The year 2015 saw a decline in consumer spending weighing down on premium brand retailers in Dubai and the rest of the Middle East. According to a recently released report from Bain and Company, business has been flat in the high-end market this year, as shoppers are splurging less on luxury items.
Will the situation look better for the Middle East region in the last two quarters of 2016? Gary Dugan, Chief Investment Officer at Emirates NBD is calling this a transition phase which the countries in the GCC region will recover from in the next five years. “Call it transition. The region has taken on a different phase with the government providing everything to the public and private entities. That is changing now. In the last 12 months, the government has taken up the challenge of change and transition. In the next five years, we will see the government pressing the re-distribution of wealth along with significant promotion of private sectors.”
Cyrille Fabre, Partner at Bain and Company says that there has been no growth in the market. “The shock has been profound. The market growth has been at a standstill in 2015 and early indication in 2016 is bad. It has been double digit growth to no growth. It’s worst because this wasn’t expected. Profits has been squeezed. The region has potential but execution is going to be a challenge for the government.”
Explaining further on how businesses are trying to shift focus and adapt to the slowdown, Mr Fabre said its divided into three buckets. “The first bucket of businesses are those who say to keep focussed and to be clear on the priorities. The second category is focussing on cost that was never done before. It has now become critical to focus on cutting down cost to sustain growth.”
“The third bucket of businesses are those which are trying to understand the new capabilities and investing in them. There is a conscious improvement by these businesses to invest more on digital – be it through the stores or through various value added channels,” Mr Fabre added.
The economic slowdown also brings forth the question if the region is entering into the era of cleaning up, filtering out businesses which have been stagnant in growth. “Businesses are focusing on where the growth potential is with over-investing in brands that are doing well, and pulling out of those which are not,” shared Mr Fabre.
For the automotive sector, while there has not been a dramatic slowdown, it has been negative with -15 percent change seen this year in comparison to the same time last year. However, this did not seem to be the case for Infiniti. Juergen Schmitz, Managing Director at Infiniti Middle East says that this was the best quarter in the history of Infiniti. “Your product should be right. If you do not have the right product and the right innovation, then you cannot grow. Secondly, the most important part that makes a difference is the people. We are not cutting a penny in our training and skill development. It is one of the main successes of Infiniti.”
For many brands and retailers, the drop in tourist revenues in the GCC region has further pushed the need for regional expansion. The resetting of regional business, along with the rationalization of costs in some cities and the development in new markets, requires a new retail strategy and marketing approach in the region. The challenge in the coming years will be to create an emotional bond and build a sustainable relationship with consumers through technology and activation.
“In automotive, its the innovation and the technology that can help connect the bond with customers. If we speak about safety innovation, its a very significant development which is very important for customers. Secondly its the design. The design should be able to give the emotional connect to the customers,” he said.
The industry leaders made these comments while speaking at the third edition of Arab Luxury World 2016 held in Dubai.