Qatar fund buying Balmain shows Middle Eastern investors’ hunger for luxury labels

High-fashion business is a good fit for Qatar, whose fund Mayhoola For Investments has snapped up French fashion house Balmain; Persian Gulf an increasingly important fashion market

PUBLISHED : Sunday, 26 June, 2016, 4:00pm
UPDATED : Sunday, 26 June, 2016, 4:00pm

The acquisition of Balmain, the Paris fashion house, by Mayhoola for Investments, a Qatar-based fund, is the latest sign of Middle Eastern investors’ appetite for luxury goods. The spree makes sense: that region’s market is probably the best suited to the industry’s business model and culture today.

Mayhoola, which is reportedly buying Balmain for about 500 million (HK$4.4 billion), already owns Italy’s Valentino, acquired in 2011. The fund is linked to Sheikha Mozah, the mother of the Qatari emir, but its name means “Unknown”, and it doesn’t disclose its owners. 

Qatar itself has invested heavily in the luxury business through its sovereign wealth fund, buying 1 per cent of the French holding LVMH, 38 per cent of UK accessories brand Anya Hindmarch, 11.3 per cent of Tiffany, and controlling stakes in the French department store chain Printemps and London’s Harrods.

The Qataris are not the only high-profile Gulf investors in the fashion industry. Investcorp, the Bahrain-based fund that bought Gucci at the end of the 1980s and took it public in 1996, is reportedly close to acquiring the Italian menswear brand Corneliani. In April, Dubai-based Alabbar Enterprises bought into the upscale online fashion retailer Yoox Net-a-Porter.

The affluent residents of oil-rich Gulf states have always craved European luxury. They are among the biggest shoppers in the UK and Germany. Half of Middle Eastern visitors to France spend more than US$6,600 a day.

A 2014 white paper on the peculiarities of luxury consumption in the Gulf nations included an explanation from a big local luxury retailer, the Chalhoub Group, of the origins of this love affair: a tradition of defining a person’s place in society through luxury consumption, the emergence of malls, where people from a culture “dominated by private spaces and prescribed behaviour” can show off their individuality, and the cultural importance of trust that helps create strong brand loyalties. 

Qatar has the highest per capita gross domestic product in the world. That affluence feels natural to its younger generation. “Generation Y, under 30 years of age, have been brought up in the dawn of the region’s economic ascendancy,” the Chalhoub Group wrote. “They perceive luxury as their playground.”

Western millennials prefer to spend on experiences rather than products. To quote Jeff Fromm of the marketing consultancy FutureCast: “In the past, affluent consumers marked their affluence with luxury products. However, as we are seeing the shift towards experiences grow among the affluent millennial population, that mindset is changing. Why buy a US$10,000 bag when you can book a trip to Thailand or get front row seats to your favourite concert for the same price (if not less)?”

The conventional wisdom holds that an East-West shift in demand is taking place in the luxury industry. The corruption crackdown and economic slowdown in China, and Russia’s harsh currency devaluation, have shut down growth in those once-promising markets, while the US and Western Europe have provided reliable growth. Millennials or no millennials, Balmain is a profitable company whose young chief designer, Olivier Rousteing, knows how to play the game. The collection he designed for budget retailer H&M sold out in a day last November, with mob scenes at stores from Seoul to Berlin.

Last year, the Middle East accounted for just US$9.1 billion of a total of US$280 billion in personal luxury goods sales, according to Bain & Co. Yet the region showed the highest growth rate after the US:

the growth in Middle Eastern luxury consumption is understated.

Travellers from the Gulf states are probably responsible for some of the sales increases in Western countries, and European and American consumers aren’t doing much shopping for clothes in Doha or Abu Dhabi. So the fashion industry is probably more dependent on Middle Eastern consumers than the numbers indicate.

That dependence is likely to grow if the “experience spending” trend holds in the West. There is nothing the luxury industry can do to align itself with a shift away from conspicuous consumption. The Gulf states’ welcoming embrace is positive for the fashion brands; their long-term future may well depend on this quirky but affluent market.