Dubai: A decline in consumer spending is weighing down on the bottom lines of premium brand retailers in Dubai and the rest of the Middle East, and it may take a while before growth begins to accelerate again.
In its report released on Monday, management consulting firm Bain and Company said that business has been pretty flat in the high-end market this year, as shoppers are splurging less on designer clothes, handbags, jewellery, fragrance and other prices goods.
“After a few years of hyper growth, the Middle East personal luxury goods market plateaued in 2015,” Bain and Company said.
“This deceleration has mostly been driven by a reduction of tourism spend notably in the UAE, while domestic market remains strong.”
The overall personal luxury goods market reached €253 billion in 2015, representing a 13 per cent growth at current exchange rates. Real growth, however, slowed to 1 to 2 per cent.
“For the last several years, we’ve referenced ‘luxury’s new normal’ with a deceleration of the personal luxury goods market. Now, we are starting to feel the impact of that slowdown,” said Claudia D’Arpizio, Bain partner in Milan and lead author of the study.
“The challenge for luxury brands in this environment is how to successfully navigate through hard-to-predict volatility.”
Bain and Company’s research findings echoed those released earlier by Jones Lang LaSalle, which stated that Dubai’s retail sector has been put under pressure by low influx of high-spending shoppers, especially Russians.
“Retail sales continue to slow down, particularly in the [premium] segment, as tourist spending from Russia has declined,” JLL said.
Dubai’s sprawling shopping centres had been a regular magnet for cash-flush tourists, until recently. The drop in the value of some currencies against the US dollar, coupled with the fall in oil prices, has made it expensive for travelers to spend their money in the emirate.
“Russian travelers to Dubai have significantly reduced due to their socio-economic situation,” Habib Khan of the Arabian Courtyard Hotel and Spa, told Gulf News earlier.
However, Cyrille Fabre, partner and head of Bain’s retail and consumer products practices in the Middle East, said that the Middle East market is expected to bounce when additional retail space will be made available.
“Going forward, we expect the [region] to show new signs of life driven by mall openings, but the growth will occur at a much slower level versus the last five years,” said Fabre.
“A sustainable high single-digit growth rate will become a new normal for the market, with important implications of the required capabilities for success.”
Sales value in the overall luxury industry, however, reached €1 trillion in 2015, posting a five per cent year-over-year growth at constant exchange rates. The growth has been driven primarily by [premium] cars (8 per cent), hospitality (7 per cent) and fine arts (6 per cent).