Global luxury fashion brands look to the Gulf for growth in 2023

Threads Styling

• Localisation is key as younger Arab consumers become more assertive
• E-commerce is accelerating in the Gulf, albeit from a low base

The Middle East and North America are expected to have the highest growth potential for the fashion industry in 2023, as executives deprioritise countries like China in the short term.

The war in Ukraine, rising inflation and supply chain pressures are the biggest threats to the fashion industry in the run-up to a challenging year ahead, according to the State of Fashion 2023 survey released by The Business of Fashion and McKinsey.

However, the report expects global fashion sales growth of 5 to 10 percent for luxury, and negative 2 to positive 3 percent for the rest of the industry in 2023.

• Luxury retail rebounds from Covid in the GCC
• Dubai’s bricks-and-mortar stores hold their own against e-commerce
• E-commerce or bust: in-depth analysis on Gulf online shopping

“Beyond the differences between luxury and players from other segments, regional differences will be pronounced,” said the report. 

“The US economy, despite the slowdown, is expected to be more robust than other major global economies.

“Covid-19 outbreaks and precautions continue in China, while Europe suffers from an energy crisis and a weakened euro against a strong US dollar,” the report continued.

“Other regions such as the Middle East may become new havens of growth, requiring brands to further localise designs, marketing and merchandising to attract new customers.”

Dubai-based luxury retailer and distributor Chalhoub Group is among the designer fashion companies feeling bullish about healthy growth in the Middle East in 2023.

CEO Patrick Chalhoub, regional distribution and franchise partner for brands including Dior and Yves Saint Laurent, along with joint ventures with LVMH and Christian Louboutin, cited the Middle East as a region that holds greater promise in 2023 than in 2022. 

Most fashion executives responding to the survey agreed future growth is pegged to the return of international tourists and e-commerce acceleration – and also to brands doubling down on localisation and personalisation strategies.

Saudi Arabia, where luxury sales have been recording double-digit growth, stood out even among the other robust GCC economies.

Chalhoub told the State of Fashion survey: “The GCC is becoming an international business destination, but also an international tourist destination, with initiatives like the Red Sea Project [on Saudi Arabia’s west coast] that will be adding thousands of hotel rooms by the end of this decade. 

“What the fashion industry needs to do is make sure we maintain relevance for our local customers. Before 2020, two thirds of luxury spending by GCC shoppers happened abroad because they perhaps weren’t getting the experience, service, choice or journey they wanted when shopping locally. 

“We need to make sure that we do not decrease the amount they are buying outside the GCC, but increase the amount they are buying locally. We need to be there to fulfil what they want more.”

Localisation is a key theme for global brands, with consumers increasingly buying local brands. 

Chalhoub recently set up the Fashion Lab, an open innovation platform, as regional incubator to assist startups ranging from Dania Shinkar (accessories) to Noms Life (lifestyle) and Kaf by Kaf (ready-to-wear) to Cones & Rods (eyewear). 

“There is a movement in the Middle East, but not a movement of national pride like in China,” said Chalhoub. “We want to buy locally and have seen a proliferation of local fashion designers, but we need to continue developing them. We are only just getting started with that.”

Global and local luxury brands are reviewing the way business is done and the kind of experiences that are relevant for the Middle East. For example, many have launched special capsule collections to mark the end of Ramadan. 

Chalhoub said: “Brands like Chanel, Hermès, Louis Vuitton, Cartier and Tiffany have been working on local strategies to attract consumers in the region through collaborations, dedicated collections and immersive events in iconic locations such as Al-Ula in Saudi Arabia. 

“Middle Eastern customers will build up trust in big brands, but they need brands to provide points of differentiation.

“We are seeing more assertiveness among our consumers, particularly the younger ones. They are still attached to branding, but less so. They have more curiosity, and so are more eager to try a new brand, even a local fashion designer, rather than a global one. 

He added: “We are also seeing customers mixing brands and products more and more. They don’t feel that they should necessarily be dressed from head to toe in one brand.” 

E-commerce

Unlike in other parts of the world where e-commerce growth is returning to pre-pandemic levels, e-commerce is accelerating in parts of the Middle East, albeit from a low market share.

Chalhoub represents and runs luxury fashion e-commerce site Farfetch in the GCC and Levant – Egypt, Jordan and Lebanon. 

The group has also recently acquired a majority stake in Threads Styling, an online, personalised, chat-based luxury fashion and jewellery shopping service.

Before the pandemic, e-commerce represented around 1 percent of turnover; today it is approximately 10 percent.

Chalhoub said: “We are quite late compared to other regions in terms of the percentage of sales done through digital channels, for various reasons. 

“For example, the content might not have been relevant or there was not enough choice. All of this is improving: the customer experience itself, the availability of products, the relevance of content.”

Luxury fashion website Ounass, a rival to Farfetch, is among the e-tail platforms credited with developing the momentum of online shopping in the Gulf, a region better known for their love of malls, operated by the likes of Emaar Malls, owner of the Dubai Mall. 

Ounass has benefited from being part of Al Tayer Insignia, the retail division of holding company Al Tayer Group, and the exclusive licensee of Harvey Nichols in the UAE and of Bloomingdale’s in the UAE and Kuwait. 

The company originally launched with 65 brands, growing to more than 1,200 brands today, ranging from beauty to jewellery to international luxury brands such as Balenciaga, Gucci and Fendi and homegrown fashion labels such as Dima Ayad and Sandra Mansour. 

A locally led approach is again a trump card. “Ounass includes plenty of rich content (available in Arabic) and a detailed understanding of the local calendar,” a company statement said, adding: “it is constantly monitoring the spending habits of Arab buyers.”