Earhquake in Japan and the Middle East unrest to impact luxury hospitality and retail

Sofitel Luxor

The Middle East crisis which started with Tunisia, then Egypt, Bahrain and lately the ongoing bloodbath in Lybia has already had negative impacts on the local luxury markets in each country, especially Bahrain and Egypt. CPP has learned major luxury retailers are planning store closures in Bahrain by the end of the year, as sales have dropped by 40% in the past three months.

Egypt’s less developed luxury retail market has seen a direct negative impact on jewellery and watches sales, which dropped by 50%, while fashion and accessories sales dropped by 30%. The luxury hospitality market in Egypt has seen occupancy rated halve since the debut of the crisis, mostly in major cities of Cairo, Luxor and Alexandria, with a lesser decrease in the resort towns of Sharm el Sheikh and Hurghada. “A stable and secure environment is needed to bring visitors back to Egypt, and whilst it is not yet certain when demand will return to normal levels, it is recommendable for the hotels to continue with their current strategy of not dropping average room rates, as it will not stimulate additional demand to counterbalance a potential drop in revenue per available room”, commented Elizabeth Randall, managing director of STR Global, an international hospitality research company.

Even though the unrest has ebbed, the country’s economy is still heavily affected by the instability and the lack of a strong economic policy from the new government. The return of over Egyptian workers from Lybia will also add to the current crisis.

Sales of luxury goods to weathy Egyptian, Bahraini, Lybian and Tunisian nationals who shop abroad, most of them having escaped the unrest, have also dropped. It is unclear yet what is the extent of the damage, as it is an unfolding situation. From CPP’s research, the favourite destinations for these nationals have been Paris, London, Madrid, Malta and Istanbul, with an increase for Istanbul, the choice of most of the top rich ”refugees”. Occupancy rates at major luxury hotels in Istanbul has remained at record levels in the first 2 months of 2011, market leaders being the two Four Seasons properties, Ritz Carlton, Kempinski Ciragan, InterContinental and the recently re-opened Pera Palace.

The recent catastrophic 8.9 Richter Scale earth quake in Japan is likely to further deepen the already week Japanese luxury market, with mid term effects on retail as well as hospitality. The Jaoanese economy is the most endebted among developed nations and the cost to finance the recovery from the earthquake will drive this debt to historic levels.