Personal luxury goods growth stalls in ME even as global market rebounds

June 14, 2017 1:43 pm


Global personal luxury goods market growth is on its way for a rebound on the back of a strong demand from Chinese customers, a recent research reveals.

Chinese shoppers’ continuing interest in luxury goods in their home country and outside markets coupled with increasing customer confidence in Europe is expected to reflect in a 2-4 per cent growth this year with total value expected to hit $289 billion, notes “Bain Luxury Study 2017 Spring Update” released earlier this month by leading management consulting firm Bain & Company.

“This year looks promising so far,” said Claudia D’Arpizio, a Bain partner and lead author of the study. “After a difficult 2016, the first quarter of 2017 brought some relief to the luxury industry. Factors such as the continuous repatriation of Chinese consumption as well as a positive outlook in Europe both for locals and tourists will help drive overall market growth during the remainder of the year.”

As the gap between winners and losers continues to widen, brands must rethink their strategies and adapt to a millennial state of mind, which will be a key driver to push the market to €290 billion in sales by 2020, says the report.

Middle East stagnant

Major markets including China and Japan are projected to see strong growth while Middle East is said to disappoint with stagnation in the market. This excludes Dubai.

Cyrille Fabre, partner and leader of Bain’s Retail and Consumer Products practices in the Middle East, explains why the region’s luxury businesses should wake up to face the challenges in the market.

“For luxury goods companies in the Middle East, the challenge is two-fold. On one hand, the market is difficult with several segments declining for the first time in 10 years. On the other hand, they need to adapt to the rise of the millennials and make sure they cater to the needs of their next generation of consumers,” says Fabre.

However, the region still presents massive opportunities for luxury brands, says audit and consultancy firm Deloitte.

“The market in the Middle East continues to represent a big opportunity for luxury brands: luxury markets in Abu Dhabi and Dubai have helped to promote these cities as desirable shopping destinations. Well established big-name brands have performed well in the region, and tourism is a major driver of sales in Dubai. However, the market saw a significant slowdown in 2016, caused by the low oil prices, higher gold prices and an increase in the cost of living,” says James Babb, Clients and Industries leader, Deloitte Middle East.

Speaking about the future, Babb said: “The region is likely to feel the impact of political unrest as well as global economic uncertainty, but further growth is nevertheless expected as Dubai and Abu Dhabi continue to be attractive shopping destinations.

Growth varies in different markets

In the Americas, the US luxury market continues to underperform. A strong dollar, ongoing political uncertainty and struggling department stores combine to create an uneven outlook for 2017. Latin America is supported by some local consumption, while Canada remains dynamic but still poised to slow. The region is expected to grow between -2 to 0 per cent.

Europe is in the midst of recovering from decreased tourist flows in 2016 and is regaining confidence among local consumers. Spain, perceived as a safe destination, and the UK, where the pound is substantially weaker than this time last year, stand out as bright spots. Bain forecasts growth of 7-9 per cent for the region.

Mainland China is also rebounding, as local consumers demonstrate a strong preference for purchasing luxury goods at home, which is expected to drive growth of 6-8 per cent. However, Chinese tourists will still account for a sizable portion of luxury purchases abroad.

Sluggish and mature, Japan remains a safe market for luxury brands. Local consumption supports a market where tourism has decreased, leading to flat growth for the year.

Across the rest of Asia, the environment remains difficult. Bain believes the market in that region is set to shrink by -2 to-4 per cent (at constant exchange rates). Hong Kong, Macau and Singapore are on the mend, but Taiwan and Southeast Asia face decreased tourism, particularly from China and South Korea, which has been impacted by domestic political turmoil.

Whereas the rest of the world is expected to be flat or see only slight growth of 2 per cent.

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By AMEinfo Staff
AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.



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