Luxury market recovering in Gulf states

The luxury goods market in Persian Gulf countries is showing signs of recovery after slumping for two years, thanks to rising oil prices and the increased impact of Indian and African consumers.

Sales of luxury handbags, fragrances and watches in Dubai (the UAEs), Saudi Arabia, Qatar and Kuwait account for approximately 3% to 4% of the sector's worldwide revenue, which consultancy firm Bain estimates being worth €250 billion.

"Throughout 2016, the situation worsened due to wages falling in Saudi Arabia and the lifting of subsidies on oil prices," said on Friday Patrick Chalhoub, co-CEO of the eponymous group, talking to the media. The Chalhoub group is a partner and distributor of several luxury goods labels in the Middle East, such as Louis Vuitton, Céline, Dior and Louboutin. He added that estimates for 2016 point to a market shortfall between 2% and 3% over the previous year, following a 1% decrease in 2015.

The region was also affected by the dollar's strength - local currencies being linked to the US currency - which made Gulf states less competitive.

However, the rise in crude oil price, now at over $50 per barrel, and the growth in women's employment in Saudi Arabia are expected to bolster the local economy, which relies for up to 60% on domestic purchases.

"There are signs of a recovery, and I am more optimistic than in 2015," said Patrick Chalhoub.

Besides, market demand may be bolstered by Indian and African customers, now the region's most important foreign consumers. There is notably "a very high level of demand" coming from Nigeria and Kenya.

As elsewhere in the world, the Chalhoub group needs to adjust to the luxury clientèle's new requirements: it is uber-connected, very knowledgeable and its consumption patterns, shaped by social media, are different.

"We are witnessing an evolution from 'stiletto-heel' to 'sneaker' fashion," said Patrick Chalhoub, according to whom the younger generations, less loyal to brands, want more accessible prices, a positive shopping experience and differentiation. Proof of this evolution is the fact that the group is now developing partnerships with  emerging local brands.

Chalhoub did not disclose the group's revenue, but said comparable sales fell by 4% in 2016 and group profits by 33%, as investment continued unabated.

The group opened two stores in Abu Dhabi and Dubai, and another five dedicated to the Ghawali fragrances, newly developed by Chalhoub and featuring Oriental scents.