Dubai is among the best cities in the world for luxury shopping and a crucial spending hub for the region, with high-end shoppers coming from around the world, said an industry expert.

“The dynamics of the luxury goods market in the Middle East region, unlike other countries, are strongly linked to oil prices, and as long as these remain stable, there is room for growth,” added James Babb, partner and Clients & Industries leader at professional services firm Deloitte Middle East.

Babb was commenting on the fifth annual Global Powers of Luxury Goods report by Deloitte.

The world’s 100 largest luxury goods companies generated sales of $217 billion in FY2016 and the average luxury goods annual sales for a Top 100 company is now $2.2 billion, according to the report, which examines and lists the 100 largest luxury goods companies globally, based on the consolidated sales of luxury goods in FY2016 (which we define as financial years ending within the 12 months to 30 June 2017).

The top five largest Fashion & Luxury players - LVMH Moët Hennessy Louis Vuitton SE, The Estée Lauder Companies Inc., Compagnie Financière Richemont SA, Luxottica Group SpA and Kering SA – maintained their positions on the leader board.

“The luxury market has bounced back from economic uncertainty and geopolitical crises in 2016, edging closer to annual sales of $1 trillion at the end of 2017,” said Herve Ballantyne, Deloitte Dubai managing partner and Consumer Business leader at Deloitte Middle East.

“Whether total global market growth is in single or double digits will depend on many factors, including larger geopolitical factors and their impact on tourism. Growth in the luxury goods industry will continue, unlike in several other industries.”

One of the main challenges to growth in the luxury industry in the Middle East according to the Deloitte report is retaining shoppers who might otherwise buy luxury goods elsewhere, mainly in European cities.

The Middle East has one of the largest young populations in the world and millennials in the Middle East are richer than the average and their willingness to buy is stronger. Addressing the new Arab luxury audience represents an opportunity to create brand loyalty, fuel luxury spending, and foster market growth.

At constant exchange rates, the growth rate for the Top 100 was 1 per cent, 5.8 percentage points lower than the 6.8 per cent currency-adjusted growth achieved by these companies in the previous year.

There were major winners and losers within the Top 100 – 57 companies increased their luxury goods sales year-over-year, with 22 achieving double-digit growth, and nearly one-third of the Top 100 achieved a higher rate of sales growth in FY2016 than in FY2015.

Growth among the Top 100 was weakened in particular by the ten companies which experienced double digit sales decline in FY2016, including two Top 10 players – the Swatch Group and Ralph Lauren. However, FY2016 seems to mark the bottom of the downturn in luxury goods sales growth for most companies.

Key findings from the 2018 Global Powers of Luxury Goods report by Deloitte include:

•    United Arab Emirates: Growth in the luxury products market has been relatively slow in 2017, in keeping with the general slowdown in the region. The critical situation of the luxury market in the UAE is also due to a fall in demand resulting from the country’s rising rent and education costs, as well as from a newly-introduced Value Added Tax from January 2018.

The high costs of rents and education, added to the uncertainty in the job market, are the main reasons for consumers to save money and reduce their frequency of purchases. The United Arab Emirates is one of the most attractive countries in the Middle East for luxury brands, and is a strategic centre for companies deciding to enter the regional market.

Therefore, competition among players is very strong, intensified by the growth in online shopping. Notwithstanding the modest results in 2017, forecasts for the future are positive as the luxury goods market matures and adjusts to global trends.

•    Italy is once again the leading luxury goods country in terms of number of companies, while France has the highest share of sales.

•    China, France, Germany, Italy, Spain, Switzerland, the UK and the US together made up 83 per cent of the Top 100 luxury goods companies and 90 per cent of Top 100 luxury goods sales. Spain and France reported the highest growth rates of luxury goods sales.

•    Among the Top 10 companies, three are conglomerates participating in multiple sectors of the luxury goods market; two are cosmetics and fragrance companies; two are jewellery and watch companies; two are fashion companies, and global eyewear leader Luxottica is the only accessories company. Three are headquartered in the US, three in France, two in Switzerland and one in each of Italy and Hong Kong SAR.

•    Between FY2014 and FY2016, composite luxury goods sales for the Fastest 20 companies increased at a compound annual rate of 15.1 per cent – nearly four times the rate for the Top 100 as a whole, but 7.1 percentage points down on the previous year. The strongest product sectors in the Fastest 20 were once again clothing and footwear (10 companies) and jewellery and watches (five companies).

•    Sales by companies in the luxury clothing and footwear sector were lower in FY2016 than in the previous year, although currency-adjusted sales grew by 0.2 per cent. Both sales growth rates and net profit margin fell for the second year in succession. With 38 companies, this product sector has by far the largest number of companies in the Top 100.

•    Cosmetics and fragrances was the top-performing sector in FY2016, and was the only sector with improving composite luxury goods sales growth, at 7.6 per cent.

•    All eleven of the companies in the multiple luxury goods sector have by far the largest average size among the Top 100. The average annual luxury goods sales was $6.3 billion, and together they accounted for 32.2 per cent of the Top 100 luxury goods sales. – TradeArabia News Service

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