By Wells, Rhona
The Middle East , No. 372
THE REGION'S BEAUTY market has seen unprecedented growth levels of as much as 12% in recent years, with the market for cosmetics, fragrances and other beauty products currently valued at $1.7bn. While Saudi Arabia dominates the regional market, it is the UAE that sees the most impressive growth, reporting a rise of 6.5% on sales of $404m, with a population of over three million people, as opposed to the kingdom's $1.21bn (5.5 % growth). Much of this growth dovetails from the region's runaway tourism and retail development activity, which is seeing dramatic growth. The rapidly increasing indigenous populations are also demanding more beauty care products and retailers.
The GCC currently has around 3.55m sq metres of retail space, an additional 1.24m is under construction and 3.5m is in the planning stages, according to UK-based shopping mall consultant Retail International. Dubai alone will boast two of the world's five largest malls by 2008. Evidence of how seriously the rest of the world takes this retail development comes in the form of big retail names establishing Middle East presences: Harvey Nichols will open an 11,150 sq metre store at the Majid Al Futtaim Investments-owned Mall of the Emirates and Saks Fifth Avenue's only two outlets outside North America are in Riyadh and Dubai, with three more outlets planned in the GCC. Debenhams, likewise, is reportedly planning to expand into the UAE, Qatar and Kuwait.
The UAE alone will have invested approximately $26bn by 2010 in some of the world's biggest retail projects--many of which house stunning beauty centres and spas. Dubai's gross leasing area is poised to grow 250% in the next two to three years.
The growth is driven by the numbers: the Gulf States are among the highest spenders on fashion and beauty products, with average spending amounting to $317 per single purchase. Local distributors suggest that beauty product retailers account for between 25 and 30% of all retail space which makes the Middle East a magnet for beauty and personal care suppliers.
As sales increase, the counterfeit market has also boomed. Multinational manufacturers across the region are increasingly aware of the threat posed by counterfeit cosmetics on brand value and consumer safety; this makes them eager to rally for tighter regulations to inhibit grey market sales in Africa and the Middle East where counterfeiting is endemic. Indeed, counterfeiting appears to be on the increase in global terms with an 800% annual increase in the number of fragrances seized at the EU's external borders. Some of these are exact rip-offs of established brands, but because the names are slightly different, they are legal. The high price of fragrances in Egypt, where the devaluation of the Egyptian pound against the dollar has caused a bottle of Chanel No. 5 to retail at more than the average monthly salary, is driving the contraband/parallel fragrance market forward. Those who can afford to purchase premium products still prefer to buy from retailers that sell cheaper smuggled fragrances.
In Morocco, fragrances is the sector most affected by imitation and contraband, and is hugely lucrative for smugglers--the combined black market and duty-free revenue represents more than 40% of the fragrance market. This has prompted one of the largest importers of fragrances to withdraw from the local market (Cinquieme Sens, importer and distributor of Yves Saint Laurent, Guerlain and Boucheron) as it witnessed a year-on-year decrease in sales.
With 2005 sales of fragrances worth $194m, the sector is extremely important to the Saudi Arabian cosmetics and toiletries market, accounting for 14% of total sales in 2005. In 2005, fragrance manufacturers attempted to exploit increased consumer confidence via a flurry of new product launches from both international and domestic players. Dramatic changes in shares occurred in 2005 as Mahmoud and Abdel Khalel Saeed, owners of the largest production facility in the Middle East, increased their share of sector sales by 1. …