Consumption patterns and consumer mindsets have changed and evolved drastically over time, to a point where boomers and millennials have very little in common when it comes to what they buy, how they buy, and why they buy.
Broadly, the younger, braver consumers today are more educated and aware of the things they want, they care more about experiences over things, are driven by the purpose of the brand over its materialistic value, and believe in ecological sustainability and social consciousness. It’s a new generation of transmogrified consumers that push retailers to think harder and do better.
Saudi Arabia proves to be an interesting market to discuss the future of consumption and consumerism, as no other market in the GCC has gone through the kind of transformation and reform that the Kingdom has seen in the last couple of years. Adding to that, two-thirds of the population is under the age of 35, mobile penetration stands at 116%, and it has the largest social media presence in the world with a penetration of 75% – the opportunities (and challenges) for retailers catering to this vibrant populace are many.
What is also interesting is the purchasing power of the youth of Saudi. If you’ve seen the #RichKidsOfSaudi, it’s time to look beyond the vanity of it. This demographic must particularly be taken into consideration by luxury retailers as the market is vibrant and the target audience is demanding it.
According to a recent study by VISA Middle East, Saudi Arabia, which is forecast to grow at a CAGR of 7% between 2017 and 2022, will be the fastest-growing luxury market in the region. Undeniably, the internet plays a major role, especially in the discovery process for both online and in-store buyers, with 48% of Saudi consumers getting their shopping ideas and inspirations online. To put it into perspective, this is nearly double that of the United Kingdom.
“People can see the evolution of the Saudi consumers in the past years. Today they are digitally savvy, they are inspired by social media influencers, they are keen to explore and share experiences, they are more adventurous in their approach to luxury. For them, luxury is a form of self-expression,” said Joseph Chalhoub, General Manager Fashion & Accessories at Chalhoub Group KSA.
The top investments for any forward-thinking retailer today would be in smart customer loyalty schemes, tools for gathering and understanding customer data, and technologies in the physical space that optimize the experience of customers. It’s long been talked about how e-commerce is the avenue for transactions and stores are going to evolve as places for experience and entertainment, but the key in both the virtual and actual world would be to provide the right kind of personalization as the young customers today expect bespoke services.
“Saudi’s younger generation has considerable spending power, which luxury retailers can no longer ignore or take for granted. They need to tailor all the experiences to this generation and these high spenders, who are the majority,” he said.
“In a recent study, millennials and Gen-Z accounted for almost half of the luxury consumers and one-third of all luxury purchases. These people are driven by sharing their affluent experiences on social media,” he added.
Even globally there is a whole shift in consumerism taking place. Meme culture, hype culture, and of course, influencer culture is having a massive impact on retail businesses. Consumers are also becoming more conscious about what happens to a product after it’s served its purpose as a result of which sustainable fashion, preloved clothing, etc. are becoming dominant trends in apparel today. However, it’s not just ecologically sustainable products they want, they are also after brands and products made by ingredients they understand – so they are looking for more transparency and aren’t willing to be in the dark anymore. ‘Does this skincare product have the specific sulfates I am looking for? Was it tested on animals?’
There’s also the rise in social commerce that needs to be factored in. Social media as an advertising platform is extremely successful in the Middle East with its widespread reach. However, today it has moved beyond just advertising, to actual sales taking place via social media. Growing at a 31.4% compound annual growth rate (CAGR) between 2020 and 2027, the global social commerce market is estimated to grow to $604.5 billion by 2027.
“The future will lay in creating meaningful connections with the customers. Customers are happy to experience niche brands and are increasingly demanding sustainability. They put an emphasis on personalization and expect bespoke services. These consumers are also digitally connected, which is why they have developed some sort of price sensitivity. They still have high standards, but they also demand good value,” explained Chalhoub.
But considering customers today are looking at value over brands, becoming more price-conscious, and are living in a crisis-stricken economy, does luxury have a bright future in Saudi Arabia?
“A report by Statista showed that 62% of the consumers in the Middle East purchased a luxury item in the Middle East,” responded Chalhoub. “This is in line with what we have seen as a quick recovery (for the luxury market) in the Middle East. At the beginning of the pandemic, we saw a big growth in mass, especially in supermarkets where all segments including beauty saw a growth. At the onset, we knew that luxury would take a hit. However, in the Middle East, we saw a quicker recovery than most markets.”
So keeping in mind all the learnings about where the future of consumption is headed towards, what does Chalhoub KSA have planned for its customers? “95% of the consumers in Saudi are locals. In Dubai, there is a heavy reliance on tourism, which is quite volatile now. When your customer base is local, you get an opportunity to build a rapport and get to know your customers,” he said speaking about the advantage that they have in the Saudi retail market.
Experience is going to be key going forward and hence they will be developing and introducing a range of its experiential retail concepts in the Kingdom. “We are looking into bringing our own concepts. Tanagra is already in Saudi but we want to develop it. We are planning on bringing in Tryano as a department store that will add value to the market. We will also be bringing Level Shoes to KSA. We want to strengthen the existing portfolio of our brands,” he said.
There will also be more investments in its e-commerce capabilities, with a focus on last-mile delivery, leveraging data, hybrid stores, and also better reach into the secondary markets within Saudi that there is a lot of demand in. Faces and Swarovski, for instance, have believed in the secondary cities of Mecca, Medina, Jeddah, and Dammam.
Basically, Chalhoub Group’s optimistic expansion plans and a consumer base that is evolving for the better point towards a bright future for luxury retail in Saudi Arabia.
Words by Katie Streten Experiential Strategy Director, VMLY&R COMMERCE Throughout the last year,June 13, 2021 | By Shruthi Nair
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