Dubai: The Middle East’s luxury retail landscape is set to change dramatically over the next 5 years, due to a confluence of internal and external factors.
Dubai remains the number one city for luxury shopping globally, according to new research conducted by American Express, while Saudi Arabia is at risk of slipping further into recession if the speed of economic and societal change does not pick up.
As a result of being on par with cities like New York and London, rents in Dubai’s two largest malls, Dubai Mall and Mall of the Emirates, remain high, despite falling sales.
“I don’t see these two landlords dropping their rents anytime soon,” Cyril Fabre, Partner at Bain & Compnay, told Gulf News. “These malls can rightly point to their long waiting lists, and to the fact that ultimately, retailers can’t afford to not be present there,” Fabre added.
That said, he doesn’t expect rents to go up, either. “I think rates have probably plateaued a bit, and I don’t see them going down until new mega-malls like Meydan come online,” he said. Retailers would then have some choice, the executive said.
However, with Dubai’s rents no higher than top tier capital cities, for now companies like Emaar and Majid Al Futtaim would not budge on rents for their largest malls. “Clearly, these are tough times in this region for luxury,” Fabre said.
For the first time, the GCC luxury market declined in 2016.
This was driven by a drop in consumer confidence due to the oil price crisis, currency fluctuations, and tourist numbers.
In addition to financial pressures at home, a number of key global trends have emerged that will define the luxury segment in the region.
Firstly, consumers are spending more on luxury experiences than on goods, with experiential sales outpacing products in growth by 4 per cent in 2016.
In particular, Chinese consumers are enlarging their luxury basket to include experiences.
Next, casual luxury is gaining traction, including luxury denim, sneakers, and backpacks.
With a region that is now more highly educated and well-travelled than before, buyers are more demanding and luxury companies must move faster as a result.
Customers are also more attuned to price differences in varying geographies — historically, retailers have priced their products higher in the Middle East.
“There is a pressure towards price convergence between different geographies,” Fabre said.
This convergence will further squeeze retailers’ profits in the Middle East.
Another key shift underway is the move towards digital. According to Fabre, digital is only channel expected to grow in the coming years.
On the consumer side, saving is the number one priority for Middle East luxury consumers in 2017, according to a senior American Express official.
According to research conducted by the financial services company, 40 per cent of respondents said that they had greater confidence in their jobs, while 36 per cent said they had a change in personal circumstances.
Putting the talk of experiential luxury in to perspective, Graziela Martins, vice-president of the merchant business at American Express Middle East and North Africa, said that “54 per cent of people still prefer acquiring luxury items, compared to the 46 per cent who spend on experiences.”
Travel, however, remains the number one luxury people want to spend money on (31 per cent), with fashion second (15 per cent), and fine dining third.
In terms of one luxury that respondents said they’d like to spend less on in 2017, 85 per cent said they wanted to reduce their spend on rent.
