VAT, higher living costs weigh on luxury goods sales in UAE

The United Arab Emirates saw “relatively slow” growth in the luxury products market in 2017, as a wider economic slowdown in the region and higher costs of living dampened demand, Deloitte said in a recent report.

The sector is in a “critical situation” as consumers look to save money and cut back on purchases amid rising rent and education costs, job market uncertainty, as well as the introduction of a value-added tax (VAT) from January this year.

Moreover, competition remains fierce, given that the UAE is one of the most attractive destinations in the Middle East for luxury brands, and a hub for players looking to enter the market. Competition has also increased with the growth of online shopping, the report said.

Despite the modest results in 2017, forecasts for the future are optimistic as the luxury goods market matures and adjusts to global trends.

“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,” said James Babb, Partner and Clients & Industries Leader, Deloitte Middle East.

According to the report, one of the main challenges facing growth in the Middle East’s luxury industry 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, the report said. Millennials in the region are also 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,” Deloitte noted.

Globally, the luxury market rebounded from economic uncertainty and geopolitical crises in 2016, edging closer to annual sales of $1 trillion at the end of 2017.

“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,” said Herve Ballantyne, Deloitte Dubai Managing Partner and Consumer Business Leader at Deloitte Middle East.

As per the report’s findings, Italy reclaimed its top spot as the leading luxury goods country in terms of number of companies, while France had the highest share of sales.

China, France, Germany, Italy, Spain, Switzerland, the UK and the US together accounted for 83 percent of the Top 100 luxury goods companies and 90 percent of Top 100 luxury goods sales.

Meanwhile, Spain and France reported the highest growth rates of luxury goods sales.