Home Special ReportLuxury The price of being well-heeled

The price of being well-heeled

Once rich retailers struggle as customers cling to their dollars

by Executive Staff

In mid-June, a Saudi princess made headlines for failing to pay tabs worth hundreds of thousands of dollars at luxury clothing shops in Paris. What does it say about the Middle East luxury clothing market when even a Saudi royal can’t pay the bills?

On the one hand, the region has obviously been affected by the economic crisis, with some, such as leading Dubai retailer Tony Jashanmal of the Jashanmal Group of Companies, reporting a 45 percent drop in luxury retail sales. By the same token, the Saudi princess’ story makes it seem like the days when the regions fashionistas  could shop till they droped may be comming to an end.

Over the past decade, the region’s luxury retailing has generally been concentrated in Beirut and the Gulf, particularly Dubai and Saudi Arabia, with Kuwait playing a fledgling role. Beirut has long been home to many of the region’s top couturiers, hosting a number of European flagship stores. In the past five years, the greater levels of wealth in Gulf Cooperation Council states has led to the availability of these same luxury brands across Dubai, Saudi Arabia and Kuwait, either through franchises or homegrown luxury department stores and boutiques, such as Boutique 1 and Villa Moda. In 2006, ACNielsen called the UAE the “most promising market” for luxury clothes and accessories.

But that was then…

This year, sales of luxury items are predicted to drop by 10 percent worldwide, according to a report by the consulting firm Bain & Company. For the MENA region, however, some forecasts remain relatively strong, with the Bahrain-based investment bank Investcorp predicting a 10 percent rise in the luxury sector, an optimistic outlook compared with Bain & Company’s projection of a 2 percent rise for the region this year. Investcorp further estimated that the MENA’s share of the $300 billion worldwide luxury market would rise by 5 percent, thanks to continuing oil and gas wealth and a young, affluent demographic in the GCC.

The industry’s big names, however, have suffered greatly in developed markets where their revenue bases have existed for decades. Now, emerging markets like the MENA are taking center stage and drawing the attention of the industry’s biggest names.

“We have a crisis in the US, especially in the department store [sector]. But with the UAE it’s not a crisis. It’s our highest growth in the world,” Philippe Fortunato, managing director of the Fendi Group, told Gulf News in June upon his arrival in the UAE to open Fendi’s third store.

Fortunato now has 11 Fendi stories in the GCC, and is planning to open three new Fendi stores in Morocco by the end of next year.

Optimists can also point to the region’s continuing fashion exhibitions to prove that the affinity for high-end fashion is still present. Seamus Flanagan, commercial director at Mecom Exhibitions, the company that organizes Fashion Arabia and the Shoe and Leather Fair Middle East exhibitions, said that because European high-end retailers have been “hit hard” by the global downturn, and they are increasingly looking towards the “UAE and the GCC because of the regions insatiable appetite for bling and high-end fashion.”

That said, the overall picture remains spotty. While newspapers have relayed lurid details of Dubai’s deserted shopping malls and parking lots full of abandoned cars, retailers in Beirut insist they’re doing as well as ever, thanks in large part to the relative political stability the country is experiencing. Flanagan explained that even though high-end retailers are focusing more on the region because they are looking “for more opportunities than their own markets,” they are still being “realistic and treating the situation with caution.”

Joseph Moussa, the marketing manager for Italian luxury goods brand Salvatore Ferragamo in downtown Beirut, claims that this year has been even better than last year. Then again, that’s hardly a gauge, because Beirut’s downtown was ground zero for the economic woes of the last three years of political turmoil in Lebanon.

“It’s difficult to have an idea of how the crisis is affecting us because before this year, the shop was pretty much closed because of the sit-in. The army was closing the street every day. So now it is doing better than before,” he told Executive.

Moussa estimated that sales have increased by 30 percent year-on-year, with the holiday season proving particularly lucrative.

“The holiday season always does very well in Lebanon. I’d say 40 percent of our customers came during the third and fourth quarter,” he said, adding that these clients were mostly Lebanese, rather than foreign tourists.

Accessories, rather than clothing, were the top sellers, he said. The fashion house is noted for its high-quality leather goods such as shoes and wallets.

“Accessories work better than fashion, because fashion is too expensive for now. We’ll see if that changes when foreign customer come,” he said, referring to the large number of tourists mostly from the Gulf. “Handbags and leather goods are products that everyone can buy and offer as gift items,” he noted.

Retail rents have soared in recent years, but developers do not feel inclined to lower them

Still, he acknowledges that the crisis might eventually start to jab Lebanon, and if the summer is slow, he has planned in advance how to cope, by receiving his stock at the earliest date possible, and choosing to buy less stock.

“With prestige brands, you have to get the goods very early, so you can start the discounts very early. I also negotiate with the supplier to buy less,” he said.

Nora Yagmur, the general manager at Plum concept store in Beirut’s central business district, cites a “natural growth” trend in sales that she attributes to the political stability.

She contrasts Beirut’s market with Dubai’s, noting that while “Dubai has been affected by the economic crisis, growth in Beirut was not as fast as growth in Dubai, which depended on the property business.”

Therefore, says Yagmur, her local customers are still going strong.

“We haven’t seen any negative effects due to the crisis,” she concludes.

In order to compete with other markets like Dubai and in Europe, they are offering special services to their VIP customers.

“We offer something special” for these clients, says Yagmur. “Because today they are traveling around as well, and are part of lists elsewhere that are offering discounts, like in Europe where they offer 40 to 50 percent discounts.”

“Dubai has been desperate,” she continues. “We did not take that direction. Dubai is flooded with brands — some brands are in almost all the luxury malls,” she said, referring to its saturated market, another factor that analysts have pointed to as a factor in its dismal retail performance.

By contrast, she said, “We are a concept store, and we keep changing our brand portfolio.”

The small size of their operation and close contact with their client base has enabled them to be responsive in a way that brands that rely on other distribution channels, such as third-party resellers or wholesalers, cannot.

In this respect, those at the highest end of the high-end clothing industry have a distinct advantage. Couturiers like the Lebanese Walid Atallah can make only what they know they will sell, and are rarely left with excess stock.

According to Atallah, he has not had to lower his prices either, which range from $19,000 to $1.25 million for his dresses.

“They don’t want me to make lower prices… [the client] doesn’t want another woman who has less money to wear it,” he told an audience at the Reuters Global Luxury Summit held in early June in Dubai.

He and other couturiers, who generally work out of private ateliers, are also spared the problem of competing for space in Dubai’s crowded malls. Retail rents have soared in the past few years, but developers have been less inclined to reduce rents than their colleagues in the residential property market. Instead, they must respond to the individual whims of their clientele, which Atallah said in his case means less jewelry, or smaller jewelry sets.

“In the beginning my clients used to complain to me about how much money their husbands have lost during the crisis… but now if ladies don’t wear beautiful dresses they aren’t ladies,” he said at the summit.

Sounds like a justification the Saudi princess could have mumbled to herself, as she bought nearly $100,000 worth of lingerie.

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