Complex Made Simple

Future of retail takes spotlight at arab luxury world 2017

What are consumers looking for in an era where any product can be purchased on their phone and delivered to their doorstep? That’s the question a panel of experts attempted to answer today at arab luxury world, the conference on the business of luxury in the Middle East, in a session titled The Future of Retail.

Carlo Ratti, Director of the MIT Senseable City Lab, told the audience 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, Cheif Commercial Officer at King Abdullah Economic City, was also part of the panel. He said that it is essential to create wholesome experiences for the consumers of tomorrow.

Key trends in the luxury sector

The average luxury goods annual sales for a Top 100 company were $2.2 billion in 2016. 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 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, provided 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 residents, 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 in 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 of companies compared to the US, which comes second. 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 global political landscape 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.

arab luxury world is taking place on May 22 and 23, 2017 at the Westin Mina Seyahi, Dubai.