Understanding the potential of QATAR’s luxury market
One of the smallest, yet wealthiest countries in the Middle East, Qatar has been setting new records in economic performance and development, thanks its wealth of natural resources, especially gas. Qatar is also highly regarded for the way it has been marketing its country as a brand wordwide, through organizing premier sports competitions as well as creating a world class educational and research platform, thus returning the benefits of its wealth to its people. The country has been investing billions in its cultural infrastructure, developing museums and venues such as the National Theatre. Major international sports stars, musicians, actors have not only been visiting the country frequently but getting involved in long term projects. One such example is the Aspire Sports Academy supported and sustained by football legend Pele and gymnast Nadia Comaneci.
In the past two years, Qatar has been making headlines acquiring major luxury properties and businesses, such as the Harrods department store in London, Crillon Hotel in Paris and an important stake in German luxury car manufacturer Porsche. Major luxury hospitality investments include the recently re-opend Raffles Le Royal Monceau hotel in Paris and the development of the future ultra luxury Peninsula Hotel in Paris. These have been seen as strategic investments, considering the increased potential of luxury hospitality in destinations such as Paris. Most of the investments are driven by companies directly or indirectly owned by the Qatari Royal Family. Other major Qatari investments include grand high end residential complexes in Morocco, Egypt and Syria, most of them developed by Qatari Diar.
QATAR HOSPITALITY MARKET
As for investments locally, the capital city of Doha is the main luxury market, with several lavish luxury hotels such as Four Seasons, Ritz Carlton (2 properties) and several major projects underway such as a second Four Seasons in the heart of the Pearl of Qatar (2013), a luxury Mandarin Oriental hotel downtown (2014), Shangri La (2012) and Hilton (2011). Despite the number of major events such as golf and tennis tournaments, football cup (Asia’s football cup) as well as trade shows such as the Qatar Motor Show (January 2011) and the Doha Jewellery Show (February 2011), the number of tourists has remained low, this being reflected in the occupancy of the existing five star hotels which get more than 90% of their business from corporate travellers as well as non room revenues. The question remains why such a small number of visitors come to attend these events which are so heavily promoted internationally including on major tv channels such as CNN or Al Jazeera. Is it purely a marketing exercise aimed at building awareness for the country or a long term strategy to turn Doha into a major tourism destination ? With the World Cup to take place only in 2022, the upcoming hotel openings (2012-2014) are not justified, considering the low demand and the long term prospect of Qatar becoming a tourism destination.
The country’s national airlines Qatar Airways is another story of business success, expanding tremendously to more than 100 destinations worlwide and establishing Doha International Airport as a major airline hub of the entire Middle East. The airline, which has an impressive young fleet of the latest aircraft models is mostly promoted in advertising as being the ”world’s five star airline” which for many translates into luxury, few being aware the rating refers to the actual standard of services as rated by a reputed industry magazine. Moreover, the airline’s huge traffic is made mostly by Asians and Africans working in the Middle East, hardly a five star crowd.
LUXURY RETAIL MARKET
As for retail, the capital city of Doha has the THE PEARL QATAR as the man made island which is dedicated to luxury shopping and entertainment. The retail section of THE PEARL, Porto Arabia includes most of the international luxury lifestyle, fashion, accessories, jewellery and watches brands, most of them operating with mono-brand locations. Over half of the brands are operated in franchising by local retailer AL MANA (mostly Gucci Group brands as well as Hermes), local United Fashion Company (division of United Development company, developer of The Pearl project) local retailer Salams, UAE based Chalhoub (Louis Vuitton, Ralph Lauren), UAE Al Tayer (Jimmy Choo) and several smaller local retailers which operate brands such as Corneliani, Canali, Vera Wang, Mulberry etc.
Our research among retailers and customers has highlighted several important issues which have to be considered when understanding the real potential of the local luxury market. These considerations related mostly to the fact that of the 300.000 Qatari nationals less than 50% are regular luxury goods customers in general and of this percentage more than 80% prefer to make their luxury goods purchases abroad, especially in London, Paris and New York. As for the more than 1 million expatriate workers, less than 5% qualify as wealthy consumers with income topping 100.000 euros per year. Most of these foreign expats would buy expensive luxury items such as watches, bags or jewellery abroad and not in Doha. Yet, these consumers are loyal to the Food and Beverage outlets of the Pearl such as the BICE and the GORDON RAMSEY restaurants.
When it comes to the analyzing the Pearl of Qatar project one should also consider the residential component, over 70% of it still being already constructed, yet only partly rented or sold. Approximately 1000 people actually inhabit the Pearl and 500 are expected to move in whithin the next 3 months. Over half of them are Qatari nationals who prefer to lease to expatriates and the rest being foreigners who made the purchase as an investment. The Pearl is one of few locations in Qatar where foreigners are actually allowed to own property.
The traffic of the Porto Arabia, The Pearl’s retail component is a major question mark for both local retailers as well as international luxury brands. It is obvious that a certain category of luxury brands which have been underperforming at an international level for a long time, should be more than grateful to have an outlet in such a prestigious complex, although they would not admit their actual business is quite small in volume. Personally, I was surprised to see in The Pearl brand mix brands that I have though to have gone bankrupt, most having no longer retail presence in Europe. These brands are an instant put off for all Qataris who travel frequently to Europe as well as expatriates from the US and Europe.
Another factor to take into consideration is pricing, most luxury brands being 15 to 20% more expensive than in Europe and the US. Also, I was surprised by the limited representation of collections for many of the brands present in mono-brand. This is one of the factors which is often cited by clients who say they never find their size or certain items they see on the internet in the stores in Qatar. Even though, I do not believe this is the main reason for the low traffic and thefore demand, as this can be easily addressed by the retailers working together with each brand they represent. In my view the most important factor is the lack of a luxury shopping experience, the feel being that of a mall, yet it does not provide regular Qataris who travel abroad with the same experience. The beautful marina, now operated in joint venture with Spanish Ronautica, is nice to watch and so is the scenery, but that is not enough. The second reason for the low demand as well as small turnovers is the customer service. With the exception of a few brands, most shop assistants are hardly experienced ones, most of them being demotivated from sitting sometimes around for hours without seeing one customer entering their store. That is why, the developer’s idea to provide its own staff with a 35% discount on its own restaurants and shops has, in some way, helped traffic. The third reason for the lack of attractiveness and low demand in the case of The Pearl Qatar is the lack of certain key brands in their mix such as Louis Vuitton, Gucci, Dior, Bottega Veneta and Burberry.
The recently opened premium dining facilities in The Pearl are definitely a welcome addition to the project, yet very much depending on how they are marketed to attract locals:FoodMark (franchise), Pampano (joint venture of UDC and tenor Placido Domingo), Carluccio’s (franchise) and Mango Tree (franchise). Japanese Megu and Chinese Tseyang franchised restaurants are to be opened by mid March.
But then one retailer told me: ”Why should brands worry if they sell or not as long as they get their invoices paid ?” I believe his question is a major issue luxury brands should consider. Of course I agree, under the current financial crisis, it is comfortable having a client pay its invoices on time, however, how much of the sales are actually real ? From my understanding in corresponding with several brands, sell out is lower than 40% and there are months (irregularly) when sales levels are very low.
Provided customer service and overall shopping experience improves, it will be very important for the management of the Pearl to look at improving the brand mix as well, both in addition and reduction. In my view, if part of the residential component were to be marketed differently, the Pearl could very well attract consumers from India, Turkey and China, three of the fastest growing wealthy consumer basis, instead of focusing on Middle East. Celebrity endorsements could also be beneficial, similar to the concepts now applied by major luxury shopping centres in Brazil (for instance, Nicole Kidman being the Ambassador of a shopping centre actively involved in all PR and marketing activities). In order to attract the major luxury brands which are present at the Villagio Mall, a department store concept could be developed, therefore including all those brands with shop in shops or corners. Ideally, a major international luxury department store brand could be attracted but a local one could also be created. Such a department store concept would also ease the ”distribution rivalry” between the retailers. To attract local expatriates a different marketing strategy should be applied, especially considering most of them (Europeans, Americans) lack the affinity for luxury brands.
The second retail area with a concentration of luxury brands in Doha is the VILLAGIO Mall which has once again provided the most surprising experience. It is a mass market mall with hardly a luxurious interior design, let alone the very cheap finishes. Restaurants are mostly fast food and the majority of brands are mass market. It is a low rise building on two levels which is also inconvenient as being far from center. To my greatest surprise, I discovered Bottega Veneta, Dior, Vuitton, Gucci, Burberry and several major watches in jewellery brands lined up as a continuation of the mass market area, without being in separate are or wing. Access is done through the main access points of the mall. Not only is the environment not suitable for luxury shopping but it is also univiting for any luxury entertainment. I wonder what certain brands based their decision on, refusing to open in The Pearl (Dior, Vuitton, Dior, Bottega, Burberry) and open in this mass market mall. I have learned from the market that there is another mall project Zig Zag Towers (adjacet to The Pearl area) which were supposed to be inaugurated before the Pearl (still not open) and where, apparently, some of these brands had made a previous commitment…
The most developed luxury market sectors in Qatar are auto and watches / jewellery with most of the international luxury brands already present. The most important watches and jewellery retailers are Ali Bin Ali and Al Fardan, both local companies. Al Fardan operates the largest multibrand jewellery and watches store at The Pearl, while the majority of the mono brand stand alone boutiques are divided between The Pearl and the Villagio Mall. The Doha Jewellery Show organized this week, now at its seventh edition is an important marketing tool in reaching local native and expatriate consumers as well as attracting visitors from the region. The event is organized by the Ministry of Tourism of Qatar. As for the value of the market, we estimate it at EUR 450 million per year and still with a 30% capacity to grow, due to the fact that Qataris prefer to buy very expensive pieces abroad, due to several reasons: price (duty free + discounts offerred by flagship stores), customer service as well as trust. Some still have the perception that goods brought to Qatar are not ”as good” (newness of models etc) as abroad.
All in all, I believe that investors an existing players in any of the luxury sectors in Qatar should take advantage of the possibilities for growth in the next 3 to 5 years and focus on fine tuning their businesses in such a way to meet demand and avoid over expansion. The World Football Cup which Qatar will host in 2022 is certainly an important event to consider major expansion plans especially in hospitality, yet there should be cautionary and well timed approach.