As several luxury groups release their quarterly results, a recent analysis reveals the extent of the upheaval in the Middle East. The Gulf region has long been considered the last growth engine in the industry. Now sales there are collapsing due to geopolitical tensions with Iran.
So far, major luxury groups such as LVMH, Kering and Hermès have presented the Middle East as a resilient region that is offsetting the slowdown in China. This view is now outdated. According to information reported by Reuters news agency, sales at the Mall of the Emirates in Dubai at the Mall of the Emirates in Dubai fell by 30 to 50 percent in March. Even more strikingly, footfall at the Dubai Mall, a global barometer of luxury shopping, is said to have fallen by 50 percent.
End of Emirati ‘safe haven’
Dubai is not just a local market. It is also a re-export hub and an important shopping tourism destination for Russian, Indian and European customers. Regional instability, characterized by tensions between Iran, Israel and the US, is destroying the UAE’s image as a ‘safe bubble’.
Although the Middle East accounts for only five percent of global luxury consumption, its contribution to marginal growth has been crucial. Carole Madjo, an analyst at British bank Barclays, noted that it was one of the few regions with double-digit growth in recent years. The fact that the region is now reeling deprives these companies of their ‘Plan B’ as China does not recover.
Risk of infection in the USA
The analysis goes beyond the borders of the Gulf region. As highlighted by Reuters, analysts at Bernstein are now worried about a domino effect. The instability in the Middle East doesn’t just affect Dubai boutiques:
Energy prices: A continued rise in oil prices is weighing on household morale, even in the US.
Travel Inflation: The cost of airline tickets and uncertain flight routes are hindering global travel retail.
The prosperity effect: A stock market crash or increased volatility immediately reduces the spending of so-called ‘aspiring’ customers.
High stakes schedule
This revelation comes at a sensitive time for Kering. Gucci’s parent company unveiled its recovery plan at its Capital Markets Day this week, which includes reducing Gucci retail space. As for LVMH, the group was able to limit the damage this quarter. However, the prospect of a return to normality is dampening hopes of a solid recovery in 2026. According to experts quoted by Reuters, this return will “take months”.
The luxury sector is no longer just facing a cycle of economic slowdown, but a forced reorganization of its profit geography.
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