Luxury retail rebounds from Covid in the GCC

• Increase in working Saudi women leads to rise in fashion spending
• Online shopping alongside stores boosts sales
• Return of wealthy tourists to UAE improves outlook for high-end brands

The GCC’s luxury retail market has made a quicker than anticipated recovery following the coronavirus pandemic.

An increase in local spending has been a major factor driving the upturn, together with the expansion of the personal luxury market in Saudi Arabia. 

Figures from Bain & Company show that the GCC luxury goods market shrank by 17 percent in 2020 to $7.4 billion.

• Russian visitors pay ‘any price’ for Dubai homes
• Online shopping surges 32% in UAE

The drop was most pronounced in the UAE, where tourists account for as much as 60 percent of the luxury market, as travel restrictions cut their spending power.

Early recovery

According to Chalhoub Group, a luxury retailer first established in Syria in 1955, the GCC personal luxury segment was worth $9.7 billion in 2021, outpacing pre-pandemic levels by 23 percent when compared to 2019.

The firm’s report, GCC Personal Luxury in 2021: A Story of Early Recovery, notes that the driving force behind this growth was luxury fashion, which represented 43 percent of the total market.

“The luxury industry in the GCC is experiencing strong growth and closed 2021 above pre-pandemic levels, particularly driven by an acceleration in high-end fashion and jewellery, with prestige beauty showing steady growth,” says Sharmila Murat, chief investment officer at Chalhoub Group. 

“In 2022, the GCC luxury market continues to grow strong, with high-end fashion leading the trend, followed by prestige beauty and jewellery.” 

Courting local consumers

Another significant factor contributing to the recovery is that GCC consumers today conduct 60 percent of their luxury spending within their own countries.

Shopping closer to home has significantly increased since the pandemic. Border closures and travel restrictions because of Covid drove the change in buying behaviour, but the expansion of local retail offerings also contributed to it.

This trend of domestic luxury – an increase in people buying luxury items in their country of residence – is echoed in the State of Fashion 2022 report by McKinsey & Company.

Its authors noted that although travel has traditionally been a driver of luxury spending, international tourism is not expected to fully recover until 2023-24. 

With consumers still mostly travelling locally or regionally, brands are increasingly looking to appeal to this segment of the market. 

“Global luxury brands are making heavy investments in marketing initiatives, localised events and clienteling to win over local consumers and retain their in-country spending,” said Murat.

“The GCC region accounts for one of the highest per capita spending on luxury goods, and international brands are taking note.” 

Rapid growth in Saudi Arabia

The GCC market that international luxury brands are most excited about is Saudi Arabia.

According to the 2021 Luxury Goods Worldwide Market Study by Bain & Company, Saudi Arabia, together with Dubai, is leading the growth in the Middle East luxury goods market, thanks to the profound social and economic changes under way in the country.

Khalid Aljanahi, chief leasing officer of Arabian Centres in Saudi Arabia, says the kingdom’s retail market has changed significantly in a short space of time, and its rapid expansion is set to continue over the next five years.

“The market is considered to be the fastest growing luxury retail market in the region, alongside a general shift towards more modern, high-end offerings, both in terms of brands and locations,” he said.

“Older, more traditional sites are being transformed to cater to the growing needs of their communities. We expect this to continue as we both renovate existing sites and develop new ones.”

One of the most important changes in the market is that women now make up 33 percent of the kingdom’s labour force – nearly double the level from five years ago – which translates into more disposable income, and higher spending on luxury goods.

Online shopping

Immersive omnichannel experiences are increasingly a part of the GCC’s luxury shopping offering. The pandemic demonstrated to luxury retailers the disadvantages of only having bricks-and-mortar stores, prompting them to boost investment in ecommerce sales channels.

According to research conducted by McKinsey in 2018, online experiences and content influence more than 78 percent of luxury purchases.

“For luxury goods, there is still a strong in-person component to the experience, and mono-brand stores cater to this demand,” Aljanahi says.

“The consumer wants to touch and feel the product. Visiting the store is often an important part of the purchase.

“But ultimately, online channels must complement traditional retail, and vice versa, because a decision to purchase is not linear, and therefore the experience cannot be either. It is multifaceted or complex, with various levels of engagement.”

The return of international tourists, coupled with an influx of wealthy Russian emigrants results in a promising outlook for luxury retail over the coming year.

Chalhoub Group expects the GCC luxury market to be worth $11 billion in 2023, growing at a compound annual rate of more than 7 percent for 2021-23.

But there are some clouds darkening the horizon according to Murat, notably the inflationary pressures, uncertainty due to the geopolitical situation, and supply chain challenges that are being seen across all sectors of the economy.