Luxury sales in Dubai and Abu Dhabi fall as Iran conflict hits UAE malls

LONDON: Sales at major European luxury brands declined in Dubai and Abu Dhabi in March as the conflict involving Iran disrupted one of the sector’s fastest-growing markets, according to industry sources cited in the report.

At the Mall of the Emirates in Dubai, luxury brands recorded sales declines of 30 to 50 per cent in March compared with the same month last year, according to a source familiar with the previously unreported figures. The same source said footfall at the mall fell by 15pc in March.

The Mall of the Emirates houses luxury outlets including LVMH’s Louis Vuitton and Dior, Kering’s Gucci, Richemont’s Cartier, Chanel and Rolex, along with an indoor ski resort and a wellness clinic.

Traffic at Dubai Mall, which is described as more reliant on tourists, was down by around 50pc, according to the same source and a second industry source. The figures point to the possibility of an even steeper drop in sales there.

In Abu Dhabi, sales at the Galleria mall were comparatively steadier, though still lower by about 10pc across the board in March, according to the second industry source. Abu Dhabi as a smaller shopping centre than Dubai and less dependent on tourist spending.

The companies operating the Mall of the Emirates, Dubai Mall and Galleria did not respond to requests for comment. LVMH, Kering and Hermes also did not respond to requests for comment regarding their Middle East sales and the effect of the conflict.

Middle East had been a bright spot for luxury sector

The Gulf had been considered a key market for luxury companies at a time when the wider industry has been under pressure. Since the end of the luxury boom in 2022, as China struggled to recover from the Covid-19 pandemic and growth slowed, the combined market value of LVMH and Kering has dropped by more than 100 billion euros, or over a quarter of their value.

According to consultancy Bain and Company, annual luxury sales across the industry fell by 2pc last year. Carole Madjo, head of luxury research at Barclays, said the Middle East, which accounts for about 5pc of global luxury consumption, had been one of the few strong-performing regions, posting double-digit annual revenue growth in recent years.

“It was definitely a strategic region. Everything was okay,” Madjo added.

Dubai’s reputation for glamour and stability has been affected by the conflict that began with US and Israeli strikes on Iran on February 28. Dubai’s main airport hub had been targeted several times by Iranian drone attacks along with other infrastructure, while debris from an interception damaged the facade of the Burj Al Arab hotel.

Profit impact may be greater than sales effect

A return to normal conditions in Dubai is likely to take months, even if diplomatic efforts bring the conflict to an end soon. Bernstein analysts said in a note this month that the wider effects of the conflict, including higher oil and travel costs, inflation, or a possible stock market rout, could “easily disrupt” consumer demand beyond the Gulf, particularly in the United States.

“If it now turns out that whatever luxury recovery we were hoping for in 2026 is not going to happen, and it’s going to be postponed at best into the second half or into next year, I don’t think anybody can be surprised by it,” said Christopher Rossbach, portfolio manager at J Stern and Co in London.

LVMH is scheduled to report first-quarter sales on Monday, while Kering and Hermes are due to release their figures later this week. Kering is also set to hold its capital markets day on Thursday.

Rossbach said that because the Middle East remains a relatively small market, the immediate effect on quarterly sales would be limited. However, he said the impact on profits could be much more significant, as most listed luxury groups report profit figures on a half-year basis.

Dubai remains one of the most profitable places for luxury retail because of low rents and labour costs, higher retail prices than in other regions, and almost no taxes. According to the source familiar with the Mall of the Emirates figures, annual sales per square metre for major brands such as Louis Vuitton, Hermes and Chanel can exceed several hundred thousand euros in Dubai, several times the global average.