By Rob L. Wagner
1 April 2016
Jeddah – Marwa Alkady was shopping recently for clothes for her husband on Jeddah’s fashionable Tahlia Street and she wasn’t about to deviate from her plan for his ensemble.
By the end of a long day she had everything she wanted: embroidered midnight blue thobe for the winter, Mont Blanc fountain pen for the pocket, white Dunhill ghutra and Burberry cufflinks to match his IWC Schaffhausen watch.
“We went to London last summer, so he’s kind of spoiled,” said the 25-year-old newlywed. “After seeing what the shops have there, we have the same expectations here. Once you have the taste of best clothes and jewellery, you really don’t want to lower your standards.”
Travelling abroad has raised the bar for many Saudis, who find luxury brand shopping almost a necessity. In a country with a rigid dress code of thobes and abayas, a new generation of Saudis is emerging for whom individuality is a key component to expressing themselves.
The luxury brand industry in the past decade has experienced phenomenal growth of as much as 9.5% annually. The proliferation of malls, disposable income and cheaper travel to the West — particularly London, Paris and New York — have led to luxury brands developing sophisticated marketing campaigns to attract affluent Arab buyers.
In Saudi Arabia, a study by market researchers Canadean, sales of clothing, footwear, accessories and luxury goods reached $11.9 billion in 2012, a 9.5% jump from 2011. Even during the first full year of the recession in 2009 sales climbed a respectable 5.8% over the previous year.
Nicky Valentine of the London-based NV Luxury Ltd., which advises international luxury brand companies on expansion and management issues, said tourism and accessibility to luxury products have a lot do with robust sales.
“Growth has increased due to distribution of brands,” Valentine said. “Tourism levels increased in places like Dubai and Abu Dhabi.”
Shaun Borstrock, associate dean of School of Business, Innovation and Projects at the University of Hertfordshire in England and who tracks luxury brands’ global marketing strategies, said luxury retailers tap into two kinds of Middle East consumers: the buyers who “shout” their wealth with showy accessories and those who “whisper” their affluent lifestyle with understated branding.
“When we are talking about true luxury we have consumers who are not opposed to spending considerable amounts of money and are willing to buy big-name items that are European and have heritage,” Borstrock said. “Then you also have the lesser known brands the consumer buys in which they are saying they know what’s going on. These consumers who buy a watch, for example, will go to a horologist for a watch made especially for them rather than a mass producer of watches.”
Luxury retailers are adapting to the shopping habits of citizens and expatriates in the Gulf region. The increased numbers of malls, especially in Saudi Arabia, shapes the way retailers think about the market.
“The mall environment is more practical and they are open pretty late into the night, 11.30 and 12,” Valentine said. “These are destination malls with attractions like aquariums in saturated areas. Women’s fashion sections and men’s fashions are more popular there. It’s like a little Bond Street.”
Theme malls are expected to increase substantially in Riyadh with retail sales expected to grow from $92 billion in 2013 to $130 billion by 2018, according to a 2014 study by the auditing firm KMPG.
In 2014, Riyadh’s mall retail space was about 1.45 million sq. metres with an increase of another 700,000 sq. metres projected by 2018, according to KMPG. Six malls in Riyadh that will anchor luxury brand retailers are planned through 2018. The Majid Al-Futtaim Mall, at 180,000 sq. metres, is scheduled for completion in 2017 and the 250,000-sq.-metre Diriyah Gate is to open a year later.
Luxury brand sellers are eager to fill the expansive theme malls because the financial risks are minimal. The sole agent distributor requirement in Saudi Arabia was an ironclad agreement for many years in which foreign businesses were required to obtain a Saudi agent to establish a store or company in the kingdom.
The sole agent requirement became voluntarily after Saudi Arabia joined the World Trade Organisation in 2005. However, most luxury retailers continue their relationships with their agents instead of directly establishing their own stores to reduce the financial risks.
“The onus is on the licensee who is in effect buying the franchise and is taking the financial risks,” said Borstrock, who noted that there is no advantage for foreign companies to go it alone in Saudi Arabia. “Luxury brands want the representation [in foreign countries] but don’t want the burden.”
Luxury brands tailor their products for the Arab consumer but keep their core identity intact.
“A range of 70-80% of the stock would be the same,” Valentine said. “Then the adaption may be in jewellery brands like diamonds. There is a huge market for big fat sets, necklaces, headdresses, bangles and rings.”
There is a risk that too much tailoring to Middle East tastes may reduce the luxury accessories that buyers really want. A common perception among Saudi women buyers, according to shopper Alkady, is that many stores are selling inventory that have failed to attract buyers in the West.
“I don’t think that any brand wants to sell their rejected stock,” Valentine said. “The flagship stores get the top collections. It depends on the size of the store. I looked at Tiffany’s in the Middle East and they have a pretty big footprint with an upgraded collection that is larger than their store in Manhattan.”
Borstrock said the perception is common but he noted it’s impossible for luxury retailers to fully stock every store, especially high-end retailers with hundreds of stores worldwide.
“Louis Vuitton in a typical season produces about 200,000 items for any one market,” he said. “It’s impossible for them to show every single item in every single store.”