Why do GCC customers prefer shopping abroad?
In a conversation I was having lately with some people who do not come from the luxury or retail industry, I was challenged to explain why GCC-based consumers tend to prefer shopping abroad rather than at home. Indeed, this trend has confirmed itself over time, again and again these last 3-5 years in spite of the exceptional development of the retail industry in the Gulf region.
So what could be the reasons behind this worrying trend?
Maybe, the desired brands are not available?
Most – if not all – luxury brands have developed their foot print in this part of the world, on par with the commercial property development that took place across the ever-growing urban centers of the region. In the UAE, existing malls have grown in size, allowing access to new tenants, meaning new brands. We have noticed this in The Dubai Mall and Mall of the Emirates. As if that weren’t enough, new retail-oriented commercial developments have hit the market and will keep doing so for the foreseeable future: City Walk, Blue Lagoon, La Mer, the upcoming Meydan, to name a few. In Kuwait, Festival city and Doha Mall have changed the landscape, although Villagio Mall is still a valuable luxury retail destination. The Vendome project will also bring the expectations on this relatively small market to new heights. The same types of comments can be said about Kuwait-city, Jeddah, Riyadh, etc…
In terms of luxury brands present in the market, it’s challenging to find one that has no presence in the region. The biggest and most established names are there, and they are there to stay, Cartier, Louis Vuitton or Gucci to name a few have several boutiques/concessions spread around the region. The newest brands, urban/youth-oriented new luxury players are also entering the market: Off-white and Rimowa have recently opened stand-alone boutiques in the region with some success.
Accordingly, one cannot state that GCC customers prefer shopping abroad because of the lack of offering in the market. While this was true a fifteen to twenty years ago, it no longer is the case today.
Perhaps, the newest and trendiest products don’t get here, or get here too late?
Is it an offer related issue then? Indeed, for several luxury brands across this part of the world, the overall perception – based on some sense of reality – is that not all product ranges are made available regionally. And when that does happen, it sometimes happens with some delay in comparison to other more-mature markets like Paris, London or New York.
While this might have been a constant across industries and across brands some time back, it seems to be a disappearing trend. Indeed, the higher average transaction value, the shopping culture and the constant complains of customers have forced the hands of the industry in a good way. The boom of online shopping opportunities globally and regionally has hammered the last nail on that coffin.
Is it the fact that shoppers can get tax refunds in other markets?
Here, we might be onto something. Indeed, a sales tax (VAT) of 5% has been introduced recently in the UAE and in Saudi Arabia. It is also a planned move in the cards of the authorities of the other markets in the region. This move certainly did not help, although, the regional operators and the brands themselves have tried to absorb that new extra cost as much as possible to soften the blow.
In the UK, the sales tax or VAT equivalent is around 20%. It is of a similar value across most European shopping destinations (France, Italy, etc…). Only Switzerland has an attractive positioning at around 8%. In most cases however, the sales tax refund is limited to 70-80% of the collected tax, but it remains attractive nonetheless. Accordingly and in theory, the final price should be relatively the same. If the tax free price in London is GBP 100, it puts it at GBP 120 including VAT. If the authorities refund the customer 75% of the tax, the final price actually paid will be at GBP 105. In Riyadh or Dubai, the same product would be offered at the equivalent of GBP 100/- + the 5% VAT, placing it at the exact same level of GBP 105.
So, in theory it works. Until it doesn’t.
Here’s a dirty little (not very well-kept) secret: Depending on the brand, the type of product and the relative level of expensiveness, the tax-free price in New York, Paris, Dubai, Hong Kong or Tokyo, can fluctuate by as much as 50%. That’s right! If one bothers to do some basic research on some international luxury brands (I won’t name names), it is relatively easy to find out that if a product A made in France and retailing for EUR 100/- tax-free could be priced at EUR 115 in Saudi Arabia, 125 in Japan and 130 in Russia….
While this is a reality for several brands with a relatively low-price range, it stops happening as soon as the average retail prices increase to some serious amounts. The logic being that for a 500$ wallet, no one would travel from Jeddah to London to acquire it and save 10-20%. If we are talking about a 50,000$ piece of Jewelry, then the 10-20% saving could incentivize a person to book a ticket, spend the weekend in Europe and come back, covering the travel expenses and still showing a decent saving in comparison to the regional/local market price.
Now here’s another interesting specific fact about the GCC customers. They come from large families and an even larger social network where confidence is high. Since, culturally, Arabs are known to be a generous and helpful people, it does often happen that someone will reach out to a relative or a friend who happens to be travelling abroad so they can make the luxury purchase on their behalf. So, brands beware. A noticeable price difference between the regional markets and others might have a negative impact on your regional sell out performance.
Is it simply the quality of service?
Here are some truths: The quality of retail staff servicing clients in the Gulf countries has drastically improved over the last decade. Brands and regional operators have all improved their recruitment policies and improved their training methods. Several brands that have regional offices, as well as leading regional retail operators, have at least one person (if not a whole department) dedicated to Training and Customer Experience.
In spite of all these efforts, and the clear improvement vis-à-vis what it was a decade ago, there seems to be a deeply rooted cultural gap that causes gulf customers to prefer shopping outside their region rather than home. Why is that?
To serve or to be of service?
When you enter a retail store in the UK, France or Switzerland, the sales advisors will always address the customers in a polite fashion and show that they are here to help you and advise you. This being said, they will never have a ‘servant’ attitude. They will look you in the eye and share their actual opinion, naturally commanding your attention and respect for their opinion because they are the pros.
When you enter a similar store in Doha, Abu Dhabi or Riyadh, the sales advisors – no matter how long and how much they have been trained – will have an attitude that can range from ‘servant’ to ‘of service’, and the difference will come from both your and their origin: If you are a European expat talking to a European/western sales associate, you can expect a relatively similar engagement to the one you’d have in Europe. If your salesperson is of oriental origin (Levantine, North African or even Asian), there will be a trend towards ‘servitude’ rather than ‘of service’. The person assisting you won’t talk to you as an ‘equal’ but rather as some sort of ‘master’. This gets worse if you are a GCC national and the sales associate an Arab. Then we clearly move to the extreme end of the spectrum where the sales advisor’s attitude verges towards ‘servitude’.
In conclusion, it would be safe to assume that while the luxury retail industry has drastically improved in the GCC over the last decade, there is still great room to deliver a much better customer experience. This experience must be all-inclusive in terms of product choice and price positioning of course, but most importantly, the overall quality of the retail staff must get better. The employment crisis in Europe, the Levant and North Africa should give brands and operators access to a relatively untapped pool of talents. While it’s easy to train people on product knowledge and brand history, it is much more challenging to train them on ‘savoir-vivre’ and service. One trick would be to try and recruit individuals that come from the hospitality and/or fine dining industry. These individuals do have what it takes to be of service without being servants.
DynaLux Consulting DMCC is a firm established in Dubai and servicing the Luxury Industry. DynaLux has developed a proprietary technology to assist luxury retail stores understanding in detail the actual audience that visits luxury stores unlike standard CRM tools that focus only on paying customers. By understanding the complete audience of visitors, DynaLux assists brands and retailers alike to improve their conversion rate by addressing the specific issues that can be noticed thanks to data collection and analysis. For more information, write to: email@example.com