By  on November 14, 2007

Many Middle East states offer an unexpected and seemingly insatiable market for luxury goods.

With the war in Iraq, unstable politics in Iran and the ongoing unrest in the occupied territories bordering Israel, luxury retailing may not be the first thing that comes to mind when thinking of the Middle East. However, for the six Persian Gulf states that comprise the Gulf Cooperation Council — Saudi Arabia, Kuwait, United Arab Emirates, Bahrain, Oman and Qatar — huge oil riches, relative sociopolitical stability and recent drives to modernize and diversify their economies have led to growing pools of wealthy consumers and a booming demand for status brands.

"The Middle East is a region not immediately identified with all things beautiful. It is really many things to many people, from a landscape of political conflict to a place of unimaginable wealth. I guess both are realities," said Shireen El Khatib, chief executive officer of Dubai-based Al Tayer Insignia, the region's fastest-growing player in the luxury business. Al Tayer's portfolio of 30 brands and 59 stores includes Giorgio Armani, Bulgari, Coach, Dolce & Gabbana, Gucci and Yves Saint Laurent.

"Thirty years ago, the land I call home was a place of exotic landscapes and veiled mystery. The hottest thing on our mind then was not the Gucci Indy bag with the limited edition gray mink and crocodile trim, but the stifling weather that reached up to 50 degrees Celsius, or 120 degrees Fahrenheit," she said. "Three decades on, the weather is just as stifling, but these days we are as well versed with the YSL Downtown bag, Botox injections and Ferraris as any stylish woman sipping a Bellini in downtown Manhattan."

What was the crucial turning point that helped spur the luxury boom in the GCC? While buoyant oil prices, a growing population, an ideal geographic location and the emergence of nouveau riche Russian tourists (who make up 60 percent of all Al Tayer Insignia sales to tourists) were all important contributing factors, El Khatib points to perhaps an unlikely catalyst: the 1990 Gulf War."With the war came CNN and the rest is history," she said. "We went from one satellite channel bringing the world to us and vice versa, to hundreds in a matter of a few years. I believe the early Nineties witnessed the birth of the new Middle East and, in fact, unleashed the true potential of the GCC market, both to the local consumer and the outside world."

The six members of the GCC today represent a fertile market for luxury retailers. The six states boast a combined gross domestic product of about $600 billion, making the GCC the 17th largest economy in the world.

Per capita income in the UAE is $49,700, which is higher than Germany's $31,400. Other GCC countries are not quite as wealthy, but average income is still very high: $29,400 in Qatar, $25,300 in Bahrain, $21,600 in Kuwait, $14,100 in Oman and $13,800 in Saudi Arabia.

In comparison, Russia has a per capita income of $12,100, China's is $7,600 and India is at $3,700.

Of course, the GCC states have comparatively tiny populations compared with those economic giants. Saudi Arabia is home to 24.9 million people; the UAE's population is 4.5 million, Oman's is 2.8 million, Kuwait's is 2.7 million, Qatar's is 830,000 and Bahrain's is 720,000. Foreign nationals make up 40 percent of the total population in the six GCC nations, with that figure reaching up to 80 percent in Qatar and UAE.

While the Middle East is not the "mass market for luxury goods" that Japan may be, it is well on the way there, argued El Khatib. In fact, thanks to skyrocketing oil prices and other investments, the Middle East is minting new high net worth individuals at a greater percentage rate than most other areas of the world. In 2006, the number of high net worth individuals in the Middle East grew by 11.9 percent. Only Africa, at 12.5 percent, outpaced the Middle East on this metric.

The UAE has the highest per capita sales of Ferraris in the world, and Middle Eastern consumers direct 32 percent of all of their "investments of passion" into jewelry, also the highest number in the world. The population of Dubai is increasing by 8 percent a year, while tourism is growing by 14 percent annually. The Dubai strategic plan outlined by the emirate's rulers projects 11 percent annual growth through 2015, effectively tripling the current level of GDP.El Khatib acknowledged that the juxtaposition of glitzy, Western luxury brands and traditional Middle Eastern culture can be dissonant — meaning companies need to take the unique characteristics of the market into account.

"I'd like to dispel the stereotypical portrayal of the Middle East as seen through the eyes of Hollywood," she said. "The Middle East today comprises a young, well-educated, affluent society that still adheres to a centuries-old culture, traditions and values while savoring the finest that money can buy. The interesting paradox in Arab culture is that while it holds sobriety and simplicity in high regard, the modern Arab consumer is making the bridge to being a highly valued luxury goods consumer while still retaining the essence of their culture."

That means that accessories and footwear — which make up 35 to 40 percent of Al Tayer Insignia's total business — take on a new dimension of importance for Middle Eastern men and women who wear traditional Arab dress.

"The traditional Arab woman is dressed in a black abbaya, and to a Western audience is hardly the target consumer for luxury fashion. You couldn't be further from the truth," El Khatib said. "She quite often has an evolved sense of personal style which would be apparent under her abbaya. The latest acquisitions of designer handbags, shoes and exclusive jewelry help this lady make an individual statement. She goes to several ladies-only events, which are a serious show-and-tell business, where this healthy rivalry works entirely in the favor of the luxury retailer."

As for men in their traditional all-white garb, big-ticket purchases of branded sunglasses, limited edition pens, the latest mobile phone, a watch with complicated movements and designer sandals become essential. Men also tend to buy "a whole new wardrobe" when traveling abroad, which gives them the opportunity to wear Western clothing.

These trends have led to an explosion of retail activity in the region, led by Saudi Arabia and the UAE, particularly Dubai, which has emerged as a case study of an oil-rich state diversifying its economy, with tourism and retail playing a crucial part in that transformation.

In 1990, there were 5.1 million square feet of gross leasable space in the GCC states, which has grown to 48.4 million square feet as of 2005. By 2010, that figure could reach 118.4 million square feet.By next year, Dubai will be home to three of the 10 largest malls in the world. By 2009, retail spending in Dubai's shopping malls is expected to exceed $7.9 billion, while spending in Saudi Arabia's malls will hit $6 billion and in Abu Dhabi, the capital of UAE, will reach $1.9 billion.

The planned Dubai Mall in the Burj Dubai project under construction will encompass 3.8 million square feet. (The much-publicized Burj Dubai will also be home to the world's tallest building.) Another shopping complex set to be built, the Mall of Arabia in the Dubailand theme park, will be even bigger, at 5.9 million square feet. In comparison, the largest U.S. mall, The Mall of America in Bloomington, Minn., encompasses 4.2 million square feet.

Against that background, Al Tayer Insignia has helped lead and develop the luxury goods business in the GCC states. "The early Nineties was not the best time for the way of life we were endorsing," El Khatib said. "Most people thought that with all that was happening in the region, this was not the time for luxury. But we had the vision to invest in a market before it was ready. We opened the first Bulgari flagship in the Middle East in 1993, introducing the monobrand retail concept in the UAE. This was soon followed by us planting the Giorgio Armani flagship on a street that went on to become the luxury strip of the Dubai retail landscape."

Al Tayer Insignia's growth has been fast and steady. Its portfolio of 30 brands and 59 stores is up from just eight brands and 13 stores in 2002. The company has enjoyed sales increases of 28, 48, 97, 79 and 119 percent over the past five years, respectively.

It's not just luxury brands that have benefited from consumer demand in the GCC. As in other developed fashion capitals, "the idea of mixing high street fashion with a luxury brand is beginning to find favor with the evolved shopper" in the Middle East, El Khatib said. Brands like Zara, H&M, Gap and Banana Republic are hugely popular.

American brands are also increasing their presence in the market, not just European labels. "The interior collections by Ralph Lauren continue to be aspirational and are always pre-sold. Zac Posen, Tory Burch, Neil Lane, Lana Marks, Elie Tahari, Coach, Michael Kors, Diane von Furstenberg and Catherine Malandrino are just some of the American brands that enjoy high awareness in the region," El Khatib said.While the market for luxury goods is forecast to grow 25 percent a year in the GCC, there are, of course, potential stumbling blocks for companies there — such as the risk of overcapacity in retail space. "Increasingly, people are asking if the more mature markets in the GCC are in fact saturated, leaving little room for growth," El Khatib said. "I disagree. I believe this is just the beginning. Al Tayer Insignia's performance over the past five years certainly does not reflect market saturation in the segment."

And what of the potential political instability in the region, as highlighted by the war in Iraq? "We were holding our breath before the war broke out and two weeks after that things went back to normal," El Khatib said. "Since then, business has been growing and booming as we see it today."

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