Pricing Trends Middle East

2 Min Read |

The strength of local currencies is making beauty products in the Middle East more expensive and impacting consumption.

While international beauty brands – and particularly premium brands – in the Middle East have been hit hard by the economic slowdown and a reduction in tourist numbers from Russia and a decline in tourist spend from the Chinese, they are also grappling with another significant challenge to their profit margins: strong local currencies.

In the United Arab Emirates (UAE), where local consumers are increasingly price sensitive amid a downturn in the jobs market, the strengthening of the dirham against currencies like the euro has pushed up prices of international brands. Major luxury beauty players in the Middle East report that prices in Dubai have risen so much that they are now higher than in the US and Europe, and on a par with those in China. As such, the region is no longer competitive as Chinese consumers look to purchase products in their country of origin or elsewhere when they travel, say experts.

Recently released on the UAE market, for example, MAC Studio Fix Perfect Powder is retailing at AED135 – equivalent to $36 or €33 versus a price of $27 in the US or €31 in France. Similarly, Nars Contour Blush Melina is retailing at AED215 – equivalent to $59.60 or €53.70 versus a price of $42 in the US or €39 in France.

Prices in the fragrance category are particularly high due to the exchange rate issue. Adjusting prices takes a long time in fragrance, which is the opposite to what is happening in the fashion industry. In fashion for example, there are new products hitting the market every six months so prices can be adjusted quicker. Industry players say that there is some price adjustment taking place in fragrance, but it is a long process. However, most admit that this is hindering the development of fragrance sales a little. Given the high prices, cashflow problems experienced by retailers and distributors do not help, often leading to product shortages on shelves and leaving room for local Arabic fragrance brands to strengthen their position.

Market Impact

The impact of the tough currency and economic conditions in the Middle East is evident. Releasing its fiscal first-quarter 2017 results this week, US-based Estée Lauder Companies (ELC) reported that sales in constant currency terms in the Middle East had declined over the period.

“Net sales in the Middle East fell sharply as distributors in the area significantly rebalanced inventory levels to adjust to weaker retail traffic due to the impact of lower oil prices on the overall macro environment,” noted ELC executive vice president and chief financial officer Tracy Thomas Travis during an earnings call with analysts on November 2. “We do see some traveling luxury consumers from the Middle East taking advantage of the weaker pound and buying more in the UK.”

However, despite the added pressure on profit margins resulting from the difficult currency situation, major players remain reluctant to lower prices in the short term, preferring to concentrate on wooing customers with product launches and retail innovations, boosted loyalty programs, and expanded distribution.