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A closer look at the fashion industry in Gulf Cooperation Council markets

Middle Eastern consumers are experienced and increasingly savvy, but the region is grappling with shifting economic currents and the rise of digital. For brands, this implies risks but also opportunities.

Annual fashion sales in the Middle East’s Gulf Cooperation Council (GCC) markets amount to $50 billion, reflecting the region’s significant financial clout. Spending in some GCC countries is among the highest on a per capita basis globally, reaching approximately $500 and $1,600 per person in Saudi Arabia and the United Arab Emirates (UAE) respectively. 1 Dubai is the region’s shopping capital, but other markets are maturing fast, with Saudi Arabia taking a place at the top table.

However, economic cycles in the GCC countries are closely tied to global commodity prices, which brings challenges to the current climate. Oil prices are around 35 percent lower than they were in 2010–14, and economic growth is slowing. Meanwhile, lower rents are being offset by rising labor costs, including new visa and administrative fees, as well as reduced energy subsidies. Geopolitical events in the region pose a challenge too. The past few years saw a notable rise in business closures, especially in the wholesale and retail sectors.

Despite its complications, the GCC presents significant opportunities for fashion players, many of which have operated successfully there for years. Dubai will continue to play an important role as the region’s window to the fashion world, supported by world-class malls offering a top-end customer experience. Tourism will continue to be an important revenue driver; the city’s Expo 2020 is billed as the “World’s Greatest Show,” a glittering coming together of technology, art, food and creativity that is expected to attract at least 25 million visitors.

Elsewhere, the fashion market in Saudi Arabia is going through some dynamic shifts. The kingdom is the biggest and most populous country in the region and is investing heavily in building a thriving cultural scene to attract locals and visitors alike. Mega-infrastructure products include Diriyah Gate, a 7.1-million-square-meter development, and The Red Sea Project, comprising 14 luxury and hyperluxury hotels.

Attractions such as the Diriyah E-Prix will see Formula E racing (electric cars) on the streets of Riyadh. Winter at Tantora is a new music and arts festival founded in 2018, combining concerts and exhibitions with desert vistas, balloon flights, and horse races. Women are now playing an increasingly active and important role in the workforce. Indeed, the recent relaxation of rules on women’s dress have the potential to disrupt how women, both local and foreigners, consume fashion in Saudi Arabia. These developments should also encourage more local spending. Currently, more than 50 percent of Saudi spending on leisure and entertainment is outside the kingdom, with categories such as luxury nearing 70 percent.

Middle Eastern consumers are also becoming increasingly connected. Internet penetration in the UAE and Saudi Arabia is at 99 and 89 percent respectively, compared to just 57 percent in China. 2 E-commerce, therefore, is fast becoming table stakes in the region. It is set to grow at around 40 percent a year over the next five years, increasing its penetration to 9 percent from the current 2 percent; in some fashion categories in Saudi Arabia, it is already at 20 percent. Internet platforms are thriving, and international digital players including Amazon, Farfetch, Jollychic, and Yoox Net-a-Porter are wooing local consumers. Local players, including both omnichannel and pure players such as Ounass, The Modist, and Namshi, have sprung up to capitalize on this trend.

Consumer attitudes too are changing, as they want more value, transparency, and local content from fashion players. Middle Eastern fashion companies are raising their game, with designers, platforms, social media stars and local style trends starting to feature more in the global fashion narrative. The Middle East is starting to shift from being a historical importer of fashion trends to a nascent exporter. Following the success of Lebanese designers such as Rabih Kayrouz and Elie Saab on the international stage, new designers from GCC countries are making their mark; Kuwait’s Yousef Aljasmi and Bahrain’s Hala Kaiksow are names with growing international recognition, and others are riding on their tailcoats.

Fashion players must think carefully about how best to play in the GCC. Partnerships will continue to play an important role in the form of franchise relationships, joint ventures, or, in some cases, distribution-only models. Local family-owned businesses including Alhokair, Alshaya, Al Tayer, Azadea, Chalhoub, Rubaiyat, and Saudi Jawahir Trading, among others, are the lynchpins of the local scene, and will play an important role in physical, and increasingly digital, retail. A winning e-commerce strategy, intimate knowledge of the consumer, and cost excellence will be crucial.

No doubt, the GCC will continue to be an important fashion market, but brands that maximize performance across multiple channels and territories are most likely to outperform.

This article is extracted from The State of Fashion 2020read the global summary online, or download the report for more (PDF–5MB).

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