Luxury goods market in the Gulf is in a state of flux. Traditionally, the region has been known to be a thriving destination for many major luxury brands, fostered by factors such as the development of swanky malls and the swell in high net worth individuals (HNIs). In the Middle East, the size of the HNWI population increased by 4.8 per cent last year to 0.6 million, while wealth witnessed an increase by 5 per cent to $2.42 trillion, according to the World Wealth Report 2017 by Capgemini.
For the first time in a decade however, the luxury market in the region has been witnessing a significant softening since 2015 mainly because of two factors – low oil prices (that subdued consumer sentiment), strengthening of the dollar (that effectively made luxury goods pricier for tourists coming from non-dollar economies), and the rapid rise of digital-savvy affluent customers, enabling easier access of consumers to market information such as store location, products and price comparisons (that revealed how luxury brands in the region charged price premiums compared to other markets).
For local residents, it now makes sense to travel to and buy a luxury item from any European or Asian market, than from within the region because of the cost advantage because of the currency effect. According to a report by Deloitte, titled Global Powers of Luxury Goods 2017 higher relative costs meant that local residents found it more attractive to make their luxury purchases while travelling abroad in Europe. Most GCC currencies are pegged to the US dollar, and this effectively made the price of luxury goods higher for tourists from Europe, whose currencies have devalued against the dollar.
Going forward, research reports don’t paint a rosy picture too as they expect luxury sales in the region to slow down to around four to five per cent in the next few years. According to Bain Luxury Study 2017 Spring Update, the Middle East luxury market is expected to remain stagnant (outside of Dubai) in 2017.
In the UAE, for instance, although all subcategories of luxuries witnessed slower growth during the period, super premium beauty and personal care products witnessed the lowest slowdown due to strong pre-existing usage and ongoing launches of niche and exclusive products, says a report by Euromonitor.
As the slowdown in sales began to bite, a lot of luxury brands started turning their back on traditional advertising and upping the ante for digital media in the hope of making them more visible and effective.
As the “Luxury Advertising Expenditure Forecasts 2017” report by Zenith ROI Agency figures out, the luxury advertising expenditure on digital platforms in the MENA region has been steadily increasing — from $16 million in 2013 to $22 million last year that is expected to touch $24 million by the year-end. Simultaneously, the share of ad spend on traditional media, such as newspapers, magazines and TV, has been going down over the past few years (see chart).
This is also corroborated by a research by OMD that shows luxury brands’ ad spend data on the traditional media such as TV, newspapers and magazines in the GCC region has been slipping since 2015. While luxury brands spent $79.8 million on magazine ads in 2015, it fell sharply to $66 million last year and further to 36.9 million between Jan-Sep this year, as per the data available. Similarly, ad spend on newspapers declined from $37.5 million in 2015 to 36.5 million last year, and to $19.6 million in nine months this year. Likewise, TV saw one of the sharp pullbacks in ad spend by luxury brands falling from $148.3 million in 2015 to $100.6 million last year, falling further to $52.2 million during Jan-Sep this year. Billboards too were not spared with their share of ads fell from $27 million in 2015, to $22.3 million, and to $17.9 million from Jan-Sep this year.
But while digital tools and technologies are revolutionizing the ways luxury brands market themselves, the elephant in the room is that brands in the region do not truly understand what does going digital really mean.
For some brands, it’s about numbers. For others, digital is a faster way of reaching out to customers. And for others still, it represents a new way of doing business. While none of these approached to digital marketing is necessarily incorrect, it isn’t complete either.
Raise digital quotient
The digital marketing strategy differs for every luxury brand, but the essential elements are the same: identifying the target audience, creating a strong consumer connect through a personalised approach and strong content, selecting the right channel, measurement and control.
So what does this mean for marketers of luxury brands in the region?
While digital innovations continue to change the way luxury consumers engage with brands, the irony is that the more luxury brands change the way to connect with digital consumers the more they remain the same.
As a white paper ‘Luxury in the GCC: Age of Digitalisation?’ by Chalhoub Group, one of the leading players in the Middle East luxury retail observes, “the GCC luxury players have to devise and implement long-term, comprehensive and genuine digital strategies in order to remain relevant.”
Luxury brands in the region, it continues, also need first to figure out the digital luxury paradox: how to protect their luxury fundamentals in a digital environment. To remain relevant in the face of this dramatic, steady and rapid change, luxury has to reinvent itself digitally and tell a new story for the modern consumers, noted the white paper.
Adds Cassie Owen, Head of Fashion & Retail, Mackenzie Jones, “Leading luxury brands in the fashion world are typically built on exclusivity, which until now has meant a minimal online presence but there is an absolute need for luxury brands to be digitally-enhanced.”
“For luxury brands to connect and engage with their audience,” she continues, “they need to go above the apparent features of their products to extract the real emotion they translate to.”
Relevance trumps reach
While social media and digital platforms allow luxury brands to reach consumers quickly and easily, industry insiders believe the message posted by brands do not often connect with their consumers.
The message is clear. As a report by McKinsey, “Digital luxury experience: Keeping up with changing customers,’ observes, “Brands that reach luxury shoppers with the right experiences and information at the right moment will win a larger share of growth and outperform competitors. Brands that don’t keep pace with their customers’ digital behavior and preferences will fall behind.”
Going digital doesn’t simply mean building a better website or sending more messages on social media, whether it’s Instagram, Facebook or Twitter, which is what most luxury brands are doing. Instead, going digital means a complete shift of luxury brands’ approach to engaging with consumers.
As Robert Meeder, Communications Consultant and Associate Chair & Professor of Fashion and Luxury Fashion Management, Savannah College of Art and Design (SCAD) Hong Kong, maintains, “I see too many brands and retailers in the Middle East using digitally platforms to push product, product, product. But consumers, especially millennials don’t find this sort of messaging engaging, over time the product/message actually becomes irrelevant to them and you risk falling off their radar of interest.”
“The perfect mix,” he adds, “is one that communicates your message across all platforms with the right authentic content in the right context.”
The view is echoed by Owen, when she says, “In order to remain relevant, brands have to continuously find new means of emotionally connecting with consumers”. “This means approaching new platforms, new styles, and new influencers to keep a brand’s identity rooted in the modern world.”
Find the right Customer
Consumer profile in the region too is fast changing due to the rise of Internet-savvy young population that makes it imperative or luxury brands to make different marketing strategies to connect with them digitally.
This means while digital and online channel might work for one brand, it will not work for other. This calls for an effective and personalised social media and digital communication strategy for brands to stand out.
“The best digital marketing strategies are built upon detailed buyer personas. Buyer personas represent your ideal customer and can be created by researching, surveying, and gaining data from customers,” maintains Owen of Mackenzie Jones.
Also, as the market dynamics and the consumer profile have changed, selling high-end luxury products requires a different set of skills than many brands have been practising in the region for years. Simply because, digital has changed the nature of the relationship between brands and customers who are mature, well-informed and well-connected.
The problem however is that only a few high-end brands are actually ready for it, say experts and are struggling to adapt to digital era.
Some brands though are broadening their customer base and making luxury more accessible to the mass by making online shopping available in the region. In the UAE, for instance, brands such as Gucci and Burberry already have the option of online shopping via their own websites.
Department store Saks Fifth Avenue e-store website also ships to the UAE, despite no longer having a physical store in the country. Ounass, an e-commerce platform launched by the luxury conglomerate group Al Tayer Group that launched its website www.ounass.ae in December last year, has over 150 luxury brands online including capsule collections.
However, as Rumana Sadekar, Senior Manager – Research Consultancy, Hall & Partners, says, “In tandem with this trend, luxury brands also need to constantly keep innovating to retain their exclusivity and appeal to the high-net worth individuals. Immersive and interactive experiences, along with limited edition product launches and endorsements will become more important to keeping their attention and spend.”
Is digital backfiring?
While luxury brand marketing needs to create more transparent and localized campaign, and they need to be believable when they connect digitally, it is not happening for some frontline luxury brands in the Middle East.
One of the instances of an international brand that failed and didn’t make the most of its digital platforms and content was Dolce & Gabbana with their 2017 abaya collection. Meeder of SCAD Hong Kong, says, “Though the brand attracted a lot of traditional PR from the launch, look closer and you’ll notice that the model is far from being from the region. This collection presented numerous problems and missed a key opportunity!”
“One could discuss the overall approach of the brand’s Italian appeal vs. its appropriation of existing traditions but the fact remains that Dolce & Gabbana failed on truly creating a unique Middle Eastern story from the ground up that captures the spirit of a brand yet with a voice from the region,” he adds.
Apart from Dolce & Gabbana, experts cite other instances of how digital experience of some luxury brands, such as L’Oreal and Cartier, didn’t do well in the region.
“In regards to L’Oreal and Cartier, it’s much of the same thing of using whitewashed campaigns and strategy that work for the West,” said an industry expert off-the-record, who didn’t wish to be quoted.
Affluent buyers, experts say, have now high expectations for the service or in-store as well as online experience they receive and base their buying decisions more on the emotional connect with the brand and the desire, than their practical need.
“Think about the Cartier Polo event (the annual Polo event that takes place in Dubai), and question how many local riders participate in it? The whole concept overall is far from anything local,” the official continued.
“How does,” he continues, “this play into creating local authentic stories that your consumers resonate with? It’s not to say that it should be on camels instead but all these activities and events are crucial when it comes to your online digital strategy, he adds alluding to the failure of Cartier to come up with the localized digital marketing campaigns around this event.
These are some of the examples, he says, of how brands that succeed are those that are able to localize their voice and message.
Adds Ahmed Reda, MENA Consumer Products and Retail Leader, EY, “If not done correctly, going digital can backfire.” The obstacles, he adds, luxury brands face in the digital marketplace are – image, touchpoint, governance, pricing, and grey market.
“Many luxury brands in the GCC recognize the high potential of the e-commerce and mobile commerce (m-commerce) markets, but few are able to compete in them in a profitable manner, and even fewer are able to successfully combine their e-commerce and retail strategies,” he concludes.
An expanded version of this article appeared in the November 2017 issue of Gulf Marketing Review.