The era of abundance is over for the Middle East’s luxury sector

Patrick Chalhoub, co-CEO of Chalhoub Group, delivering the keynote speech at arab luxury world 2016.

The message at arab luxury world, a leading two-day regional conference on the business of luxury that started in Dubai on Wednesday, June 1, was clear: the era of abundance is over – and businesses across the region have to adapt to the New Normal.

Delivering the welcome speech, Julien Hawari, co-CEO of Mediaquest, the organizer of the conference and TRENDS’ parent organization, said that “arab luxury world is about connecting people” and finding solutions. On the first day of the conference, various sessions discussed how to come to terms with the new normal.

According to Patrick Chalhoub, co-CEO of leading regional luxury retailer Chalhoub Group, who delivered the keynote speech, “The New Normal is about maturity and pulling together rather than pushing.” He added: “A new business environment is emerging and reshaping the luxury industry in the region. The maturing process has begun… For a long time, the Gulf luxury market was perceived as easy when demand was high, but today, the situation has changed. It is becoming more challenging with growth decreasing to the low single digits.”

He further noted that, although global economic fluctuations do reflect the situation in the region, there is more than what meets the eye when it comes to the driving forces reshaping the luxury industry in the Middle East. “If the luxury sector in the region is now growing at a slower pace, we believe that it is not only due to adverse economic phenomena, but mostly because we are now reaching a more mature level of development, with more competition among brands, retailers and other industry players, as well as more demanding and savvy customers,” he explained.

Chalhoub ended his keynote speech with an insight into the future of the industry, saying: “Now that the era of easy abundance is over, we have to increase investments, work harder and expect lower incomes.”

These issues were further discussed in a session dedicated to the ‘New Normal’. Moderated by Julien Hawari, the panelists included Gary Dugan, chief investment officer at UAE’s Emirates NBD; Cyrille Fabre, partner at Bain & Co. in Dubai; Juergen Schmitz, managing director at Infiniti Middle East; and Marco Tedeschi, regional director for Hublot Middle East and Africa.

The speakers touched on the different elements of this new wave, including consumers’ behaviors, brand attitudes, economic fluctuations and the roles of the government and authorities in helping the region sail through this phase. “It will take three to five years to get anywhere near what we call the free Western world,” Dugan said, adding that we are in the “most dynamic part of the GCC, but, as we move around in the region, we find other issues, including geopolitical ones and military interventions.” Citing examples, Dugan listed Iran and Egypt as countries that have huge potential, if they manage to overcome their economic and institutional challenges.

But, in the era of slow or no growth, industry players need not be too pessimistic, the panelists said. However, it would take years for the transitional period to get over, during which the government, the private and public sectors will need to invest more, expect less results and adapt to the new norm, because the market is maturing, they added.

In order to survive the transition, brands need to invest smartly. This means that they need not necessarily be everywhere; rather, they should double their investments in areas in which they see potential and drop those in which they don’t find growth.

“Retail has been very democratic recently. Some of the fringe brands and locations may have to pull out and reinvest money on some parts of the business that are really more efficient,” Fabre said. Moreover, with the increased interest of digital, it is important for brands to adapt to the new customer behavior. “In the automotive world, the research process of customers today is nearly 100 per cent online,” Schmitz said.

While consumers’ online behavior might differ, depending on the product, brands are pushing to continue to have a good relationship with their clients and to maintain the community. “Two big markets at the moment for our brand are Middle East and Japan,” Tedeschi said.  “In the region, we have at least four events per month, because we believe the best way to connect with customers is to be on the ground and directly meet them,” he noted, adding that, after launching social media platforms in Arabic, Hublot saw more interaction and footfall to mono-brand boutiques.

Overall, it appears that today’s situation is not a temporary blip. Instead, we are now apparently entering a new phase of lower growth, cost rationalization, being able to decide where to invest resources and transform the way businesses operate in this part of the world, while maintaining links with consumers through events and markets, and creating an emotional connection.

Subsequent sessions on ‘GCC Outlook,’ ‘Digital Strategy’, ‘Taxes, VAT and Their Consequences’ and, subsequently, other breakout sessions throughout the day looked at various facets of the business of luxury and how they have been impacted by the New Normal.