Expensive habits

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Wealth in the Middle East is a relatively new phenomenon and, as a result, consumers tend to put their luxury possessions on display. The appeal of luxury goods – be they cars, yachts or beauty products – has risen steadily in the region. How did this happen?

The development of the oil industry in the 1960s led to wealth filtering across the Gulf. Urbanisation followed and, increasingly, nations around the Middle East embraced western-style consumption habits. The need to possess and show off your wealth stimulated the expansion of the luxury industry – one of the fastest growing in the world. 

So how has this segment in the Middle East developed? Many factors influence the changing face of the luxury-goods audience in the region today. Among them is the large disparity in demographics between countries – tipped largely towards youth – and booming economies giving rise to a larger middle class, representing higher levels of disposable income available in the market. Despite these changes, however, the forces that drive luxury purchases appear to remain unchanged – suggesting that these buying decisions are more of a habit than an extravagance here. 

As modernisation continues to sweep through the region – and the standard of living becomes more lavish – luxury is now engrained in many Arab consumers’ behaviours. So it’s no surprise that this segment of the market has blossomed, propelled by the ultra-wealthy, with the United Arab Emirates (UAE) and Saudi Arabia leading the way. In the UAE, particularly – with a society that boasts the biggest and most luxurious infrastructure – great value is placed on exclusivity and standing out from the crowd. 

According to Knight Frank’s Wealth Report 2015, the number of ultra-high-net-worth individuals – each with a fortune of more than $30m – is expected to grow by 40% over the next decade. The market is also being supported by a growing middle class – understandable considering its burgeoning wealth. 

Euromonitor International reported that the disposable income of people in the Middle East and Africa has grown by 2% in the past year, and will continue to enjoy steady, year-on-year growth, reaching 9% in 2019-2020.

Despite these positive factors, however, the market has actually slowed because of global currency fluctuations and the general state of the world economy. So brands have still to innovate continuously to provide discerning consumers with the latest, most exclusive and aspirational products, taking into consideration their distinct preferences and behaviours. 

To gain a better understanding of the factors that drive purchases, we have identified four major factors that shape behaviours around luxury in this region: 

Familiarity: Consumers have a stronger affinity with luxury brands that they already know. The higher the affinity, the more likely consumers are to engage with them and make impulse purchases. This is particularly true for men, who follow the brands whose products they own online. Interestingly, limited edition products enjoy higher purchase rates than those from regular lines. 

Validation: People who make luxury purchases are largely motivated by the potential of these products to influence what other people think. The need for belonging originates from their tribal heritage and is still strong in the local culture. Through its distinctive signature, luxury helps define a person’s place in the community. 

Engagement: UAE and Saudi nationals justify their luxury purchases as long-term investments. However, they also purchase frequently – up to four times a year – to keep up to date with the latest trends and to stand out in their social circle. They love choice and are stimulated by having a wide range of colours and designs from which to choose. These consumers know what they want and, as a result, brands can find value in gathering and acting on their feedback. For example, men push for luxury brands to embrace technology, while women want to see more diverse product lines.

Localisation: While Gulf consumers have a high affinity with global brands, they also expect them to be relevant to their unique culture and tastes. A lot of value is placed on how these brands embrace the local language in their communications – something the luxury sector has just started to realise. Furthermore, consumers increasingly expect the inclusion of local fashion trends into existing product lines.

One underlying theme in all of these factors is the use of luxury and fashion to express oneself against a conservative backdrop. 

Status continues to play an important role in Middle Eastern society and luxury goods are, undeniably, one of the strongest ways to display it. 

As regional markets become increasingly affluent, the growing middle class is starting to join the upper tiers of society in the consumption of luxury goods and services. If brands are to appeal to this emerging segment, they first need to understand the local nuances that influence people’s purchasing behaviours. Fortunately for them, these are quite distinct and pronounced in the Middle East.

Ziad Skaff is managing director, and Rumana Sadekar is research consultancy manager at Hall & Partners MENA