Political and economic turmoil drives luxury industry losses up to US$500m
A recently completed 3 month extensive analysis report by CPP Luxury Industry Management Consultants Ltd, political and economic turmoil in Egypt, Turkey, Syria and more recently Ukraine has produced direct and indirect losses of up to half billion dollars.
Before the Spring Revolution ignated. CPP Luxury Industry Management Consultants Ltd. has found that no less than 10 top international luxury brands, mainly fashion and accessories, have indefinitely put on hold expansion plans, all being in advanced talks with local retailers to open mono-brand store franchises in Cairo. For the existing luxury market, accross all sectors, the ongoing political and economic crisis have wiped out over 50% from sales from luxury retail, hospitality and cars. Over 60% of the 3.200 UHNWI Egyptians who held over 2% of the country’s GDP in 2011, have, since fled the country becoming ”luxury refugees”, main destinations being Istanbu, London and Dubai. However, due to instability in Turkey, the wealthy Egyptians have eventually opted for London and Dubai.
CPP Luxury Industry Management Consultants Ltd conducted the first ample luxury market analysis in 2010, highlighting an untapped luxury market potential of over 300 million dollars, almost twice as much as neighbouring Lebanon. By comparison, in 2009, Syria had over 5.000 HNWI and over 20.000 upper middle class luxury consumers, who would make 90% of their shopping abroad. Before the start of the civil war, 4 major international luxury brands signed franchised agreements to open mono-brand stores in Damascus, and the country’s largest luxury retailer had been planning to double its brand mix at 3 multi-brand stores in the country’s capital. The Syrian ”luxury refugees” have since found ”shelter” in Switzerland and the U.A.E., the top two preferred destinations, followed by Eastern European E.U. such as Hungary and Romania have keenly granted long term visas, including passports for many of them.
The political crisis which resulted in street clashes in 2013 were considered by many the tip of the iceberg, a climax in a deeply divided society, who produced over 90.000 millionaires and 8 billionaires in the past decade, yet the gap between rich and poor almost trippled. Since the debut of the crisis, sales of luxury goods and services dropped by up to 30%, driving even more wealthy Turkish to shop abroad. Occupancy at luxury urban hotels also saw a drop of up to 20%, which is likely to increase steadily, also driven by oversupply, especially in Istanbul, the largest metropolis of the country. Although luxury brands have proceded with expansion plans in 2013, major local retailers (distributors and franchises) have become increasingly weary, adopting a cautious approach by reducing orders and closing outlets. Irrespective of local political instability, Turkey remains one of the fastest growing luxury markets for outgoing travel, preferred destinations including Switzerland, the U.K., the U.S., U.A.E., Germany and Italy.
Luxury goods sales dropped dramatically in the last 5 months especially for the fashion sector. The arrival of winter with 2 months delay (the first snow only in January when Sale was already on) and most of all the revolution in the streets killed any possibility of good results. Many luxury stores in central Kiev had to close because of the mass demonstrations which are exactly in the historical center (Passage area), and the customs have not been delivering imported goods. Only some high jewellery store has shown some good performance during Christmas period, but not all the brands performed well.
The forecast is that the fashion business will be dead for at least 2 years. Obviously foreign investors are not keen at all in considering an expansion in Ukraine and local investors are sending as much money as possible abroad. Only few days ago have been converted 4,5 bln USD in Ukraine, the highest amount ever.
The only major luxury real estate project, Tsum Department store project has been delayed till Spring/Summer 2016
Oliver Petcu in Istanbul / with the contribution of Maurizio Aschero for Ukraine