10 things you need to know about ME luxury retail sector

May 10, 2017 4:47 pm


Middle East’s luxury retail sector presents massive growth opportunities, according to experts.

A report by Bain & Company, an international management consulting company, the global luxury industry, led by luxury cars, luxury hospitality and personal luxury items, grew by four per cent in 2016 to total approximately $1.1 trillion.

These goods tracked by Bain & Company accounted for about 80 per cent of the items in the total luxury market. Best-performing luxury items included fine wines, fine foods and the luxury beauty industry.

The core of the personal luxury goods which includes fine watches, jewellery, leather goods and apparel in 2016 was generally flat in consumption, globally totalling about $255 billion.

The report said that the consumer’s focus in 2016 was redirected away from luxury goods towards experiences rather than items.

Data from Deloitte shows that the world’s 100 largest luxury goods companies generated sales of $222 billion in financial year 2014, 3.6 per cent higher year-on-year. The average luxury goods annual sales for a Top 100 company were $2.2 billion in 2016.

Key trends in the luxury sector

Here are the ten most important facts about the MENA luxury retail market:

1. For the first time since 2001, home country purchases exceeded tourist purchases. Shoppers for luxury goods did not travel to foreign destinations to find coveted luxury items.

2. The growth of luxury retail outlets in the newly-constructed high-end shopping centres continued at a brisk pace globally in 2016.

3. Chinese consumers are spending less on luxury items as tourists in 2016. As the countries’ middle class population continues to grow in size and purchasing power, the appeal of aspirational luxury purchases at home has taken root.

4. Bain & Company forecasts that the global growth of luxury sales through 2020 will continue to grow at four per cent per year. This growth forecast is given provided that the foreign currency exchange rates remain in similar trading ranges to 2016.

5. Several countries have witnessed a growth in numbers of affluent residents and ultra high net worth individuals. The UAE, China and Canada have taken the lead in terms of attracting affluent consumers.

6. Experts have determined that with the increase in the affluence of the residents, the luxury brands will continue to prosper through expansion in countries where these wealthy consumers will shop at home.

7. The luxury goods sector has now passed the mid-point of the ‘decade of change.’ The first half was characterised by the Chinese consumer and the explosion in the use of digital technology. The second half of the decade is expected to be characterised by discipline. The external environment is likely to change in a number of crucial areas: an evolution in consumer buying behaviours; the merging of channels and business model complexity; an increase in international travel; the growing importance of the millennial consumer; and the continued impact of the global economy. All of these factors create opportunities for the luxury goods sector.

8. Sales for the world’s 100 largest luxury goods companies continue to grow despite economic challenges, although the rate of growth was less than in previous years. Profit margins were higher than the previous year and the polarization of company performance was greater, with more high performers achieving double-digit luxury goods sales growth and profit margins, and also more companies experiencing double-digit sales decline.

9. With 29 companies in the Top 100, Italy has more than double the number based in the US, which has the second-largest number. However, Italian companies account for only 17 per cent of luxury goods sales in the Top 100 – these predominantly family-owned Italian companies are much smaller, with average luxury goods size of $1.3 billion, compared to $3.1 billion for US companies.

10. Given the changing political landscape globally in 2017, travel restrictions may further negatively impact tourism purchases. Spending patterns, demographics, mobility and currency exchange rates will have a continued impact on the luxury retail industry.

Save the date

Arab Luxury World, a leading conference on the business of luxury in the Middle East, is a unique summit built on the extraordinary growth the region has recorded the past decade in the luxury segment.

This year, the event will focus on the advent of the Fourth Industrial Revolution and the end of the era of overabundance – two factors that are transforming the Middle East luxury industry.

As innovation, adaptability and sustainability become the new norms, the industry’s stakeholders are faced with the necessity of adapting to single-digit growth in brick-and-mortar sales.

Meanwhile, the digital disruption has arrived and online platforms are vying for the lion’s share of the market and enjoying double-digit growth.

Can luxury businesses adapt to an environment of digital disruption? What does the future of retail look like in this new environment?

Attend Arab Luxury World 2017 on May 22 and 23, 2017 at Westin Mina Seyahi, Dubai to find out.

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By Hina Latif
Journalist
Hina Latif has over six years of media and publishing experience under her belt, spanning multiple magazines and a newspaper in the UAE. She studied creative writing at the University of Oxford and has a Master’s degree in Journalism.



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