The impact of the financial turmoil in Dubai on the luxury market
This week’s debt crisis at Dubai World, the leading holding company of the Dubai Emirate has been sending shockwaves to stock markets worldwide particularly Asia and Europe. Dubai’s financial reputation and stability has been highly questioned by investors worldwide. This will certainly impact on its luxury market and the international luxury industry.
Occupancy rates at Dubai’s luxury hotels has been dropping constantly since the debut of the crisis, the number of wealthy travellers especially from Europe and Russia has dropped by 30% this year, in comparison with the same period last year. In spite of decreased rates, bookings for the upcoming winter holiday season remain at lower levels than last year.
Sales of major luxury brands has dropped by 10 to 15%, the most affected segments being jewelry, fashion and accessories. This is due not only because of the drop of visitors from Asia and Europe but also from the dimishing number of shoppers from the Gulf countries, of which an increasing number are shopping in other countries especially Lebanon and Qatar. The political stability in Lebanon has translated into a booming economy, luxury being one of the industries with the highest growth potential. Four Seasons is opening a stunning property in Beirut in January 2010, while designer hotel group Campbell Gray opened Le Gray deluxe hotel in Beirut this Fall. Early next year, Vuitton is opening its first boutique in Lebanon. The CEO of Aishti, the leading franchisee of international luxury brands has confirmed that sales have been increasing steadily benefiting from the booming economy as well as the increase in foreign travellers. Gucci, Bvlgari, Dolce Gabbana, Armani, Versace, Prada and many other brands have monobrand shops in Beirut. The downtown of Beirut is concentrating most of the luxury fashion and accessories boutiques as well as restaurants and cafes.
The third most affected luxury segment in Dubai is the residential developments. Projects such as Burj Dubai which hosts the Armani Hotel and Residences has been delayed more than one year, the next estimated date for opening being 4th January 2010. Other projects such as Ferre and Versace residential palaces are yet to find buyers amidts the current crisis. Also, projects such as The Palm have a questionable future.
Dubai’s decreasing luxury sales will also have an impact on an international scale, many top luxury brands have been relying on Asia and the Middle East for maintaining their stability. The most affected will be luxury brands which are distributed through a franchisee or multibrand shops, the local retailers facing opting for decreased orders and deferred payments. We might see brands which will be forced to retain only one monobrand location and multibrands cancelling orders.