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Luxury talks tough in the face of credit crunch

May 31, 2008 10:00 by

prada, gucci, luxury, brands, dubai, christies, auctions, retail, spendingAt the recent Christie’s fine art auction in Dubai there was little evidence of the financial credit crunch that’s been gripping the globe for the better part of a year. The wealthy residents of the region snapped up works by Andy Warhol, Robert Indiana and Anish Kapoor at record prices.

And it is not just Arab money that is driving the market. According to Christie’s Middle East MD Michael Jeha, high net worth Indians, Iranians and Europeans are also big buyers of art in the Middle East, often staying loyal to the genres of their own country, but increasingly spreading their interest as astute buyers and collectors.

“More and more, people see art as a hedge against stocks,” he says. “We did $53 million in sales in 2007 in Dubai.”

The auction firm’s first sale in May 2006 raised a mere $2.2 million.


Although the financial market turmoil is reported to be crimping sales of luxury brands in the mature markets, there is little sign of this in the Gulf.

According to Trevor Stokes, CEO American Express MENA, the affluent consumer in the Gulf is resilient. “It is expected that there will be over 500,000 dollar millionaires in the Middle East in the Middle East by end 2010,” he said that the inaugural meeting of the Dubai Chapter of the Luxury Marketing Council last month.

The Council, which formed its Middle East Chapter in Dubai earlier this year, believes that although the sector is still going strong in the region, there are some underlying currency and competition effects.

“There are two things that are happening,” says Luxury Marketing Council Middle East president T B (Mac) McLelland. “The US luxury products are naturally becoming cheaper, so this is a good effect for American-made luxury brands such as Coach or Ralph Lauren.

“Also, because of the weak dollar, travelers heading to the US will be able to afford luxury as a bargain.”

He adds that although luxury brands in the Middle East are seeing skyrocketing sales from new stores, there is also growing competition from new brands. This is driving retailers to become more sophisticated at the operational, store management, level. European brands say the weakening of the dollar against the euro is the biggest issue they face, creating pricing and margin issues, and tensions between suppliers and distributors. But grande dame of the grandes marques Louis Vuitton remains resilient.

“In the midst of the spreading subprime crisis, the Middle East seems to have again demonstrated its resilience, and its strong dynamism,” observes Louis Vuitton, GM Middle East and Africa. “We did not feel the impact of the crisis, neither in terms of changing customer profiles or shopping patterns. Our business model is to be fully integrated, from the production of our products to the distribution in our own store network. Our development plans certainly remain unaffected.”

Vernet continues: “We are certainly monitoring the evolution of the currencies throughout the region. Our production is primarily in the eurozone, so our costs have increased more or less in proportion to the strengthening of the currency. This is possibly the case for the majority of luxury brands, which are based out of Europe. Regarding Louis Vuitton, our strategy is to fully control our distribution. This enables us to be very reactive when it comes to price adjustments, and to maintaining price coherence within our network.”

The dollar has lost over 23 per cent of its value to the euro over the past five years, shedding more than 7 per cent in the first four months of this year alone. This effectively makes euro- or Swiss franc-priced imports like watches and fashion much more expensive in local currency terms, valued as they are in the dollar-pegged currencies of the Gulf. It is also dislocating regional price lists.

Recent figures show there is yet more headwind on the dollar. American consumer sentiment in May fell from the prior month to its lowest level since 1980. The US consumer sentiment index in May fell to 59.5 from 62.6 in April. Having breached one key psychological barrier, the euro at $1.50, the declining dollar now seems ready to breach another, the dollar at 100 yen.

Meanwhile however luxury brand stores continue to open up all around the GCC. Louis Vuitton has just opened its first store in Qatar at Doha’s Villagio Mall. The 239 square meter single floor outlet showcases a range of products for both men and women.


By the end of this month, the company will have opened two new stores in India, with the pre-launch of its second store in New Delhi, at the Emporio Mall, the biggest luxury mall in India, and the opening of its first store in Bangalore, in UB City.

“By mid-August, our first store in Bahrain will open in Moda Mall. In the second half, we (will) expand and fully renovate both our Jeddah store in Khayat Center and our Kuwait store in the Salhya Mall. And, of course, we also have to mention our future store at the Dubai Mall, which is under preparation, and which will be Louis Vuitton’s first global store in the region.”

Without disclosing sales figures, Vernet says he is confident that the market will stay firm, as demonstrated by the company’s ambitious expansion.

“There have clearly been many new openings and a number of new entrants in the region over the past few years, and that trend is increasing,” says Vernet. “We see this as a positive for the market, and it basically reflects the strengths and dynamism of the Gulf economies. In the case of Qatar, for example, we and probably most other brands, were very eager to open a store as soon as the conditions were met, in particular in terms of location. In many cases, when the economy is going so strong, we are still in a supply-driven market, and most of the new opportunities are actual additional business.”

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