Luxury's Latest Frontier: Brands Rush to Expand In Surging Middle East

Building fashion fortunes on sand? You bet.

with contributions from Alessandra Ilari
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Dolce & Gabbana, which in recent months opened boutiques in Jeddah; Riyadh, Saudi Arabia, and Istanbul, plans to add nine more locations in the region between now and the first half of this year, finding it a prodigious moment to ramp up its presence.

"We have been proficiently working with our local partners for many years until the proper conditions have arisen to strengthen both the business relationship and the presence of our brands in the market through monobrand stores," said managing director Cristiana Ruella. "We expect further sales expansion in the very near future."

The Middle East still accounts for less than 10 percent of most brands' revenues, but executives noted that their boutiques there generate higher profits due to strong sales and low fixed costs in terms of rent, salaries and taxation.

Middle Eastern clients are also big spenders abroad. For example, at Chloé, the Middle East accounts for only 5 percent of its revenues, but 8 percent of its clients in Paris are from the region, on a par with Russians and Chinese, said Ralph Toledano, chairman and ceo.

Chloé's sales growth in the Middle East is expected to accelerate next year to about 30 percent, and the target is to double sales over the next three years, Toledano said.

"The level of competition varies from one market to another, but we are far from having reached brand saturation," he said. "Markets like Qatar and Bahrain are only seeing now the development of luxury retail. Even Kuwait and Saudi Arabia need to be developed further."

Ruella at Dolce & Gabbana noted that today, about 70 percent of the company's business in the Mideast derives from the Gulf region, but she spies interesting opportunities arising from "minor markets of the area."

Gucci ceo Mark Lee said competition is particularly high in Dubai and Kuwait, "while in Qatar, Bahrain and Saudi Arabia, the luxury market is somewhat less developed to date."

Florence-based Gucci opened a flagship in 2006 at Dubai's Mall of Emirates, "which is performing extremely well," Lee noted. Coming this year is a full-range store in Qatar and a new, enlarged unit in Bahrain.
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