The luxury goods retail market in the Middle East plateaued this year with sales dampened by a reduction in tourism spending in the UAE, a new report has said.
After a few years of hyper growth, the Middle East personal luxury goods market flatlined in 2015, according to Bain & Co's annual Luxury Goods Worldwide Market Monitor.
It said this deceleration has mostly been driven by a reduction of tourism spend notably in the UAE, while the domestic market remains strong.
The UAE's tourism industry has been impacted this year by a reduction in Russian visitors as a result of the fall of the Russian rouble. Traditionally, Russian tourists have been big spenders in Dubai's luxury retail market.
Category wise, jewellery has continued to outperform the other personal luxury goods in the region, the report added.
Cyrille Fabre, partner and head of Bain's Retail and Consumer Products practices in the Middle East, said: “Going forward, we expect the Middle East market to show new signs of life driven by mall openings, but the region’s growth will occur at a much slower level versus the last five years.
"A sustainable high single digit growth rate will become a new normal for the market with important implications of the required capabilities for success.”
Globally, the luxury industry surpassed €1 trillion ($272 billion) in retail sales value in 2015. The market delivered healthy growth of 5 percent year-over-year, driven primarily by luxury cars, luxury hospitality and fine arts.
While global tourists flocked to Europe and Japan to capitalise on a weak Euro and Yen, the Americas region, stagnant in real terms, was strongly inflated by the super dollar, thus capturing more than a third (34 percent) of the global market in 2015.
Meanwhile, Asia registered the worst historical performance, driven by the lackluster trend of mainland China and the sharp drop in sales in Hong Kong and Macau.
The personal luxury goods market – including leather accessories, fashion, hard luxury and fragrance & cosmetics – reached €253 billion in 2015. This represents 13 percent growth at current exchange rates, while real growth is significantly slowing to 1-2 percent.
According to Bain, the number one challenge facing most luxury brands is establishing the right pricing model. The rise of e-commerce and global tourism growth create greater transparency around international price differentials.
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