Management Consulting firm McKinsey & Company predicts that online sales of luxury goods will triple in the next 10 years and that the online share of total luxury sales will reach 18 per cent by 2025.
Quite astounding figures.
Luxury items, like watches, furs, cars or even perfumes, are products that need to stimulate the senses before they are purchased online.
These are not sneakers, tables and lamps, but rather statements of elegance and prestige that only connoisseurs need to indulge in.
But apparently, that’s not the case. The question that arises now is the following: how will the UAE’s e-commerce growth encompass the anticipated demand for luxury digital sales, within the GCC’s $20bn online retail market in 2020, as estimated by global management consulting firm A.T. Kearney?
E-commerce is the future
UAE state agency WAM recently announced the launching of Dubai CommerCity, an AED2.7bn ($0.74bn), 2.1million sqf joint venture between Dafza and Wasl Asset Management Group.
Dubai CommerCity is now the MENA’s only free zone solely engaged in promoting and investing in e-commerce and helping to bolster the emirate’s and the country’s retail sales towards a paperless, smarter future.
Private investors have allocated more than $870m to mostly tech entrepreneurs who come up with online ventures and launch internet-based services.
“Over the next five years, the e-commerce sector is projected to account for ten per cent of the Emirate of Dubai’s retail sales, which are in turn expected to reach AED200bn ($54.5bn) by the end of 2017,” said WAM.
“Dubai CommerCity will enhance the role of e-commerce as a key driver of Dubai’s sustainable economy,” said Dr Mohammad Al Zarouni, Director General of Dafza. “Dafza will apply its leading experiences and services based on comprehensive studies on the future of e-commerce in the MENA region.”
WAM added: “The project will help foreign investors establish a presence and expand in this field and allow young innovators and entrepreneurs to pursue promising opportunities within the e-commerce sector, which serves as an ideal platform for establishing start-ups and sophisticated projects in line with efforts to make Dubai the smartest city in the world.”
While tech start-ups will benefit greatly from this setup of a free zone of digital sales, is the luxury sector lurking in the shadows and waiting for an opportunity?
Pricey primed for digital
Wealth-X, a prominent global wealth information and insight provider, quoted Chalhoub Group, a luxury retailer with high-end brands like Louis Vuitton, as saying that “e-commerce sales will account for $1.5 billion of the Gulf’s high-end luxury segment within the next four years.”
It should be noted that Chalhoub had published a white paper outlining virtual retail and the place of luxury in the overall mix.
The paper claims the Middle East e-commerce sector has grown exponentially by 1,500 per cent over the last 10 years, especially in the GCC, where a good number of consumers have high disposable incomes.
Investment firm Alpen Capital recently expected the GCC’s retail industry to grow at 4.6 per cent from a value of $250bn in 2016 to $313bn in 2021.
In this environment, luxury has to transform itself from a display item and try-it-on commodity to a digital gem, able to take consumers on a journey of discovery.
Chalhoub’s 2015 numbers show that online sales of luxury products reached $230m, or 2.5 per cent of the segment’s total sales in the GCC.
Plenty of room to grow.