The GCC’s $50bn fashion sales market sees growth despite global slowdown

Annual spending per person of $500 in Saudi Arabia and $1,600 in the UAE is among highest in the world, says new McKinsey report

Men and women walk past closed stores, including a Zara clothing store, operated by Industria de Diseno Textil SA (Inditex), right, during prayer time at the Al Yasmin mall in Jeddah, Saudi Arabia, on Sunday, Aug. 6, 2017. After relying on oil to fuel its economy for more than half a century, Saudi Arabia is turning to its other abundant natural resource to take it beyond the oil age -- desert. Photographer: Tasneem Alsultan/Bloomberg

With annual fashion sales of $50 billion (Dh184bn) and some of the world’s highest per capita spending, the GCC market presents “significant opportunities” amid a pessimistic global outlook for the industry, according to a new McKinsey study.

Annual spending per person reached approximately $500 in Saudi Arabia and $1,600 in the UAE, found the fourth annual The State of Fashion report from the consultancy, published on Thursday.

On a per capita basis "the UAE is double of the US and Saudi is double of China, and the UAE would be six times more than China," Abdellah Iftahy, partner at McKinsey Middle East and co-author of the GCC section of the report, told The National.

The report, written in partnership with the international fashion website Business of Fashion, forecasts slowing global growth in the industry for the second year in a row.

Year-on-year growth in 2019 for the total fashion industry is estimated at 3.5 to 4.5 per cent and is projected to slow to 3 to 4 per cent in 2020, driven by declining growth in North America, Europe and the emerging Asia Pacific countries, the report found.

In contrast, in the Middle East and Africa, year-on-year growth in 2019 is estimated at 3 to 4 per cent and is projected to grow at the same rate in 2020.

The majority of the 290 global fashion executives surveyed see a slowdown alongside declining global economic growth and more intense competition. Only 9 per cent of respondents think conditions will improve next year, compared with 49 per cent who said the same last year.

Among the factors driving growth in the GCC are high disposable incomes, e-commerce and changing dynamics, especially in Saudi Arabia.

“The Middle East still has potential, despite being an already well-established fashion market with a strong mall culture,” the study said. “While the Gulf countries are far smaller than China in terms of population size, the propensity of its shoppers to spend big is what gives the region an outsized role among international markets.”

Internet penetration in the UAE and Saudi Arabia is at 99 and 89 per cent respectively, compared to just 57 per cent in China. E-commerce is set to grow at around 40 per cent a year over the next five years, increasing its penetration to 9 per cent from the current 2 per cent, the report said. In some fashion categories in Saudi Arabia, it is already at 20 per cent.

The kingdom is going through some dynamic shifts, as it invests heavily in building a thriving cultural scene and opens up to tourism. Currently over 50 per cent of Saudi spend on leisure and entertainment is outside the country, with categories like luxury nearing 70 per cent. Such developments should encourage more local spending, Mr Iftahy said.

“The relaxation of the code of what women can wear, for example, has also stimulated the internal demand,” he said. “What we will see going forward is a lot of repatriation of demand from what they were spending outside of Saudi to Saudi.”

The study recommends that brands have a "winning e-commerce strategy, intimate knowledge of the consumer and cost excellence" to succeed in the GCC.