Geopolitical tensions are affecting consumers trust and the giants, specially luxury, started to point downfalls in the region.
Another big fashion shelter lost its sparkle. Middle East, that turned into an international fashion mine with growth rates that shocked the world, high purchasing power and an extremely developed shopping centers network, lies now on the edge. Geopolitical instability, and uncertainty in the region, has started to take its turn in its economic projections, and the giants started feeling the consequences in its results.
The focus of the tension in the region is Iran, where the boycott of an oil tanker in the Straits of Ormuz unleashed a geopolitical crisis. Tensions rised last June, when Teheran toppled an American drone in the area leading to a strong Washington reponse, more penalties.
Saudi Arabia, one of the biggest markets for fashion in the region, was also threatened with penalties from United States and some European countries after the murder of journalist Jamal Khashoggi. In Qatar, two years have passed since Saudi Arabia, Arab Emirates, Bahrain and Egypt imposed the country political and economic sanctions after being accused of supporting terrorism.
In its last World Economic Outlook, the International Monetary Fund (IMF), pointed this context in the region, going straight to the “notably rising geopolitical tension in the Persian Gulf”.
The entity lowered its forecast of growth for the Middle East region, North Africa, Afghanistan and Pakistan in 0.5 pointers, up to 5% this year, even if it awaits 3% rise next year.
Advisory reports such as Datamonitor or Bain have started to point that the rhythm of growth for fashion in the region could be diminished in the next couple of years. Luxury Goods Worldwide Market Study created by Bain&Company, stated that in the first quarter of this year the evolution in the region is “weak but positive in Dubai, but weak in Qatar and Saudi Arabia because of the reduction in the tourist volume”.
In its previsions for the year, the report mentioned the uncertainty in all Middle East, where domestic spending is moving out of the region because of the response to currency appreciation.
Data for retailers in some strategic countries of the region also points to a slowdown. In Saudi Arabia, retail sales of clothing, shoes and leather goods diminished 0.94% in 2017, last available data. According to the General Authority for Statistics, fashion retail profited 26.7 billion riyals (7.1 billion dollars) meanwhile wholesale raised to 10.7 billion riyals (2.7 billion dollars).
The domestic spending of the Saudis in this category has also lost some gas, going from a growth of 14.9% in 2015, to 7.2% in 2016 to only 0.08% in 2017, up to 63.6 billion riyals (16.9 billion dollars). In Qatar, retail keeps its impulse in 2017, with a rise of 62%, but wholesale fell almost 20% according to Planning and Statistics Authority.
Even if most fashion groups don’t give specific details of their evolution in this region, the ones that do, have started to point a weaker growth. Middle East was, as a matter of fact, the only market in which Richemont reduced its sales in the fist trimester, with a fall of 2% (7% without taking into consideration local currencies), up to 249 million euros (278 million dollars).
Middle East was the region where Kering got its weaker growth
Kering, that doesn’t give details of its sales per region in its quarterly reports, pointed that in the Middle East the market stayed flat, reflecting less trust amongst local buyers. The region was where the group got its weaker growth, with a rise of 16.1%, up to 725.1 million euros (810 million dollars).
Spanish fashion has also reduced its bet for the Persian Gulf. After six years of high rises, exports in this area reached three years on the low, with falls of 7,9% in 2016, of 3,4% in 2017 and 3,6% last year, up to 691 million euros (771 million dollars), according to data of the Icetex.
Qatar was the only one of the seven markets of the region that raised its sales in Spanish fashion, Saudi Arabia, and United Emirates, reduced 1,1% and 7,2% up to 301 million and 256 million dollars.