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Wed 5 Jul 2017 03:58 PM

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GCC battle for online luxury customers heats up

Faced with intense international competition, local fashion retailers are shifting their attention online.

GCC battle for online luxury customers heats up
Faced with intense international competition, local fashion retailers are shifting their attention online.

The fashion industy relies on intangibles and subjective judgement like no other; is running headlong into the data-driven environment of technology and the internet.

On a superficial level the fashion industry has always had something of the ‘emperor’s new clothes’ about it. But putting aside natural cynicism, the fashion industry has evolved into a social/cultural influencer like no other. It impacts on just about every aspect of modern life; it tells us what to wear, what phone to buy, it informs our values and what to aspire to.

But like every other industry, the web poses serious questions to established players in the luxury fashion field throughout the value chain. How do brands that have championed their exclusivity, expense and privileged nature, transition to an age where social media has democratised fashion and beauty brand values and e-commerce sites have made the whole world a department store?

For the trading companies that have traditionally dominated the fashion and luxury sector in the region, the globalisation of competition brought by the web poses a business challenge like no other.

Simply put; the old rules won’t apply any more.

With luxury sales in China and other parts of Asia only showing signs of recovery, international fashion retailers and brands are eyeing the Middle East as the next big growth market. A key driver of the predicted growth will be the shift to e-commerce.

The GCC has the demographics, smart phone penetration and disposable income to justify the optimism surrounding online sales and the stampede for the region’s audience of digitally fluent, young and affluent shoppers is well under way.

The Middle East’s appetite for luxury items is not new. The region has been home for a number of the best performing luxury stores for some time. But the internet has fundamentally altered the retail landscape; websites such as Net-a-Porter.com, Matchfashion.com, Shopbob and at the lower end of the scale, ASOS.com, offer a greater range of fashion, commonly 20-30% cheaper than it is available here, to anybody with a smartphone and a credit card.

A combination of the drop in value of UK Sterling versus dollar-pegged GCC currencies, and UK fashion sites offering VAT rebates has further weakened the competitive position of Middle Eastern luxury fashion outfits.

It is not just price where international luxury sites have an edge; increasingly the major fashion sites are localising their offering.

The advent of a localised Net-a-Porter and Mr Porter sites in 2019, and sister sites Yoox and Outnet sometime next year, bring into sharp focus the limitations of existing brick and mortar luxury retail. The local expansion is a result of the joint venture agreement announced in November of last year between Mohamed Alabbar’s Symphony Investments (part of Alabbar Enterprises) and Yoox Net-a-Porter Group (YNAP).

The series of luxury sites will be supported by a local distribution centre that will allow for same day delivery of goods. Existing Middle East customers are hoping Net-a-Porter will replicate its London-only, one hour delivery model, enabling consumers to buy an outfit on their lunchbreak, and wear it the same evening.

Faced with an onslaught of international competition, local brick and mortar retailers are belatedly shifting their focus online. Al Tayer Group, which counts Bloomingdales and Harvey Nicholas department stores in its portfolio, launched ounass.com in December 2016, catering to customers in the UAE, Saudi Arabia, and Qatar. The bilingual site has made two-hour delivery in Dubai and a commitment to match its rival’s prices the cornerstones of its digital proposition.

Local sites are working with fashion labels to create exclusive ranges. Few sites take this further than the themodist.com, which caters specifically to the modest buyers with bespoke collections with high neck lines, low hem lines and covered shoulders, from its Dubai-based headquarters.

The themodist.com has done well to develop a niche proposition to win local and international consumers. However, it is debatable whether other sites are differentiating themselves beyond pricing strategy, or delivery capabilities. To satisfy fickle fashion customers, local fashion retails have to craft distinct online personalities that customers locally (and internationally) want to be associated with.

Influencers cannot be ignored. Chaloub Group research indicates 61% of people aged 18-26 and 56% of people aged 27-34 follow at least one ‘influencer’.

According to an article published by Business of Fashion, themodist.com social channels have driven approximately 30% of revenues in its first year.

If there is one area where local fashion retailers have an edge, it has to be the use of customer data. For the last several years retailers in the UAE have been making an effort to collect customer data at the point of sale. However, until now customer data has rarely translated into actionable customer knowledge. Retailers know enough to send blanket SMS’, but rarely seem to go beyond this to build a picture of the individual.

Building an accurate customer portrait is hampered by the often decentralised company structure; where separate business units maintain their own customer databases. The task of consolidating raw data into a single customer view is complex, expensive and time consuming.

Here social media once again rears its head; threatening to by-pass established tools of e-commerce.

The initial product pitch was historically the email newsletter, but that conversation will soon be conducted through social channels, such as Instagram and WhatsApp, either as part of a group or one-to-one.

The idea of a customer going into a store, taking photos of items and then messaging the shopping assistant to inquire and possibly purchase them seems both outlandish and at the same time so very on trend.

The explosion of social and conversational commerce poses its own set of challenges; not least of which is how retailers capture requests, analyse and ultimately upsell and convert those conversations into sales.

Perhaps the real challenge for local fashion retailers will be if they respond before the other giant fashion websites enhance their offering by localising distribution or by sophisticated targeting of Middle Eastern customers.

Alternatively, the large trading conglomerates that own distribution agreements for the majority luxury brands could just decide to follow Mohamed Alabbar’s example.

The YNAP/Symphony partnership, Emaar Malls’ acquisition of majority share in local fashion site Namshi.com, not to mention the hyperbole surrounding noon.com appear to confirm Alabbar’s determination to buy his position in the online fashion world.

It will be interesting to see if other Middle East companies (many of which have very deep pockets) follow a similar strategy to claim their position in the digital realm.

Greg Wilson, Group Editorial Director, ITP Business, ITP Executive & ITP Technology

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