Middle East luxury market shifts online

Faced with intense international competition local fashion retailers are shifting their attention online

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Middle East luxury market shifts online Greg Wilson, group editorial director, ITP Business, ITP Executive & ITP Technology, ITP Media Group
By  Greg Wilson Published  July 4, 2017

The fashion industry, which relies on intangibles and subjective judgement like no other; is running headlong into the data-driven environment of technology and the internet.

On a superficial level the fashion industry has always had something of the ‘emperor’s new clothes’ about it. But putting aside natural cynicism, the industry has evolved into a social/cultural influencer like no other. It impacts on just about every aspect of modern life; it tells us what to wear, what phone to buy, it informs our values and what to aspire to.

But as with every other industry, the web poses serious questions to established players in the luxury fashion field throughout the value chain. How do brands that have championed their exclusivity, expense and privileged nature, transition to an age where social media has democratised fashion and beauty brand values and e-commerce sites have made the whole world a department store?

For the trading companies that have traditionally dominated the fashion and luxury sector in the region, the globalisation of competition brought by the web poses a business challenge like no other.

Simply put; the old rules won’t apply any more.

With luxury sales in China and other parts of Asia only recently showing signs of recovery, international fashion retailers and brands are increasingly eyeing the Middle East as the next big market. A key driver in the predicted growth will be the shift to e-commerce.

The GCC has the youthful demographics, smartphone penetration and disposable income to justify the optimism surrounding online sales and the stampede for the region’s audience of digitally fluent, young and affluent shoppers is well underway.

Currently, e-commerce is thought to account for between 2-to-3% of total retail sales in the region. But market research compiled by luxury retailer, Chaloub Group, predicts that online high end product sales will top US$1.5 billion within four years.

The Middle East’s appetite for luxury items is not new. The region has been home for a number of the ‘best performing’ luxury stores for some time. But the internet has fundamentally altered the retail landscape; websites such as Net-a-Porter.com, Matchfashion, Shopbob and at the lower end of the scale, ASOS.com, offer a greater range of fashion, commonly 20-30% cheaper to anybody with a smartphone and a credit card.

High shop rentals, exclusive local distribution deals and associated minimum advertised price (MAP) agreements all contribute to the artificially high cost of luxury items in the GCC.

A combination of the drop in value of GBP Sterling versus dollar-pegged GCC currencies, and UK sites offering VAT rebates has further weakened the competitive position of Middle Eastern luxury fashion outfits.

It is not just price where international luxury sites have an edge; increasingly the major fashion sites are localising their offering. Regional editorial, Arabic language customer support, sales events hosted to coincide with traditional Middle East holiday promotions, rapid delivery models and local currency support are being added to make Middle Eastern customers feel at home.

The advent of a localised Net-a-Porter (the 800-pound internet gorilla of luxury retail) and Mr Porter sites in 2019, and sister sites Yoox and Outnet sometime next year, bring into sharp focus the limitations of existing brick and mortar luxury retail. The local expansion is a result of the joint venture announced in November of last year between Mohamed Alabbar’s Symphony Investments (part of Alabbar Enterprises) and Yoox Net-a-Porter Group (YNAP).

YNAP’s Middle Eastern sites will be supported by a local distribution centre, which will allow for the same day delivery of goods. Existing Middle East customers are hoping Net-a-Porter will replicate its London-only, one hour delivery model, enabling consumers to buy an outfit on their lunchbreak, and wear it the same evening.

Faced with an onslaught of international competition, local brick and mortar retailers are belatedly shifting their focus online. Al Tayer Group, which counts Bloomingdales and Harvey Nicholas department stores in its portfolio, launched Ounass.com in December 2016, catering to customers in the UAE, Saudi Arabia and Qatar. The bilingual site has made two-hour delivery in Dubai and a commitment to match its rival’s prices the cornerstones of its digital proposition.

Not to be outdone, Boutique 1, a home-grown retail success story has revamped its digital footprint. It offers visitors a price match guarantee, free express delivery and same day delivery throughout the UAE.

Local sites are working with fashion labels to create ‘exclusive’ collections. Few sites take this further than the themodist.com, which caters specifically to the ‘modest’ buyers with bespoke collections with high neck lines, low hem lines and covered shoulders, from its Dubai-based headquarters.

The themodist.com has done well to develop a niche proposition that appeals to both local and international consumers. However, it is debatable whether other sites are differentiating themselves beyond pricing strategy or delivery capabilities. To satisfy fickle fashion customers, local fashion retails have to craft distinct online personalities that customers locally (and internationally) will want to be associated with.

Crafting an identity is made harder by the whirlwind of disruption brought by social media, which has given more people access to luxury than ever before, but fractured previously cohesive brand communications and eroded brand loyalty.

The fashion industry’s social-cultural clout is shifting from a relatively small group to a much wider spectrum of influencers; simultaneously increasing reach, but reducing control.

Influencers cannot be ignored. Chaloub Group research indicates 61% of people aged 18-26 and 56% of people aged 27-34 follow at least one ‘influencer’. A further 71% of UAE residents aged 18-40 were happy to take advice from online personalities before making purchases.

If there is perhaps one area where local luxury retailers have an edge, it has to be customer data. For the last several years retailers in the UAE have been making an effort to collect consumer data at the point of sale. However, that data has rarely translated into actionable customer knowledge. Retailers know enough to send blanket SMS’, but rarely seem to go beyond this to build a picture of the individual.

Building an accurate customer portrait is hampered by the often decentralised company structure; where separate business units maintain their own customer databases. The task of consolidating raw data into a single customer view is complex, expensive, time consuming and high risk.

Online commerce creates the opportunity for retailers to build a deeper understanding of their customer base, and from there ‘accurately’ target products and services based on a user’s history.

Here social media once again rears its head; threatening to by-pass established tools of e-commerce. The initial product pitch has historically been via an email newsletter, but the conversation will soon be conducted through social channels, such as Instagram and WhatsApp, either as part of a group or one-to-one.

The idea of a customer going into a store, taking photos and then messaging the shopping assistant to inquire and possibly purchase them seems both outlandish and at the same time so very on trend.

The explosion of ‘social’ and ‘conversational’ commerce poses its own set of questions; not least of which is how retailers capture requests, analyse them and ultimately upsell and convert those conversations into sales.

Perhaps the real challenge for local fashion retailers is whether they will able to respond before the other giant fashion websites enhance their local service either by improving distribution, reducing prices or sophisticated targeting of Middle Eastern customers.

Alternatively, the large trading conglomerates representing the majority luxury brands could just follow Mohamed Alabbar’s example. The YNAP/Symphony partnership, Emaar Malls’ acquisition of a majority share in local fashion site Namshi.com, not to mention the hyperbole surrounding noon.com confirm Alabbar’s determination to buy his position in the online fashion world.

It will be interesting to see if other Middle East companies (many of which have very deep pockets) follow a similar strategy to claim their position in the digital realm.

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