Middle East luxury market to double in size by 2030, says BCG

Under pressure from geopolitical tensions, the geography of luxury has greatly changed in the last two years, turning the spotlight on new regions ready to be exploited. One of them is the Middle East, whose growth potential is whetting the appetite of many luxury labels. The Middle Eastern luxury goods market, estimated at nearly €15 billion in 2023, is expected to double in size by 2030 and grow to €30-€35 billion, driven by the UAE and especially Saudi Arabia, according to a survey published by Boston Consulting Group (BCG) in partnership with Altagamma, the association of Italy’s top luxury labels.

 
Other studies seem to confirm these expectations. A report recently published by Altagamma, summarising the opinions of about 20 analysts, has for example revised the association’s forecasts upwards, with the Middle Eastern luxury goods market’s expected growth estimated at 10%, and not 7%.

McKinsey & Company, in its latest report on the sector, estimated that the Middle East, alongside North America, is the market with the highest growth potential in 2023. In the last two years, the Middle East has benefited from the lockdowns imposed in China following the country’s introduction of strict anti-Covid measures. It has also become a haven for many wealthy Russians, hit by EU and US sanctions following the invasion of Ukraine, and the region’s luxury goods sales have boomed.

“The Middle East is one of the new frontiers of luxury. Especially Saudi Arabia, which until now has been slow in developing commercial spaces dedicated to the luxury world. It is one of the very few countries in the world that is virtually virgin territory in this respect. In fact, the luxury goods expenditure forecast in our study will mostly occur in venues that do not exist today,” said Filippo Bianchi, a director and partner at BCG in Milan.
 
Saudi Arabia isn’t a shining example of civil rights policies and individual liberty, but in the last few years it has been trying to polish up its image and to modernise, liberalising society to a degree. It is also trying to diversify its national income, until now chiefly originating from oil, by promoting luxury tourism. “[Saudi Arabia] is worth approximately €3 billion in terms of luxury goods sales. It is expected to be worth €6 billion by 2030, posting an annual growth rate between 10% and 12%. Luxury goods expenditure by Saudi Arabians, both domestically and abroad, is expected to increase from €6 billion to €12 billion in the same period,” added Bianchi.
 
Countless luxury stores have been opened in Qatar and the UAE, but this isn’t the case in Saudi Arabia. The country has barely started moving in this direction, and has extremely ambitious development plans for the sector, through the Vision 2030 project that has been advocated since 2016 by Crown Prince Mohammed bin Salman. Tourism is another of the project’s mainstays, and Saudi Arabia is set to invest massively in the industry, over €1 billion, and expects to be welcoming some 30 million foreign tourists by 2030.

 
BCG pointed out that Saudi Arabia is planning to build no fewer than eight huge shopping mall complexes, which are expected to funnel back into the country part of the luxury goods expenditure made by Saudi Arabians abroad. According to the BCG study, the country’s capital Riyadh alone will develop nearly 500,000 square metres of commercial real estate dedicated to luxury, with three enormous malls.

Shifting luxury expenditure back into the country will be made easier also by the rising influence of people under 30 years of age, who account for over 60% of Saudi Arabia’s population. “Young, rich, increasingly sophisticated and digital-savvy, 53% of Saudi Arabian consumers like to shop online,” said BCG. The number of local shoppers will be augmented by the constant influx of pilgrims visiting Mecca for the hajj. Not to mention the luxury shopping that takes place during Ramadan.
 
In other words, Saudi Arabia is a lucrative market for Western luxury labels. Many of them, looking for new outlets in order to reduce their dependence on countries like China, have taken steps to establish a foothold in the region. French group Kering has opened a subsidiary in Saudi Arabia, and Swiss group Richemont has signed an agreement to establish a retail presence at King Abdulaziz airport in Jeddah, the country’s second-largest city, as revealed by the Glitz Paris website. Last May, New York watch brand Jacob and Co. opened its largest store worldwide in Riyadh.

The majority of labels that wish to enter the Saudi market are joining forces with the Chalhoub group, one of the Middle East’s leading distributors of luxury brands. And new players are cropping up. Compared to other countries in the region, Saudi Arabia needs a specific, dedicated strategy. “It will be necessary to find the right local partner and choose the right set-up, for example franchising or a joint venture, to upgrade the product offer to match (…) local preferences and cultural norms, while enhancing the retail footprint targeting new, large-scale real estate projects,” said the BCG study.