Mapping the high-spend hotspots of the Gulf region

This article is part of our Advanced Membership package. To enjoy unlimited access to The Long View from Vogue Business and bi-monthly Market Insights Reports and webinars, sign up for Advanced Membership here. The Middle East’s young population, combined with an increasingly large number of millionaires, make it a global retail powerhouse with plenty of potential. Luxury companies know they need to invest in this growth market. But where and how? Of prime focus are the Gulf Cooperation Council countries (GCC), particularly Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. For now, the Arab consumer makes most luxury purchases when they travel, but this has the potential to change as both retail infrastructure in Gulf countries improves and Arab consumers look for brands that connect to them in a more personal way. “We have to keep in mind that our consumers travel a lot, with most luxury consumers travelling every quarter, so there is also a lot of spending abroad,” says Jasmina Banda, chief strategy officer of Chalhoub Group, one of the largest distributors of luxury fashion and creator of luxury experiences in the Middle East, headquartered in the UAE’s commercial capital, Dubai. While the countries in the Gulf region may share a common religion (Islam) and have similar cultural and political objectives, each country needs to be approached individually. Many factors, from real estate infrastructure to varying VAT costs, impact how the consumer in each country spends. According to qualitative research by the Chalhoub Group, over half of the UAE accounts for well over half of the market, equally split between the local population (nationals and residents) and tourists. The other countries constitute a considerably smaller market share, she adds, with Kuwait at nearly 15 per cent, and Qatar and Saudi Arabia making up slightly over 10 per cent each. Saudi Arabia is putting a high focus on fashion retail as it looks to diversify its economy away from being oil production reliant, and every luxury brand has the country’s capital, Riyadh, on its radar. Saudi Arabia’s Jeddah is also a place of high cultural significance for the whole region, known for its proximity to Mecca, and should not be overlooked. Neighbouring Kuwait is known to have the most sophisticated and fashion-forward consumers and is important for independent brands. Qatar, too, has ambitions to make Doha a world-class fashion capital. Overall, the Arab consumer is well-travelled and discerning, and so expects the latest products in stores. They look for brands that integrate with their local landscape yet deliver international experiences. They’re also aware of pricing differences. “While consumers in the region are well-versed in international fashion trends, brands that celebrate the regional culture and Arab fashion scene are to further benefit, as this will benefit not only residents but regional, domestic and international tourists that come to shop and have new experiences,” says Amna Abbas, senior consultant at Euromonitor International. Brands that understand the nuances of this dynamic region are those benefitting the most. Dubai-based Karen Wazen is one of the region’s best-known influencers and the face of a global campaign for Roberto Cavalli Fragrances; she has worked on regional initiatives for Louis Vuitton and Prada. Wazen runs a successful namesake eyewear brand that has a strong e-commerce presence in the region and stocks in stores in Dubai, Riyadh, Doha and Kuwait. While the entrepreneur sees these four cities as the fashion hotspots of the Gulf, she knows there are other cities with untapped potential, such as Jeddah. She advises that international brands need to “establish strong partnerships with local distributors, retailers and influencers that can provide invaluable insights”. The United Arab Emirates: The region’s reigning fashion capital “The UAE is considered the fashion capital of the region,” says Fahed Ghanim, CEO of Majid Al Futtaim Lifestyle (MAF Lifestyle), a retail group that operates 65 stores and 18 digital platforms across the Middle East and North Africa well as That Concept Store, a multi-brand shopping destination with an outpost in Dubai, with regional and international brands, beauty services and eateries. When it comes to purchasing power, Dubai has it. Chalhoub Group’s Banda says, in terms of spending, the UAE consumption leads the way for luxury in the Gulf. With a high expatriate population, Dubai is also a major tourist destination and brands need to understand how this affects sales. “It is critical to have an early understanding of where the tourists will come from,” Banda says. “Take Chinese versus British tourists; they do not search for the same brands, items, collections or even sizing.” It also makes the need for brick-and-mortar presence more important in Dubai. “In markets which are not strong on tourism, e-commerce is much more important, as tourists shop exclusively in stores, impulsively, while local consumers research a lot and order online,” says Banda. The expatriate culture also means you need an inclusive retail calendar. “It is a melting pot of cultures and preferences, hence you need to cater to a wide range of demographic and ethnic backgrounds and consider the celebration of different cultural events in our campaigns, such as Ramadan, Christmas, Diwali and others,” adds MAF Lifestyle’s Ghanim. The wealthy continue to relocate to Dubai. Research by Euromonitor International shows that, in the years 2021-2030, the number of millionaires in the United Arab Emirates will more than double to 127,000. The UAE offers a 10-year Golden Visa to attract investors, as well as creative and medical talent. “The country is known to be safe and to offer a secure haven, with a high vaccination rate, centrally located from a global perspective, and offering a wide variety of services and products, including in the luxury space,” says Euromonitor’s Abbas. Dubai has the money, as well as the infrastructure. “It is a market that continues to perform well and is unique for the Gulf, with the right real estate (Dubai Mall and Mall of the Emirates) that continues to offer the best locations for luxury retail in the region, with more international HNWIs [high-net-worth individuals] looking to become residents,” says Cyrille Fabre, senior partner and director at consultancy Bain and Co. Euromonitor’s Abbas adds, “The country is being propelled towards growth through the combined efforts of government- and private-led projects.” This includes the former Expo 2020 space being converted into District 2020, a smart and sustainable human-centric city last year. “Within luxury goods, strong recovery-led growth was seen across categories in 2021, with this set to continue in 2022,” she adds. While Dubai is seen as an international fashion city by most luxury brands, the capital of Abu Dhabi should not be ignored. Home to some of the most exclusive beach resorts in the Gulf, as well as museums and malls, Abu Dhabi attracts many affluent Emiratis. During Covid-19, there was a hard border between Dubai and Abu Dhabi, which shifted habits, a result of which is many residents have now become used to shopping in their own emirate. As Ghanim says, “Overall, recognising the nuances of each city within the UAE, including their customer mix and cultural context, is essential for fashion brands to tailor their strategies and product offerings accordingly.” Saudi Arabia: The growth market of the Gulf The Saudi government’s Vision 2030 was launched in 2016 and aims to diversify the country's economy and reduce its dependence on oil, partly by tapping into the creative industries and also has a focus to develop public service sectors such as health education and tourism. With luxury retail as a focus area, the Ministry of Culture established The Fashion Commission in 2020 to promote local fashion internationally and encourage international fashion brands to set up a base in the country. “The Saudi market is one you need to be investing in,” says Bain and Co’s Fabre. While Kuwait may bring greater apparel sales right now, when it comes to accessories and jewellery, Saudi spends the most on luxury, he explains. “And, when you look at global sales, it is the Saudi shopper who spends the most on luxury, even more than the Emirati.” What does not help sales locally is a high VAT of 15 per cent (it is just 5 per cent in the UAE). In addition, Saudi still does not have luxury shopping destinations to match Dubai, though that is set to change with several luxury malls opening in Riyadh within the next three years. Though most major luxury players already have a base in the country, these new shopping centres will be game changers. As travel has opened post-lockdown, many Saudis have gone back to shopping abroad. “Over 60 per cent of Saudi’s luxury spend is done out of the country, whereas in the UAE, the number is closer to 40 per cent,” says Fabre. He believes all these factors mean plenty of opportunity for strong growth for luxury retail in the country. “There are no other large, high-income markets globally with the same or higher projected growth rates across the various fashion market categories,” says Burak Cakmak, CEO of the Fashion Commission, which predicts that for fashion goods, there will be a compound annual growth rate in Saudi Arabia of 13 per cent from 2020 to 2025 in its recent The State of Fashion in Saudi Arabia 2023 report. “We are witnessing a change in shopping habits,” says Cakmak. Saudi has one of the youngest and digitally savvy populations of the Gulf (according to the 2022 census, the median age of the Saudi population is 29 years old). With Vision 2030 aiming to achieve 70 per cent cashless payments by 2025, it is a market where online retailing plays an important role. “Our online sales have surged by a remarkable 130 per cent in like-for-like revenue this year in Saudi,” says MAF Lifestyle’s Ghanim. Chalhoub Group’s Banda agrees, saying that she estimates that 15 per cent of luxury purchases are currently made through digital platforms in the Gulf and that Saudi Arabia has the strongest appetite to shop online. “The largest part of that comes from pure players, namely Ounass and Farfetch in this region,” she says. Saudi Arabia’s government is actively working on developing tourist projects such as the luxurious heritage destination Alula, a one-hour 15-minute flight from Jeddah. MAF Lifestyle currently operates around 20 stores in Jeddah, growing their presence in the city by more than 40 per cent a year. There are also ambitious plans to grow operations in the Saudi capital, Riyadh. “Due to the sheer size of Riyadh and the higher number of malls, the larger business opportunities tend to be concentrated in the capital. The size and economic significance of Riyadh make it a priority market for growth and expansion for us and many retailers,” says MAF Lifestyle’s Ghanim. Riyadh also experiences both strong cold and hot seasons, meaning that its residents need a wider wardrobe than their Jeddah counterparts, where the climate is milder. The Fashion Commission’s Cakmak believes one way to service the Jeddah market is through pop-ups or local celebrity partnerships. Despite concerns about human rights, brands are now betting heavily on this market. The country is working hard on making women an important part of the economy. The Fashion Commission’s report says that 52 per cent of fashion employees are female in Saudi Arabia. (Data from Saudi’s Human Rights Commission showed that between 2017 and 2022 the number of women in employment rose from 17 per cent to 35 per cent of the workforce.) As women become earners, they are also likely to spend more — something luxury brands should keep in mind. Kuwait and Qatar: The original and the challenger Currently, industry insiders rank Kuwait as the second largest market for luxury fashion clothing in the Gulf. It is also known as the original market of luxury in the region. Chanel, Dior and Gucci all opened their first Middle Eastern stores in Kuwait City. The Kuwaiti fashion consumer is known to be experimental, discerning and driven by product, not brand. Yet, independent brands could have greater opportunities here, particularly if they tap into local culture and collaborate with regional designers. For example, British shoe brand Malone Souliers recently worked closely with local creators, including creating a limited-edition shoe drop with Dubai-based designer Dima Ayad. While these collabs sold best in Dubai and Riyadh, the brand’s founder and chief brand officer, Mary Alice Malone, says: “Overall, Kuwait is a market welcoming to newness within our collections, and our retail partners pay particular attention to capsules and limited editions.” Home to a few concept stores, Kuwaiti consumers are confident in their tastes and luxury players should treat the country as a market of sophistication. “Kuwait is known for its affluent population and strong interest in fashion and has some of the most followed fashion influencers across the region,” says MAF Lifestyle’s Ghanim. However, Bain and Co’s Fabre believes that, as a market, it does not have the growth opportunities present in the UAE, Saudi or even Qatar. “It is likely to grow more incrementally,” he says. Kuwait’s position in the Gulf has a challenger: Qatar, also known for its sophisticated taste. “Qataris are top spenders in European fashion capitals,” says Chalhoub Group’s Banda. “Local consumers appreciate uniqueness, limited editions and exotic bags the most (high ticket items), while Saudi Arabia is about a new luxury consumer,” she adds. What Saudi and Qatar have in common is that both want to position themselves as global fashion hubs. Asserting their ambition, Qatar launched the Fashion Trust Arabia prize in 2018 under the patronage and presence of FTA’s honorary chair Sheikha Moza bint Nasser and co-chairs Sheikha Al Mayassa bint Hamad Al Thani, and Lebanese-born former fashion journalist, entrepreneur and philanthropist Tania Fares. The prize has ensured that there is new energy for the local homegrown fashion scene, says Ghada Al-Subaey, founder of local fashion label, 1309 Studios. “Fashion is one of Qatar’s fastest growing industries, and it has been really heartening to see the incredible growth over recent years. While Dubai, Kuwait and Riyadh are known to have major fashion influences with top spenders, the luxury fashion scene in Doha delivers a unique customer experience as consumers have high purchasing power,” she says. Qatar’s Sheikha Moza bint Nasser is considered one of the world’s best-dressed women, is also an active part of Qatari fund Mayhoola Investments which owns the Valentino Group, Balmain and Pal Zileri. However, the real game changer for international luxury in Qatar has been the opening of the Place Vendôme Mall last year. Spanning over an extravagant 1,150,000 square metres across four floors, its architecture is inspired by French classicism. “It has allowed brands to open flagships that we didn’t see before in the region, which are architectural retail masterpieces, and allow brands to display the full breadth of the categories and collections, as well as offer differentiated VIP experiences,” says Chalhoub Group’s Banda. One of the major reasons luxury brands find the GCC area a challenge is the lack of retail options. “We live in a period where GCC retail real estate is quite scarce — shopping in the region happens in the malls, and most luxury ones are fully booked,” she adds. Place Vendôme has given luxury brands the right location to open large luxurious flagships, and almost every major brand that has a presence in the Gulf is opening there, from Giorgio Armani to Van Cleef & Arpels. She notes it also attracts Saudis to the city, who come there to shop; however, as Saudi opens its own luxury malls, this could change, in part thanks to its lower rate of VAT at 5 per cent. Bahrain and Oman: The secondary players Not on the radar right now for international brands, Oman is a direct neighbour to the United Arab Emirates. Flights from the capital, Muscat, reach Dubai in just over an hour, so it is often treated as a satellite market to the UAE. Although Bahrain is close to both Qatar and Saudi Arabia, several luxury brands have still chosen to have a presence in the capital, Manama, including Hermès, Dior and Tod’s. Other brands looking to have a foothold in the country have taken the department store route, setting up in Manama’s Saks Fifth Avenue. “The market size is small in Oman, and it can be serviced through the UAE. Bahrain has potential, but it is not a priority market,” says Bain and Co’s Fabre. However, Bahrain should still be part of brands’ Gulf strategies, he adds. The Gulf area is going through a period of social reform while transforming itself to attract a greater number of tourists as a destination. And, with more Arab shoppers now starting to shop at home, the Gulf’s luxury market is one that brands should be betting hard on — although will come with challenges. To be able to succeed in this unique market, brands will need to keep a keen and constant eye on developments in the region and understand the nuances between each of the Gulf countries. “Today, luxury players cannot ignore and must make strategic investments in UAE and Saudi, or else they will lose out on attracting the high-spending Arab client,” says Fabre. Key takeaway: Each country within the high-spend Gulf region has its own approach to luxury, so it is important for brands to understand the commonalities and differences to really connect with local luxury consumers. Overall, the Arab consumer today expects international brands to deliver a world-class experience yet show a true understanding of the local culture. Clarification: This article was updated to reflect that That Concept Store only has one outpost in Dubai and doesn't have fitness studios (24/7/2023). To receive the Vogue Business newsletter, sign up here. Comments, questions or feedback? Email us at feedback@voguebusiness.com.

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