The growth of the global luxury market experienced a notable slowdown in 2024 after several years of significant expansion. This decline can be attributed to various economic challenges in major markets, changing consumer preferences, and a diminishing pool of luxury customers, which adversely affected the financial performance of several prominent brands.
Reports reveal that LVMH, the leading luxury goods conglomerate worldwide, reported a 17 percent drop in its annual net profits. Similarly, the Swatch Group, which owns luxury watch brands like Omega, and Kering also experienced revenue reductions of 12.2 percent and 15 percent, respectively.
In response to these difficulties, brands are actively seeking to diversify their retail presence in alternative markets, with the Gulf Cooperation Council (GCC) currently positioned to make significant strides.
Despite the overall downturn in the global luxury sector, the GCC region continues to thrive. A report from Chalhoub estimated that the personal luxury market in the GCC reached $12.5 billion in 2023. In particular, high-end fashion saw a 10 percent increase in demand, largely propelled by designer apparel and accessory purchases, while the luxury beauty sector grew by 15 percent, driven by a boom in premium skincare, fragrances, and cosmetics.
Growth Driven by High-Net-Worth Individuals
This positive trend underscores the GCC’s robust and evolving luxury market. The region has long been a home to numerous high-net-worth individuals (HNWIs) and is now witnessing an unprecedented influx of such consumers. The UAE, for instance, is set to welcome an estimated 6,700 new HNWIs in 2024, while the number of millionaires in Saudi Arabia’s major cities is projected to double over the next decade.
Nevertheless, there exists a disparity in luxury market development across the region. Our research suggests that while Dubai has emerged as a leading destination—offering luxury spending per HNWI of about $58,000, comparable to cities like London ($54,000) and New York ($62,000)—other GCC cities are still at the nascent stage of development. For example, in Riyadh, spending per HNWI stands at $24,000.
A significant factor contributing to this lower spending in some GCC cities is that a large portion of luxury purchases are made abroad. It is estimated that Saudi consumers conducted around 40-50 percent of their total luxury purchases outside their own country in 2023.
Various GCC destinations have the opportunity to capitalize on market potential by addressing structural challenges. The distribution of leading luxury brands is inconsistent; for instance, Riyadh boasts 65 percent brand availability, compared to 75 percent in Doha and 90 percent in Dubai, highlighting the untapped potential in the Saudi market. To thrive, these less-served areas require more flagship stores, improved retail selections, enhanced infrastructure, exciting activations, and innovative shopping experiences.
The luxury sector also faces a challenge with a shortage of skilled retail staff trained to deliver the high-quality, personalized service that affluent clients expect. In addition, navigating local regulations can be a significant hurdle for luxury brands looking to establish a presence and invest locally.
Regions that can rise to these challenges stand to benefit from growing luxury demand. Recent surveys of GCC luxury consumers reveal that a considerable number plan to increase their expenditure on luxury categories, including watches (47 percent), jewelry (44 percent), leather items (42 percent), and vehicles (40 percent). Furthermore, substantial investments in tourism and key luxury destinations like NEOM, Red Sea, Al Ula, and Diriyah are further enhancing the area’s allure for luxury brands and wealthy travelers.
Strategies for Governments and Brands
To fully harness the potential of the GCC luxury market, the luxury ecosystem must adapt its infrastructure, regulations, and retail offerings to meet the region’s growing demand. Both governments and brands should take an active role in leading these efforts.
Governments can facilitate a supportive business climate by streamlining licensing processes, simplifying retail business requirements, easing customs regulations, and enhancing localization policies and tax refund initiatives. Developing a strong pool of talent through specialized training programs will also help bridge the current skills gap in the industry.
Additionally, government entities can broaden the range of luxury offerings by promoting not just traditional retail spaces but also luxury outlet malls, auction houses, and dedicated luxury districts. They can create the right environment for high-end, personalized services, such as chauffeur-driven transport and private shopping experiences, that align with the luxury retail landscape.
Simultaneously, luxury brands need to refine their strategies. With various developments across the region striving to establish themselves as premier luxury destinations, brands should focus on locations with high potential while considering factors such as foot traffic, consumer spending, brand clustering, and sustainability. Collaborating with local investors and developers can help brands ease the complexities of entering the market and expedite their expansion.
Brands must keep pace with evolving consumer preferences by crafting immersive retail experiences that transcend conventional shopping, integrating elements of art, hospitality, and exclusive brand experiences. To mitigate spending leakage, maintaining a consistent supply of popular, iconic products tailored to local preferences and shopping habits will be essential.
The GCC holds the promise of becoming a new frontier for luxury, but realizing this potential will require coordinated efforts throughout the entire ecosystem.