Middle East presents massive opportunities for luxury brands
Emerging consumer markets continue to drive luxury market growth. In China, Russia and the United Arab Emirates, categorised as emerging luxury markets, the percentage of consumers claiming to have increased their spending in the last five years was 70 per cent, compared to 53 per cent in the more mature markets (EU, US and Japan), according to the fourth annual Global Powers of Luxury Goods report issued by Deloitte Global.
James Babb, Clients and Industries leader, Deloitte Middle East said: “Travel and tourism is still a great growth opportunity for the luxury sector. Almost half of luxury purchases are made by consumers who are travelling, either in a foreign market (31 per cent) or while at the airport (16 per cent).
”This rises to 60 per cent among consumers from emerging markets, who typically do not have access to the same range of products and brands that can be found in more mature markets.”
Babb added: “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.”
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.
Based on publicly available data, the world’s 100 largest luxury goods companies generated sales of $212 billion in FY2015. The average luxury goods annual sales for a Top 100 company is now $2.1bn.
“The essence of luxury is changing from an emphasis on the physical to a focus on the experiential and how luxury makes you feel”, Babb noted. “However premium quality remains a ‘must have’ and consumers retain a keen eye for craftsmanship and hand-made products”.
3 key trends shaping the luxury market
1. Luxury goods sales growth up – sales for the world’s 100 largest luxury goods companies grew by more than 3 percentage points in FY2015. Most currencies weakened significantly against the US dollar, which benefited many multinational companies based in other regions who experienced favourable currency effects, driving up reported sales. In the Top 100, only six companies reported double-digit sales decline in FY2015; half of these were jewellers, the product sector which continued to experience volatile demand.
2. Italy is once again the leading luxury goods country in terms of number of companies, while France has the highest share of sales – with 26 companies in the Top 100, Italy has more than double the number based in France. However, the predominantly family-owned Italian companies are much smaller, with average luxury goods size of $1.3bn, which is around a quarter of the average $5.1bn luxury goods sales for the French companies.
3. Companies in the multiple luxury goods sector nearly double sales growth – compared to the previous year and leads profitability, while bags and accessories continues to be the fastest growth sector.
The report examines and lists the 100 largest luxury goods companies globally, based on publicly available data for consolidated sales of luxury goods in FY2015 (which we define as financial years ending within the 12 months to 30 June 2016).
Digital disruption in the business of luxury
What are consumers looking for in an era where any product can be purchased on their phone and delivered to their doorstep?
Carlo Ratti, Director of the MIT Senseable City Lab, told AMEinfo that consumers of the future would only come to a shop physically to “share a moment”, adding that brands offering special experiences would be the only ones to survive the impending “digital disruption”.
Fahad Hamidaddin, Chief Commercial Officer at King Abdullah Economic City said that it is essential to create wholesome experiences for the consumers of tomorrow.
Luxury brands have to create more personal experience for its customers and they have to make full use of latest technology that will allow shoppers to interact with brands and among each other more effectively. This will eventually ensure increased footfall in the luxury stores in the region that have started facing the brunt of global financial slowdown, fluctuating oil market and weaker consumer sentiments.