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“A n ot e o f c au t i o n u n d e r p i n s m a n y f i n a n c i a l t r a n s a c t i o n s n ow, i n a way t hat wa s n ot n ec e s s a r i ly t h e c a s e b e fo r e t h e c r a s h . Th i s i s e v i d e n t n ot o n ly i n r e ta i l , b u t i n i n v e st m e n t to o. �
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uxury goods, as a symbol of success (or, indeed, aspiration to the same), have often been the torch bearer for conspicuous consumption. You have it, and you want people to know that you have it. By their very nature, high-end goods can eat up just about any percentage of your disposable income you can afford to spend, but you have to have the money. There are, however, other factors to consider in how sales of luxury goods are defined. How are retailers of luxury goods performing in the Qatari market? What challenges are retailers facing, and how are they facing them? What, also, of the aforementioned ‘other factors’? Qatar Today spoke to a number of distributors of luxury brands to find some answers. The global economic woes of the past couple of years have been welldocumented, but Qatar’s economy is currently in rude health, with Dun & Bradstreet, in conjunction with the Qatar Financial Centre Authority, reporting that Qatari GDP is expected to grow by a hefty 18.5% this year – over five times the projected increase of Kuwait, for example. Although Qatar has not suffered economically in the past few years in the way many western economies have, it’s a fallacy to suggest the economy has been unscathed. In 2009, according to Business Monitor International figures, nominal GDP fell very slightly (due almost entirely to the fall in price of hydrocarbons on the world’s markets) from $110.7 billion (QR403 billion) to $109 billion (QR397 billion). However, the rise in the population of the country 40
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in that same period – from 1.4 million to 1.6 million – made a significant correction to the GDP per capita figure from $76,459 (QR278,000) to $67,715 (QR246,460) per annum, which represents a fall of over 11%.
feelinG tHe EFFECTS In retail terms, this per capita GDP drop is huge, and the effects have been felt in Qatari luxury retail. Luxury, once thought recession-proof, seemed in danger this time around because of the broadening appeal of discount brands. The Rivoli Group is a significant player in Qatari luxury retail (QLR), with eight outlets in the country including multiple representation at Doha’s main malls where its extensive roster of luxury brands include names like Omega, Christian Dior, TAG Heuer and Vertu. We spoke to the Group General Manager, Abraham Koshy, and asked “How do current revenue levels in QLR compare with the ‘boom time’ of a couple of years ago?” “So far, so good,” said Koshy. “We’re not back to the extremely strong sales of 2007-2008 but the trend is upward this year and we hope to maintain the positive momentum. Maintaining our standards, keeping operational costs under control and delivering a decent return will be the challenges for the next few years. There are still areas to maximise and we still remain optimistic about growth.” What was behind the dip in sales? Was it purely down to the global recession or were there other factors at play? “One can say that the recent global economic crisis has been the precursor to the various anomalies in business,” said Koshy. “A dip in sales is one repercussion
of the economic downturn, which in turn, is one factor related to complex business mechanisms that have caused low sales figures. Inflation, credit crunch, change in consumer behaviour, alternate HR policies, delayed purchases are all factors that have in various ways affected sales in the industry.” From Rivoli, we can see that sales were ‘extremely strong’ a couple of years ago but have rebounded to levels near, but not completely equal to, those enjoyed in 2007-2008. We can also see that the blame is being laid squarely at the feet of the global recession – this is not a surprise – but Koshy goes on to list ways in which the recession and the fall in GDP per capita demonstrated above has impacted retail spend, along with a mysterious mention of ‘consumer behaviour’, and to this we will return.
bouncinG BACK The dip in sales is not a shock, but what is intriguing is, as the Americans would say, the ‘bouncebackability’ of luxury brands that within a year to 18 months of the worst global financial weather since 1930, sales are edging close to their pre-crash peaks. Granted, the overall strength of the Qatari economy plays its part in this but this resilience of luxury brands shows how important brand equity is in high-end retail. This nurturing of a brand and its products – sometimes over a period of more than a 100 years – in terms of research and development, marketing and advertising (often at significant expense) give luxury brands, like well-planned and lean economies, the foundations on which to regroup in the event of a setback. For many, the name that pops up when luxury is mentioned is that of Rolls Royce. In March, the bespoke carmaker
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reported a dip in sales of 10% for 2009, almost identical to the contraction in the Qatari GDP per capita figure. Six months later and the ‘Spirit of Ecstasy’ has somewhat different news to report: sales in the Middle East a whopping 98% higher in the first half of 2010 than in the respective period of 2009. “This is a clear sign of the unparalleled appeal of Rolls-Royce, in particular following the challenging economic environment in 2009,” said James Crichton, Regional Director for the Middle East. With all due respect to Crichton, one could substitute the name of his product with any number of high-end brands. After all, if you need a decent car, you buy a Nissan or a Volkswagen, but as a memorable advertising campaign from years past opined about another legacy car manufacturer: ‘It’s not a car. It’s a Mercedes-Benz’.
A note of CAUTIon Has any lasting damage been done by the recession-led falls in revenue? “Overall, businesses have felt the impact in varying degrees,” said Koshy. “The general vibe across retail sectors has been of caution. Many customers have postponed their luxury buys. “Like-for-like retail sales in 2009 witnessed double digit drops for certain locations within our group and the bottom-line figures reflected similar declines. However, we need to bear two things in mind. Firstly, 2008 was a record-breaking year for most retailers in the region in terms of sales. Secondly, ‘same store’ sales figures are supposed to be an indicator of a retail chain’s stability, strength, and growth, but since everyone knows that in 2009 the overall economic climate was all about global uncertainty, weakness and
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downsizing, the numbers realised within that economic environment have to be viewed in that perspective. “First quarter 2010 sales figures have been positive and in several locations are even better than 2008 numbers. So there are still areas to maximise but we remain optimistic about growth,” Koshy added. Well, that’s a ‘definite maybe’ from the retailer but it hardly sounds catastrophic. What of the brands themselves? Have they felt the strain at all? Qatar Today spoke to Damien Vernet, General Manager Middle East and India for French luxury fashion house Louis Vuitton (LV). According to global branding giant Interbrand, LV was the world’s 16th most valuable brand last year – worth more than the likes of Samsung, Honda and even Apple.
crisis eQuAls oPPoRTUnITY LV has had a presence in Qatar since May 2008 with the opening of its store in Villagio and if Koshy sounds cautiously optimistic in the face of the recession, Vernet sounds both bullish and like a man who enjoys stormy weather when he says, “2009 was another strong year for Louis Vuitton. Generally speaking, times of crisis are a time of opportunity and when the strongest brands become stronger. “This happens for a number of reasons, the no-compromise approach of Louis Vuitton when it comes to quality and distribution and when consumers become even more discerning and watch their spending, they tend to stay or go back to very strong brands that have stood the test of time. “The very clear strategy of not discounting or going promotional, particularly at a time of global panic,
“WE’RE noT BACK To ThE EXTREMELY STRonG SALES oF 2007-2008 BUT ThE TREnD IS UPWARD ThIS YEAR AnD WE hoPE To MAInTAIn ThE PoSITIVE MoMEnTUM” – ABRAhAM KosHy of rivoli Group
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$67,715
2009
$76,459
2008
$65,865
2007
PER
$58,058
GDP
2006
$48,469
2005
QATARI CAPITA
eXpAt bArGAins Go FRoM oASIS To DESERT
$82,918*
2010
B
*forecAst
ack in 2007, the relative weakness of the dollar meant that for non-US visitors to countries whose currencies are pegged to the ‘greenback’, some exceptional savings could be made. The more valuable the purchase, the greater the saving, and for the traditional intransigence of high-end retailers to offer discounts, a way to engineer your own discount courtesy of the money markets. British Project Manager Eleanor Graff visited Dubai in 2007. Business was primarily on the agenda but the stereotypically female trait of window shopping was to present an opportunity. “I’d been looking for a luxury watch for a little while, but had yet to make a final choice,” she said. “At that time, one pound sterling would buy you over two dollars and knowing that the dirham was pegged to the dollar, I was curious to see if the bargains that the UK press were reporting as available in the US itself extended to the Gulf. It made sense that there would be some saving. “I had a look at a Rolex that I had seen in the UK and the salesman, ever ready with his calculator on the counter, did the maths. It was a good deal less than what I would have paid in London, where asking for a discount on most Rolex models will only get you a funny look – you either pay the price on the tag or you go without,” Graff added. The salesman probably wouldn’t have made an easier sale that week, but fast forward to 2010, and at current exchange rates, one pound will buy you only $1.50 – 25% less than just a couple of years ago and this devaluation is replicated with most other currencies. For the time being at least, your best chance of a discount is going to have to be dependent on a keen eye for the sales, a benevolent retailer – and a willingness to haggle…
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“ThERE IS no DoUBT ThAT QATAR hAS GoT ALL ThE InGREDIEnTS To ConTInUE To GRoW VERY FAST, PRoBABLY FASTER ThAn MoST oF ITS nEIGhBoURS FoR ThE FoRESEEABLE FUTURE” – DAMIEn vernet of louis vuitton
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where retailers are being increasingly desperate and aggressive with sales, clients appreciate the fact that a Louis Vuitton product continues to provide very high value and that the product does not get discredited from one period to the next,” he added. It’s unsurprising to hear Vernet espouse the necessity of maintaining brand integrity by not employing discounting strategies or similar – as we have discussed, brand integrity is not lightly, or cheaply, won – but it is unusual to see a global recession cited as a time of opportunity. Vernet’s confidence in this respect might come from strength in numbers – LV’s holding company (LVMH) also owns brands such as Givenchy, Krug Champagne and TAG Heuer, is present on Paris’s CAC40 stock exchange and employs an overall workforce of 77,000. A good deal of homogenisation through partnerships and takeovers has occurred in the luxury retail sector in the last 20 years. So much so that very few of the biggest and most prestigious names have to face inclement economic weather alone. Ferrari has Fiat, Omega has Swatch.
brAnd loyAlty REMAInS When observing a household budget, sometimes economies might involve swapping the Ariel washing powder in your trolley for Carrefour own brand, or that new washing machine you need to replace your ageing twin-tub might have to be an Indesit rather than a Miele. Does the same thing apply in terms of luxury purchases? Samsonite makes superb luggage but have they picked up any sales because customers have not been able to quite stretch to a luxury brand? According to our respondents, the answer is a resounding ‘no’.
“Louis Vuitton has not lost any customers to less prestigious brands,” said Vernet. “On the contrary, Louis Vuitton becomes even more of a point of reference when clients are paying more attention to what they buy.” Koshy concurred when he said, “Loyalists of a brand don’t change easily. This would mean that in the face of the current economic circumstances, a brandconscious customer might delay their purchase of a quality luxury product but rarely would they turn their loyalties elsewhere.” The customer still covets the luxury item over its ‘deluxe’ counterpart – it might simply be a question of exercising some patience to be able to afford the brand you really want. What, then of the aforementioned ‘other factors’ that influence luxury retail? There are two obvious candidates: confidence and perception. These factors are of course influenced by the economic outlook but they are not directly connected, they are ancillary. Consumer confidence plays a big part in the decision to buy any nonessential good, and the amount of ‘confidence’ required to buy a luxury good is emphasised the higher the price of the item. According to the MasterCard Worldwide Index of Consumer Confidence, Qatari consumers are suffering something of a crisis of this commodity. Released twice a year, the Index is based on a survey which measures consumer confidence on prevailing expectations in the market for the next six months based on five economic indicators: Economy, Employment, Stock Market, Regular Income and Quality of Life. The Index score is calculated with zero as the most pessimistic, 100 as most optimistic and 50 as neutral. A
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year ago, Qatari consumers scored 74. Six months ago, they scored 89.2 and just last month, the figure dropped to 66. Qatari consumers, we see, are wavering. This is almost certainly due to underlying concerns – shared worldwide – at the prospect of a ‘double dip’ recession and the hydrocarbon markets, so vital to the Qatari economy, taking another hit. You may well have the money right now to buy the luxury item you want, but are you sure you’re not going to need that money for something less extravagant in the near future? A note of caution underpins many financial transactions now in a way that was not necessarily the case before the crash. This is evident not only in retail, but in investment too (see p.25).
A psycHoloGicAl ConCEPT The other factor to consider is perception – how is it going to ‘look’ if I make that luxury purchase? Is there a circumstance where the purchase of a big-tag item could have a negative effect, diametrically opposed to the intended impact? There is. Qatar Today spoke to the Vice President of a Qatari company who did not wish to be named. He told us, “If you’re the big boss of a company and your order book or sales have been a bit lean in the last couple of years then perhaps staff bonuses or salary increases might have to go on hold. How is it going to look if you then turn up at work in a brand new Bentley? It’s not going to look good, is it?” The strand that unites ‘confidence’ and ‘perception’ is the simple psychological concept of peer pressure. Some don’t feel it at all, but for most of us, it is a factor whose influence is hard to resist. The cyclical nature of the world’s
markets suggests that another crash is inevitable at some point in the future. Have our respondents learned any lessons from the past to equip them for the future? “We have factored in the current situation in our plans and are realistic about the path ahead,” said Koshy. “We have not ignored worst-case scenarios as part of our strategy that would determine our ability to adapt. The downturn seems to be a temporary, albeit protracted phase. We are fortunate that the governments in the region have accorded priority and are allocating significant resources for this to tide over,” he added. Vernet, however, seemed to find the idea of global economic collapse almost tiresome when he said, “The lesson of the economic crisis that started almost two years ago, and of most of the previous dips is that some elements provide a fantastic resistance to downturn: quality, authenticity and full control of the distribution. Louis Vuitton, which has been in existence for 156 years, is lucky to have those assets, so we will be facing the future with serenity.” One can almost sense this statement appended with a little Gallic shrug.
dynAmic And oPTIMISTIC Vernet and Koshy are clearly reading off the same page, though, when it comes to their views on what the future holds for luxury retail in Qatar. “2009 was a challenging year for retailers across the globe and this region was not exempted during the downturn,” said Koshy. “However, when we look at 2010, our first quarter numbers are very encouraging and we have experienced double-digit growth. The future for luxury retail looks very
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promising for Qatar and we are looking at areas of growth in the Qatari market place,” he added. Koshy’s position of ‘dip and recovery’ can be illustrated by official figures from the Federation of the Swiss Watch Industry which shows exports of Swiss timepieces to Qatar falling off by 2.9% from 2008 to 2009, and picking up 3.3% from 2009 to 2010. When one considers distributor mark-up for this type of product, these percentages will increase significantly in retail terms. “Since we opened here in 2008, this has been a very dynamic market,” said Vernet. “There is no doubt that Qatar has got all the ingredients to continue to grow very fast, probably faster than most of its neighbours for the foreseeable future. Our relationship with Qatari customers existed before we opened our first store in the city, but the proximity has helped us serve them better and understand the market better. “We are very bullish about this relatively new market for luxury, and the number of retail projects that are being announced is a testimony to its dynamism. We are therefore constantly on the lookout for future opportunities or expansion projects,” said Vernet. We can conclude that while confidence among Qatari consumers is somewhat erratic, it is positive overall. The economic outlook is predominantly good – albeit with a note of caution – and luxury retail in Qatar has a bright future. High-end goods appear to have gained resilience through homogenisation and solid marketing but while luxury retail seems able to suffer the slings and arrows of outrageous fortune, it is not bulletproof. Not quite n AUGUST 10
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