Luxury stores hold premium space in Middle East retail sector

The luxury retail industry has emerged from the pandemic crisis stronger and more dynamic than ever, and the Middle East is set to be a key growth driver for the sector in the future.

This growth is largely driven by a young and aspiring middle-class population, with nearly 75 percent of the demographics falling within the working age group.

According to the Savills Global Luxury Retail report, despite a bounce in new store activity in the Middle East in 2021, its global share stands at only 3 percent, highlighting the under-tapped potential of the region.

Along with traditional luxury retail hubs such as Dubai in the UAE and Doha in Qatar, which have seen a steady influx of luxury brands, brands have an increasing appetite to explore other markets such as Saudi Arabia.

In 2021, there was increased activity in Saudi Arabia, where historically, Dubai was the focus for new store openings. The Kingdom’s luxury market continues to grow rapidly, with forecasts suggesting that luxury sales could reach $22.2 billion by 2024, reflecting an average annual growth rate of 7.2 percent between 2019 and 2024.

The Kingdom is on top of the agenda for many brands. Traditionally, Saudi nationals have been a critical driver of luxury retail demand in the region. According to a recent study, nearly 50 percent of Saudi nationals spend on luxury goods while traveling abroad.

With the recent opening up of the Saudi economy and significant diversification into sectors such as travel and tourism, the emergence and availability of luxury retail is only bound to increase in the Kingdom over the next few years.

This growth will coincide with the launch of various luxury hotels such as St. Regis, EDITION, Fairmont, Raffles, Intercontinental, Grand Hyatt and Jumeirah and iconic lifestyle designations such as AMAALA and The Red Sea Project, among others.

The maturing market will further invite significantly more consumption of luxury goods within the Kingdom.

Qatar is another luxury market where we have recently seen a large influx of brands. The opening of the luxury mall Place Vendome saw the majority of luxury houses set up shop, including the likes of Gucci, Prada, Dior, Valentino, Fendi, Bottega Veneta and Loro Piana, among others.

Dubai has been and will continue to remain a key hub for luxury retail in the region. The city offers a mature retail infrastructure and has seen a significant rebound in tourism activity, especially because of its positive handling of the pandemic. In addition, the city ranks high on lifestyle offerings and has the first-mover advantage in attracting luxury travelers and high-net-worth individuals.

According to the latest Henley Global Citizens Report, the UAE is projected to attract 4,000 high-net-worth individuals in 2022, dramatically up from the net inflow of 1,300 in 2019, making it the most popular location for ultra-wealthy residents to relocate.

This trend reflects in its luxury retail offerings as Dubai continues to be the first place of entry for brands that are expanding to the region.

For example, Delvaux, a Belgian luxury house, has recently opened in The Dubai Mall, marking their first step into the Middle East market.

The successful hosting of the Expo 2020 received over 24 million visitors from 178 countries during its short six-month run. A successful vaccination drive, proactive and pro-business policies and a host of residency visa options could drive investments and growth of luxury retail in Dubai.

Overall, we see a strong appetite from luxury brands to open stores in the Gulf Cooperation Council region. For example, Fabio Caviglia, an Italian luxury fashion house we represent, has recently locked in on its first location in Bahrain and has expansion plans to open stores across the UAE, the Kingdom and Qatar.

• Kenny Lam is Associate Director of Middle East Retail at Savills.