From tourism to retail, the Middle East’s luxury market is growing exponentially. Our Strategist Esme Smith explores the potential for brands in the GCC landscape and how they can appeal to consumers now.
The Rise of Luxury in the GCC
The Gulf Cooperation Council, or GCC, luxury market is projected to hit $11 billion by 2023, (15% growth from the current $9.7 billion) according to the leading partner for luxury across the Middle East, Chalhoub Group. With its young, affluent and discerning consumer base, opportunity abounds.
And international luxury brands are eyeing up the region.
Earlier this month, Walpole hosted its annual luxury summit. It presents a snapshot of the state of luxury via the talks of industry insiders (Matter Of Form CEO, Anant Sharma, being one of them). The GCC and its flourishing luxury market popped up time and time again. With its growing resource of high-spending customers with changing values, the importance of the GCC to the global luxury market is undeniable as outlined by Lea Maalouf, Head of Media Relations & Public Affairs of the Chalhoub Group.
Inspired by the talk’s findings, we felt it apt to dive into the market, its changing social dynamics and how luxury brands should respond.
The GCC is a regional union that consists of Bahrain, Kuwait, Oman, Qatar, the Kingdom of Saudi Arabia, and the United Arab Emirates. Founded in 1981, the GCC was born out of a desire to capitalise on the oil-exporting economic potential of its member states against a backdrop of British decolonisation and regional liberation.
The fuel to the luxury sector fire in the GCC is the region’s unique combination of high government spending and low taxes. All this is made possible by the huge profits of state-run oil companies, which increase the portion of individual income available to spend on consumer goods.
On a per-capita basis, they are among the wealthiest countries in the world. Together, they supply one-third of U.S. oil and own at least $273 billion of U.S. debt. Numbers too big to fathom.
But Gulf leaders know more than most that oil riches won’t last forever. Oil prices are around 35% lower than they were in 2010–14. (And that’s prior to the Global Commodity Crisis that is fast materialising in the midst of the Russia-Ukraine crisis). The twin shocks of COVID-19 and falling demand plunged the region in a deep economic recession. A situation that worsened already severe wealth inequality.
GCC leaders are now turning to the riches of tourism in an ongoing effort to diversify and level up their economies. With that comes a recognition of the need for liberalisation and social progress. The crisis has pushed the GCC countries to accelerate reforms: from peace agreements to tourism strategies.
It is against these shifting social dynamics that the GCC luxury market is attempting to both internationalise and localise. At once appealing to its own fast growing high net worth audience and a steady stream of international tourists.
Providing social liberalisation is realised, it is a region primed for international tourism.
Think sci-fi inspired infrastructural development. Saudi Arabia is currently building The Line. 170km of modular city connecting sea to desert with ‘zero cars, zero streets and zero carbon emissions’...
Or thriving cultural hotspots. Bahrain recently hosted the first Formula 1 Grand Prix in the Middle East…
Or ecological emporiums. Just off the coast of Saudi Arabia lies the Farasan Islands. It’s a marine sanctuary of mangrove forests, coral, parrot-fish, whale sharks, dugongs, manta rays and sea turtles, with evidence of human civilization dating back to the first millennium BCE.
According to the Chalhoub Group, it’s not just a top-down change to the market. Demographic shifts add another layer of opportunity. The Gulf has one of the world’s fastest-growing populations, with the vast majority being under the age of 25, according to The Economist. And women are beginning to take their rightful place in Gulf economies. 33% of luxury consumers in the Gulf are women in the workforce.
Cultural shifts are rippling across youthful populations, creating a new set of consumer drivers.
The new luxury consumer is…
Local consumers in the GCC spend 60% of their luxury spending in-country, a significant increase pre-COVID according to the Chalhoub Group. This isn’t just because of travel restrictions. Improved availability of brands, elevated customer service and a strong emphasis on clienteling has bolstered the luxury market.
According to Vogue Business, many high-spend consumers in the KSA and the UAE have second homes in cities such as London, Paris and Los Angeles, and are well versed with how brands perform in their home market. However, ‘consumers from the region are now looking for international brands to connect with local culture, which means thinking like a local, but behaving like a global player’.
Gucci for example created a Ramadan campaign in partnership with MILLE World, a media and creative agency based in Dubai. Game night is typical of Ramadan celebrations, from the cherished Arosti (a regional version of I spy with my little eye), to board games like Backgammon or Carrom. The #GucciGameNight series showcases its latest Ramadan capsule, ‘Nojum’ (meaning ‘stars’), and featured guests including film stars, celebrities and content creators from the region, including TikTokers the Habdan twins.
Prod Antzoulis for Gucci x Milleworld.com, courtesy of HuManagement
Whilst there are a set of shared expectations across the GCC as a common market, brands looking to enter the space should be wary of making sweeping – often lazy – generalisations.
Localisation means knowing the distinct cultures and approaches to luxury in each country.
The UAE primarily platform international brands, given the high population of expats. Conversely, regional brands maintain dominance in Saudi Arabia where there is a large native population. These differences translate to social content as well. Sijie Chen, Social Media Manager at Christian Dior Couture, says: ‘According to our research, KSA heightens the requirement for brands to communicate with their audience in the local language, which is what we are doing in all of our paid activations.’
‘While the Arab consumer is fascinated with modernity, we’ve found that its buying decisions are still very influenced by culture and tradition,’ says Valentina Ignatova, CMO and Co-Founder of By Far in an interview with Vogue Business. ‘Respecting local values is fundamental in the region. At the same time, it is really inclusive and always open to creativity and novelty.’
Becoming part of the cultural fabric of the region means also understanding the local calendar. Elisa Bruno, General Manager of popular Dubai retail space Level Shoes also said to Vogue, ‘Some brands do a good job in catering to the culture of the region by following the local calendar when it comes to bridal season, school holidays and other Islamic calendar dates, etc. There is more to the local lifestyle and the only way to know it is to live it or work with people that live it.’
Retailing in the GCC is closely tied to social habits. Shopping malls dominate the retail landscape because they provide a source of entertainment and air conditioning—in many GCC countries, an inclement climate makes outdoor activity unpopular for much of the year.
Airports are also important retail hubs, with duty free and travel-related sales forecast to grow from $3.2bn in 2011 to $5.6bn in 2016, according to L.E.K. analysis. In both malls and airports, international brands make up the majority of retail options.
COVID accelerated the importance of personalised service - both in store, over the phone and digitally. “Clientele-ing” has deeply accelerated during the pandemic, where it was the only way to kind of keep in touch with key customers. The store of the future in the GCC will no doubt be an inherently social space.
But COVID-19 has also proven that brands cannot rely on footfall alone to achieve their targets and instead need to empower their retail teams to develop different strategies to expand their client network and build long lasting relationships.
Middle Eastern consumers are also becoming increasingly connected. A report by consultancy Bain and Company concluded that while high-net-worth GCC individuals have traditionally preferred in-store shopping for luxury, 70 per cent are now comfortable with online shopping. Internet penetration in the UAE and Saudi Arabia is at 99% and 89% respectively.
Luxury e-commerce company Ounass has outperformed competitors in the online market, says Cyrille Fabre, Senior Partner with Bain Middle East. ‘It’s a very strong competitor to Farfetch with similar exceptional performance. Ounass has been growing very fast. My data suggests a growth rate above 30 to 40 per cent, which is faster than the [overall] online market (25-30 per cent)’.
Ounnas offers a masterclass in how to navigate e-commerce in the Gulf. The blend of brands is important, according to Nadine Kanso, creative director of Dubai jewellery brand Bil Arabi. ‘Ounass has the retail knowledge to know what works in this region…That has helped them make the right buying choices. By mixing homegrown specialty and international luxury brands, they’ve crafted a unique offering.’
According to Kanso, it gained a cult following through knowing the Gulf customer is all about customer service. Besides a well-honed private shopping service, Ounass delivers exceptionally fast (within two hours in Dubai and three for Riyadh).
In both the UAE and KSA, 90% of purchases are influenced by online content, which is where social media and digital entertainment platforms such as TikTok play a key role. Data company Redseer shows that in Saudi Arabia, two-thirds of TikTok users use the app for the discovery of and inspiration related to luxury products. In the UAE, 68% are discovering luxury goods through the platform. And in both these countries gaming penetration is incredible. Both countries remain in the top 10 global ranking for internet users aged 16-64 who play video games on any device, with 90.3% in UAE and 91.4% in KSA – ahead of the global average of 83.6%.
Given TikTok’s rising role as an entertainment provider, it’s no wonder that brands such as Hugo Boss are now turning to TikTok native creators such as Khaby Lame, originally known for his comedic videos and meme-worthy facial expressions, more than his sense of fashion. By using these creators as ambassadors, luxury labels benefit from the vast audiences they command without compromising their premium position.
This is yet a further iteration of how premium brands around the world are moving away from purist interpretations of their product and audience. There is a universal shift away from serious, monotonous brand expressions to something more curious, experimental and often a little humorous.
The Gulf can be a complicated region to navigate. For Vogue, “it requires a high level of savoir-faire and smart spending on local activations to enable brands to stand out in the marketplace’.
Stanislas Brunais, Marketing Director of homegrown luxury platform Ounass, offers a neat summary: ‘While users have access to global content, it is important to respect local traditions, heritage and communities. People expect local brands to recognise, celebrate and embrace local talents, and support their local communities.’
Some 70% of luxury shoppers in the GCC are now comfortable with online shopping and that behaviour is likely to stay. Online channels will keep growing and brick and mortar is going to have less of a footprint – but the store of the future is not only going to be online. Shopping is a cultural activity.
To remain relevant, luxury brands will need to find the sweet spot between authentic depictions of local and global aspiration, leveraging mediums like concept stores, virtual spaces and TikTok to change the narrative.
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