The luxury market, globally, is on a tear halfway through 2018. A positive trend across all regions is set to drive this market higher by 6-8 percent (at constant exchange rates) this year to reach €276-281 billion.
“China” and “millennial state of mind” remain the buzzwords in an industry that could reach €390 billion globally in sales by 2025.
Is the situation in the Middle East any different?
Dubai’s luxury market is stabilizing, aptly backed by its leading position as a highly-preferred tourist destination, according to the findings the “Bain & Company Luxury Study 2018 Spring Update”.
“2018 is off to a strong start,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study. “Currency fluctuations will have an impact, but we expect the healthy trend to continue across all regions and customer segments. Chinese consumers continue to stand out as a growth-driver for the industry, and are more fashion-savvy and digitally advanced than ever before, accelerating the shift of the industry to the millennial state of mind.”
According to Cyrille Fabre, Partner and leader of Retail, Bain & Company Middle East, “The GCC market was stable with some recovery from last year driven by Tourism spend and online spend which now represents almost 5% of the regional luxury market (e.g. ~$400m)”.
Looking ahead to 2025, Bain & Company expects growth to pick up to 4-5 percent per year (at constant exchange rates) increasing the market size to €366-390 billion.
“Luxury brands should view themselves as the masters of their own destiny,” said Bain & Company partner and report co-author Federica Levato. “Customers are responding to targeted strategies, and top performing brands are already winning over the customers of tomorrow.”
But are they really connecting with customers?
Facts apart, the hard truth is that the luxury goods market in the Gulf is still in a state of flux.
Traditionally, the region has been known to be a thriving destination for many major luxury brands, fostered by factors such as the development of swanky malls and the swell in high net worth individuals (HNIs).
For the first time in a decade, however, the luxury market in the region witnessed a significant softening since 2015 mainly because of two factors – low oil prices (that subdued consumer sentiment), strengthening of the dollar (that effectively made luxury goods pricier for tourists coming from non-dollar economies), and the rapid rise of digital-savvy affluent customers, enabling easier access of consumers to market information such as store location, products and price comparisons (that revealed how luxury brands in the region charged price premiums compared to other markets).
For local residents, it made sense to travel to and buy a luxury item from any European or Asian market, than from within the region because of the cost advantage because of the currency effect.
According to a report by Deloitte, titled Global Powers of Luxury Goods 2017 higher relative costs meant that local residents found it more attractive to make their luxury purchases while travelling abroad in Europe.
Most GCC currencies are pegged to the US dollar, and this effectively made the price of luxury goods higher for tourists from Europe, whose currencies have devalued against the dollar.
But while digital tools and technologies are revolutionizing the ways luxury brands market themselves, the elephant in the room is that brands in the region do not truly understand what does going digital really mean. For some brands, it’s about numbers.
For others, digital is a faster way of reaching out to customers. And for others still, it represents a new way of doing business. While none of these approached to digital marketing is necessarily incorrect, it isn’t complete either.