Free phenomenon. To encourage spending, government-backed Dubai Events & Promotions Establishment (DEPE) regularly organizes an expanding events portfolio including the annual Dubai Shopping Festival, Dubai Summer Surprises and most recently Eid in Dubai.
These key events in the retail trade calendar have been successful in promoting Dubai as an international shopping destination attracting millions of visitors from around the world, representing a major boost to the economic, retail and tourism industry, MAF’s Abdelrahman points out.
Besides new tourism coming from Russia and China, regional shoppers are also big targets for UAE luxury offerings. “We have seen an increase of visitors from within the GCC — notably from Saudi Arabia and Qatar, who are attracted to Dubai’s proximity and broad shopping and entertainment opportunities. These new audiences support our thriving luxury retail offer, and we expect these trends to increase,” Abdelrahman says.
Good to go farther
Dubai leads not only the UAE but also the rest of the GCC countries in terms of retail space. “With more developments in the pipeline, the overall retail market is forecast to grow to $26 billion at constant 2011 prices by 2016,” reckons Euromonitor’s Roberts, adding that luxury sellers have adapted to changing customer preferences that emerged since the 2008 global economic crisis. “Luxury retailers in the UAE are therefore stocking more affordable luxury items and classic, timeless luxury pieces to cater to the new customer mentality”, he says.
Indeed, new, if smaller retail space, is spreading in upmarket neighborhoods and these up-and-coming living quarters are sure to include retail of the exclusive kind — not even to mention the one-million square foot (92,903 square meters) expansion announced in February of this year by Dubai Mall, already the world’s largest shopping temple.
According to MAF, its Mall of the Emirates (MoE) has a waiting list of retailers, including luxury brands looking to establish their presence in the region. Take a walk around MoE and the evidence is obvious, the mall enjoys 100 percent occupancy at rental rates on par with current industry standards.
Martin Fabel, Partner and Head of Consumer Industry and Retail Practice at A. T. Kearney Middle East, says the GCC region is evolving at hyper-speed, given that its markets are growing three to four times faster than their more developed peers.
“The GCC’s strong representation in the global index reflects the ongoing opportunities for retailers looking to expand their brands in fast-growing markets. While retail activity here reflects many of the global trends, it also highlights the often regionally concentrated demographic segmentation of the consumer market, the composition of which varies from region to region, demanding a targeted portfolio approach for successful go-to-market strategies,” Dr. Fabel explains.
In a nutshell, while there may be a point in life when luxury ends for the individual, given that the right strategies are adopted by its retailers and major distribution groups in the luxury space, there is no reason whatsoever to suspect that the UAE would ever run out of new luxury offerings.