At first glance, it might not seem like wallets are tight inside Riyadh’s Centria Mall. On a weekday afternoon, women with covered faces stroll the halls, drifting in and out of Dior and Burberry outlets.
But they’re not buying like they did last year, says Mohammed Fahmawi, a manager at the Saudi Arabian mall’s Gucci store. A year ago, more than 100 customers would come through his doors daily, Fahmawi said. Now, it gets 20 on a good day. Traffic’s also down at the Cartier store nearby.
“People are afraid,” he said, citing the economic slowdown brought on by the oil price slump. “They don’t want to spend their money.”
Falling crude prices have crimped the spending power of luxury-goods consumers in the Middle East, while a weak ruble means fewer free-spending Russians have visited the region, according to consultant Bain & Co. Burberry Group Plc and Milan-based Prada SpA have said their sales in the region have been hurt by a lack of visitors.
“We’ve experienced a fairly strong drop in traffic in the Middle East,” said Hermes Chief Executive Officer Axel Dumas.
Middle-East luxury sales rose just 1 percent to 8.1 billion euros ($9.2 billion) in 2015, slowing from the region’s 4 percent gain in 2014, Bain estimates. A fifth of respondents in a survey of Persian Gulf countries published last month, said they cut luxury consumption in 2015, compared with 13 percent a year earlier.
The slowdown adds to the problems luxury-goods makers are facing as weak demand in parts of Asia, the strong dollar as well as terrorist attacks in Europe have crimped sales. The global luxury sector will expand just 2 percent in 2016, making it the industry’s second weakest year since 2009, estimates Italian luxury association Fondazione Altagamma.
In Saudi Arabia, cash withdrawals have declined for two straight months compared with the same period last year, according to central bank data. At Riyadh’s Al Faisaliah Mall on a recent Saturday, Missoni and Valentino’s stores were empty. At Swarovksi’s shop, a couple of women were browsing.
“I’m always frugal, whether now or before,” said Khuloud Saad, a 25-year-old graduate, who was wandering the mall with friends.
A 55 percent slump in crude prices since June 2014 has also affected demand abroad. While a weak euro has made Europe more attractive for Middle Eastern consumers, they aren’t spending there like they used to, Paris-based LVMH said in April. Global tax-free spending by shoppers from the United Arab Emirates, Qatar, Saudi Arabia and Kuwait was flat in March after growing for seven straight months, according to Global Blue.