Mideast Market for Luxury Goods Matures amid Recession: Executives

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04 November 2009
DUBAI -- Thanks in large part to the recession, the Middle East is fast becoming a much more sophisticated market for luxury merchandise. At the same time, jewellers, watchmakers and other suppliers of luxury products are investing new resources in this region, expanding their retail presence and developing their brands in the hope of profiting in one of the industry's few remaining vibrant markets.

Senior executives for some of the world's best-known luxury goods companies on Tuesday depicted the challenging environment they face in the wake of the global financial crisis. The Middle East looms large in the calculations of them all. 

Van Cleef & Arpels, a Parisian "maison" renowned for its watches and jewellery, is expanding rapidly in the Gulf, with plans to more than double its network of boutiques within the next six months, said Stanislas De Quercize, the firm's president and chief executive officer.

Founded in 1906, Van Cleef already has two shops in Dubai and one each in Abu Dhabi and Riyadh. De Quercize told Khaleej Times that his company aims now to open five additional boutiques: one each in Bahrain, Doha and Jeddah and two in Kuwait.

"We owe it to our clients in the Middle East to be closer to (their) home and not to make them travel to New York, Paris and Monaco," he said on the sidelines of the Leaders in Luxury conference in Dubai.

De Quercize hinted at an additional motive for this regional build-out. "We want to be close to this region. This is where the 21^st century is being built," he said.

Van Cleef is deepening its presence in the Middle East in other ways. The firm launched its first Arabic language web site on Sunday, and it's sponsoring the Dubai Art Fair in March, for the second time, De Quercize said, before flying later on Tuesday to Qatar.

Nonetheless, executives said that the global slowdown casts an inescapable shadow over the luxury goods industry, even here in the Middle East.

"The recession has changed completely the picture for the luxury goods companies," said Christian Blanckaert, a former executive vice-president of Hermes International. Many firms in the industry are losing money, and some of the most venerable luxury goods makers have had to lay off employees or even go out of business.

But Blanckaert, speaking in an interview, described the Middle East as "a refuge" in rough commercial seas. "The market in this part of the world has not been affected very much. It's still going very well, but with a change in behavior."

One effect of the recession has been to make customers in the Middle East more discerning about what they buy.

"Madoff has come here" to this region, Blanckaert said, attacking purveyors of "false luxury" and comparing them to convicted U.S. financial fraudster Bernard Madoff.

"Trust has been damaged during the crisis," agreed De Quercize, noting that seemingly rock-solid financial institutions have proved to be anything but.

As a result, buyers of luxury products are becoming more demanding about what De Quercize calls the "legitimacy" of an item. Among the questions his clients ask now: Why does something cost this price? What is its long-term value? Can I pass it on from generation to generation?

"They need to answer their kids and their friends, 'Why did you buy that?'" A simple answer such as, "'I like it,' is no longer good enough," De Quercize said.

In fact, industry executives acknowledge that some luxury goods makers have viewed the Middle East historically as a convenient dumping ground for gaudy items of 'Bling' that few other markets would accept.

But any such suppliers no longer can afford to be so arrogant, insists Deborah Najar Jossa, general manager of Salam Watch and Jewellery Division. Salam is part of Qatar's Salam International, which holds the regional De Beers diamond franchise.

The Middle East is home to the world's largest sovereign wealth funds and, in Qatar, the country with the highest per capita economic output. The region's consumers, especially the young, are avid Internet users and are increasingly well-informed about nuances in the quality and prices of, say, diamonds and gold, Najar Jossa said.

What hasn't changed is the Middle Eastern customer's desire for exclusivity, as with limited editions of a particular product, and personalised "bespoke" service," she said in an interview.

Blanckaert, the former Hermes executive, believes that the global financial crisis has been a catalyst for the increasing sophistication in buying habits in this region.

"The super-rich today, they are like anybody else. They have lost money in the stock market," he said during a break from the conference at the Park Hyatt Dubai.

"In the Middle East, in particular, there is now a deep movement to show that they want to legitimize their buying. They are people who are very, very aware -- very discriminating."

Blanckaert, who formerly headed a trade group of 70 French luxury firms, works now as a consultant and a business school lecturer. He argues that a product's provenance still matters for customers in the Middle East.

"'Made in France' or 'made in Italy' is, for this area, a sign of quality that is still very important. Therefore, we should use it and continue to manufacture in Europe," he said.

Hermes, for one, still makes all its leather goods in France. However, luxury goods makers are coming under greater pressure to cut costs by outsourcing production to China and other places.  

Another new challenge for luxury companies is the unprecedented volatility of currencies in their ?respective markets.

The Korean won, for instance, has plunged in value against the euro, and some luxury firms are now hedging currencies for the first time.

"It's completely new. It never existed before 2006, 2007," Blanckaert said. "They have to hedge, but that's not enough."

So, firms also are adjusting the prices of their products more frequently than ever before, to help offset fluctuations in currency values, he said.

"You can have situations... where the duty-free goods are more expensive than those with duties," ?Blanckaert said.

"Luxury goods management is much more complicated today."



By Bruce Stanley © Khaleej Times 2009