Luxury sales slowdown continues in Middle East

02 June 2010

DUBAI: Many consumers in the Middle East are now making fewer purchases of luxury brands, a trend that could prevail until the end of next year.

Speaking at the Reuters' Luxury Summit, Mohammed al-Fahim, chief executive of Al Fahim Holdings, the conglomerate, reported that category sales fell by 40% in the region last year due to the financial crisis.

The rate of decline slowed to just 25% in the first quarter of 2010, but Fahim warned that conditions were likely to remain challenging in the near future.

"Overall, luxury high-end brands are suffering a little less than last year. The trend in 2010 for those brands is similar to 2009, with the second quarter always tougher than the first," he argued.

Al Fahim Holdings currently operates 80 specialist stores selling premium cosmetics from major multinational manufacturers including Chanel, Dior, Lancôme and Yves Saint Laurent.

It also controls the local franchises for brands like Burberry, Cartier, Ferrari, Roberto Cavalli and Salvatore Ferragamo in a number of markets, selling these products through a further 20 outlets.

While certain established brands like Burberry "keep growing", Fahim suggested newer entrants may find it more difficult to attract buyers in the short term at least.

"There are brands that keep their momentum and others that are new to the market like Ferrari accessories and products ... We still have to see if they work well," said Fahim.

Dubai has long been the main driver of revenues for premium goods in the Middle East, and has suffered particularly heavily during the financial crisis, leading to a shift in behaviour among some consumers.

"People are more careful about what they buy. Those people who have high disposable income are not cutting on buying high-end brands, but those in the middle class ... are more careful," Fahim said.

More positively, demand has remained more resilient among shoppers in Gulf countries like Saudi Arabia, Kuwait and Qatar, particularly with regard to the health and beauty category.

Around 80% of Al Fahim Holdings' customer base is drawn from GCC states, while 20% of trade is attributable to tourists, who often like to splash out while travelling in the area.

"Our customer base is GCC nationals, so in locations where they are concentrated we are growing," said Fahim.

Looking forward, Fahim predicted that sales would pick up in 2011 or 2012 at the latest, yielding a "significant improvement" in trading conditions thereafter.

Data sourced from Reuters; additional content by Warc staff