Shelley E. Kohan (00:01.431)
Hi everybody and thanks for joining our weekly podcast. I’m Shelley Cohan and I’m so excited to welcome two great people that will be joining the podcast today. Eric Wearson, you were the former senior advisor to former New York City Mayor Bloomberg. You’re an Emmy award-winning producer, I think times six, a columnist for many publications and a political analyst. So you are also one of our esteemed writers here at The Robb Report.

So welcome, Eric.

Arick Wierson (00:32.6)
Thanks, Shelly. It’s gonna be fun.

Shelley E. Kohan (00:35.595)
We also have Pamela Danziger. She’s an expert in market research and she has been literally studying the luxury market and affluent consumers for decades. You founded your own company, Unity Marketing, and you are also a senior contributor at Forbes.com and of course, one of our most highly recognized writers here at The Rob reports. So Pam, pleasure to have you here.

PAMELA N DANZIGER (01:02.636)
It’s fun to be with you all.

Shelley E. Kohan (01:06.967)
Well today our topic isn’t what I would consider kind of fun, but I’m great you both are with me because I think you guys are the experts here to really help us kind of delve into what is happening with the luxury markets in the Middle East and perhaps the ripple effect of that. So that market used to be the hottest growth market for luxury, then the war has changed everything. So now we have instability in the Middle East. So

want to really understand how this is reshaping the luxury global economic outlook. So Pam, maybe I’ll start with you. If you could give us some background on how the Middle East became the growth market for these upscale luxury brands.

PAMELA N DANZIGER (01:49.814)
Well, the way I look at it is that luxury brands kind of got a sugar high from all the fast growth that they saw in China, which was basically an untapped market a decade or so ago. And China started to slow down after the pandemic period. And now it’s really slowing down. And so brands are looking for the next

the honey pot to grow their business. And the Middle East has been identified as the next opportunity. But at the same time, it’s a very fragile market as we are learning. even if Iranian conflict is settled quickly, and I’ll be interesting to hear what Eric said, my feeling is,

it’s going to take a long time for things to recover in the Middle East. mean, even if it’s settled quickly, I history shows us that the Middle East is really a fragile market.

Shelley E. Kohan (03:04.011)
know Eric, so my numbers say that the global wealth in the Gulf region is over 7.5 trillion and it’s supposed to double by 2050.

Arick Wierson (03:16.984)
I yeah, I mean, certainly, you know, the Gulf has a large concentration of wealth. I think that one, you know, as you start thinking about the luxury market, one of the most important factors that I think oftentimes goes overlooked is the fact that a lot of that spend actually happens outside of the Gulf region. For anyone who’s been, you know, to Paris or London or the south of France in the summer, particularly, I mean, it’s no secret that the Saudis in particular are out there spending.

like there’s no tomorrow. And I think that one of the ideas that MBS is trying to do in Saudi is bring that spending back domestically. He’s investing something in the order of a trillion dollars on different developments along the Red Sea, the NEOM project, the Red Sea development. There’s a whole litany of different major infrastructure developments that he’s building in the South on the Red Sea, which is far away from the conflict on the Arabian Sea.

Persian Gulf as the radians would like to have you call it. And I think that the long-term outlook is obviously that I think that a lot of the luxury spend is gonna migrate from the Gulf regions, Dubai in particular, to the other side of the Arabian Peninsula on the Red Sea. And I think that those are gonna be kind of the new hubs going forward. Now, of course, that doesn’t solve the short-term problems when you look at LVMH and all these other sort of big luxury brands.

a significant percentage of their revenues are based in the Gulf, think something in the order of six or 7 % in the case of LVMH, and think some of the others are even 9%, 10%, 11%. But I think that we also have to remember that there’s been significant infrastructure investment, not only in terms of the stores physically themselves, but in the logistics hubs. I one of the big problems that the war in the Gulf is having, or the conflict, I guess it’s sort of simmering right now.

is the fact that a lot of these luxury gubs would actually go through the major airports in Abu Dhabi, Dubai, and Doha, and Manama on their way to India, China, Africa, or wherever. So that’s also having a major impact. But I think it’s early days. I don’t think that the industry is necessarily going to be just flipping a switch and looking to get out of the Gulf region. But of course, if this becomes a conflict that’s measured not in months, but in years,

Arick Wierson (05:34.604)
clearly that’s going to have massive repercussions in terms of the golf as a center of luxury.

Shelley E. Kohan (05:40.364)
Yeah, that’s interesting. And I know a lot of the luxury brands are kind of thinking about that luxury market and that spend’s gonna happen elsewhere during the conflict. But I don’t know, Pam, with consumer mindset, is that a realistic kind of goal that some of the luxury brands would have?

PAMELA N DANZIGER (05:40.865)
Heavens.

PAMELA N DANZIGER (06:00.364)
Well, you know, I think that it’s very questionable. mean, what we’re seeing in the luxury market is a shift toward experiences, toward doing things rather than buying stuff. But, know, yeah, who wants to get on an airplane today? Who wants to fly overseas? mean, it’s it is so it’s such a questionable, you know, so questionable about whether

you wanna take that risk. And again, I look at it, maybe I’m a little scared, I wanna put my head in the sand and make it go away, but I really think that there’s a lot of issues. And it’s not just the conflict in the Middle East, I mean, it’s much, much broader. The luxury market has experienced last year, sales dropped.

Things flattened out the year before. I think that we’re gonna see, you 2006, we’re gonna have a real reset and, you know, a decline. I mean, I looked at the LVMH data. I dug into the LVMH results. And, you know, it really is challenging because if you think about LVMH, they are the largest luxury conglomerate in the world.

they’re like four times larger than anybody else. So we’re talking about what’s happening and they’re the best of the best. I mean, if you think about it historically, so we’re looking at a company that is really in a very challenging situation, no matter how Arnaud spins the story. Fashion and leather goods.

That’s their flagship. About 50 % of their revenues last year were made in the fashion and leather goods segment. That segment dropped 8 % on a reported basis, 5 % on an organic basis. So they really got challenges there. And in the first quarter, that segment, fashion and leather goods, dropped 9%. So they really are over-reliant upon the leather goods and fashion segment.

PAMELA N DANZIGER (08:22.668)
And then if we look at the brands and they don’t report on brand specific results, but Titi Cohen estimates that Louis Vuitton is about 45 to 50 % of the leather goods sales and Dior is about 20 to 25%. So they are really struggling. It’s a fact. And then if we look at their markets,

Shelley E. Kohan (08:28.503)
All

PAMELA N DANZIGER (08:52.364)
China and Asia in 2023, and that’s just a few years ago, accounted for 31 % of the company’s sales. It’s dropped to 26 % in 2005. So it’s really pulled back significantly in terms of LDMH results. And the USA represents 26 % of their sales and that’s as large, I it’s their top market.

and equal to France and the rest of Europe, which is about 26%. So my feeling is that there’s still a lot more opportunity in the US. And Lord willing, it’ll be more stable as we go forward. I mean, we just had a good GDP report for the first quarter.

Shelley E. Kohan (09:51.352)
I that, so I want to go back to something Eric said about, so I know a lot of LVMHs and a lot of the other high-end luxury brands really that travel retail is an important segment for them and going back to something Eric said about the travel retail and the airports that are shutting down and all of that, is that kind of playing into some of these drops? Not just recently but over the past year?

PAMELA N DANZIGER (10:16.3)
Well, if we look at the numbers, travel retail, which would be the airport retail is the smallest sector, but that did drop 4 % from 2005 to in 2005. But again, all channels of distribution in the luxury market dropped in 2005 except for outlets. So, I think that that shows a real issue

with how the value equation is balancing or out of balance in the current market. I people, luxury has gotten too mass. And I think if you look at the Louis Vuitton logo handbags, that’s a perfect example of it. and their sister has gotten an LVMH bag, know, logo bag. And it’s mass. It’s just not exclusive anymore.

Shelley E. Kohan (11:11.595)
Yes, that’s true.

PAMELA N DANZIGER (11:14.9)
Except me, I don’t have one.

Shelley E. Kohan (11:15.575)
And I think you made 20, 25, right?

PAMELA N DANZIGER (11:18.412)
2025, yes.

Shelley E. Kohan (11:19.125)
You mean 2025, not 2005, right? Yeah. So, Eric, so this brings up another question. No, no, that’s okay. So, Eric, this brings up another question about, so you’re talking about, you know, I believe you’re talking about elite luxury, the high end, the riches of the riches of the rich. And then you have the luxury market. Is there a separation between what’s going to happen in the Middle East or where luxury is going to grow based on those two segments of the market, the elite

PAMELA N DANZIGER (11:22.196)
yet. Yeah, sorry.

Shelley E. Kohan (11:49.33)
know, luxury markets versus the luxury market, or is it just kind of all one big segment?

Arick Wierson (11:56.814)
So a couple of things I think that are really important to point out when you talk about golf luxury spending is it may be only, you know, let’s say between five to 12 % on the tie end of a given brand sort of revenue, but it’s very high quality revenue. Now, what do I mean by that? Number one, it’s there’s less discounting. There’s not a discounting culture. A lot, there’s a huge sort of

wealthy landed sort of elites that live in the region that are spending, they’re not having to travel to spend. And when it comes to the airport shopping, of course, that’s a smaller segment. But of course, when people are in airport luxury airport malls, it’s more sort of impulse buying than anything else. The other really important point is the difference in VAT. The VAT in the Gulf region is only about 5%, whereas in Europe, it’s anywhere from 15 to 20%, depending on the country.

Shelley E. Kohan (12:46.868)
Arick Wierson (12:53.646)
And so obviously, from a price differential in terms of spend, it’s obviously much cheaper to buy those same products in the Gulf region. And then the other thing too is just the cost. Of course, renting a store at Dubai Mall or whatever is probably on par with major European centers, but your labor costs are much lower. You’re able to hire much lower paid labor. So you’ve got basically higher quality revenue in the sense that you’ve got much greater margins on average.

So that’s gonna be a big hit, I think. It’s really not so much in terms of the revenue side, the top line number, but more the bottom, sort of the P P and L side. And the other thing too that I think is really important is to understand is that I think luxury follows the, doesn’t follow geography, it follows the consumer. So wherever the consumer is, that is where luxury is gonna go.

Shelley E. Kohan (13:39.543)
That’s right.

Arick Wierson (13:42.248)
And I think it’s really important to also be thinking about, know, Pam mentioned this idea of the honey pot. Usually when I hear the word honey pot, I think of something else, but that’s a different podcast. But when I think about the honey pot, you know, I think that there’s a lot of new frontier markets that are popping up right now that I think some of these luxury brands should be thinking about. One of them that I’m actually involved in quite a bit is Guyana. Guyana is now the fastest growing country on earth. It’s the most barrels per capita on earth.

Its GDP per capita went from about seven or eight years ago to $6,000 a person to now $33,000 a person. And on a purchasing power parity, it’s about $90,000 per person, which puts it right up there with Kuwait and Qatar, and it’s still in the foothills.

They just reached 900,000 barrels a day. They’re going to be reaching 1.7 million barrels a day. This is in a population of 850,000 people. It is about to become the Switzerland of Latin America. And it sits there right next to Brazil, four and a half hours from Miami, two hours from Panama. I think that is just an example. may be, obviously we haven’t talked about Singapore, which has traditionally been another sort of hub of luxury. But I think these strategic planners that sit in Paris and London and New York and some of the other sort of hubs of Milan,

where retail sits are gonna be looking at some of these new frontier markets and say, where’s the next honeypot?

Shelley E. Kohan (15:04.555)
That makes perfect sense and you’re saying it’s not a geographic

You know, so when we look at what’s happening in the Middle East right now, while that is a disruption in that geographic region, the luxury markets have always been very global in how they kind of segment their businesses. So it’s not really about brand erosion or, you know, what’s happening with the brands, although Pam’s point is that luxury is down overall. But you’re saying that they’re just going to kind of move and be more agile.

in terms of young markets.

Arick Wierson (15:40.974)
I mean, look, the wealth hasn’t evaporated. The wealth is still there. I don’t think there’s any indication that demand has diminished for these products.

Shelley E. Kohan (15:45.302)
Right.

Arick Wierson (15:49.71)
Certainly maybe the pulverization of say, having a Louis Vuitton handbag, but all that means to me is that they’re going to have to have the next new, thing, the next new brand. It’s an opportunity for luxury, traditional incumbents to innovate and create the next level of luxury, if you will. And it’s an opportunity for new entrants to establish themselves and carve out that space. I think the fact that when you get so large and you get so pulverized, obviously when you’re, and everyone on your street has something

even though may cost, you know, a handbag maybe cost two or $3,000, suddenly it’s no longer elite, right? You know, there’s that famous old saying when Robert Reich was a secretary in the Clinton administration.

PAMELA N DANZIGER (16:26.828)
Right.

Arick Wierson (16:32.494)
He loved to cite this statistic where they studied all these different Americans and they said, would you rather be worth, I don’t know at the time, let’s say have $100,000 income a year, or would you rather be $50,000, make more $50,000 more than your neighbor? And most people said they’d rather be richer than their neighbor, even if that meant making less. And that just speaks to the human psyche, that it’s all about you versus how you’re compared against society.

Shelley E. Kohan (16:59.383)
that’s crazy. So the other interesting thing is you talk about the next big thing, and I do agree kind of with you and Pam in terms of the over-saturation of some of the brands out there in the marketplace today, but what does that look like, Pam? I know LVMH has some new things that they’re working on. They’re claiming that they have high demand for new lines that are coming out. I mean, what’s your perspective on that?

PAMELA N DANZIGER (17:30.198)
Well, again, if we think about the ultra affluent, the top tier high net worth consumers, mean, they’re buying brands that nobody’s ever heard of. They’re very discerning. And the luxury market has lost a lot of what the so-called aspirational consumers.

Bain says they’ve lost about 50 million active buyers in the last year, which is or in the last couple of years. And that’s a pretty significant loss. But I don’t think that all of them are the so-called aspirational consumers. I think that there’s really an opportunity to lean into not just the ultra high net worth, but to lean into people who are sort of in the middle.

Shelley E. Kohan (18:00.65)
Yes.

PAMELA N DANZIGER (18:26.988)
between high net worth and the sort of the normal, the lower level lean into them. And it’s really about bringing back the core values of luxury. And I think that that kind of got lost over the last, since the pandemic and that high growth period that we had following that.

sort of the core values of luxury, exclusivity, you being high, high quality. I mean, most of the growth in the luxury market during that post pandemic period was really attributed to increasing in prices. And everybody in this brother knows that the quality didn’t change, it didn’t improve. So we’re really seeing some challenges in that value equation and luxury brands need to.

to realign and really put more value into what they’re offering. More specialness, more uniqueness and service the clients in a very personalized hands-on way. Service is key in the luxury market. And I think we’ve lost some of that too.

Arick Wierson (19:55.244)
know, Shelley, I’ll give you an example. I have a neighbor here in Minneapolis. I live outside of Minneapolis about half an hour. And I have a neighbor here who just bought a new AMG 63, you know, top of the line G wagon. but then he decided that, you know, there were too many of these G wagons. These are $250,000 cars, right?

There were too many of them circulating around. So he wanted to go the next level. So he wanted to get an AMG G-Wagon, Braybus tuned. I don’t know if you know what Braybus is, but Braybus is sort of like AMG on steroids. So you take that $250,000 car and you basically end up spending about half a million. So he’s doing that right now. And so he said he’s going to get it. He’s all excited. He’s going to get it in the next couple of next couple of months. But he said, I’m very lucky. I put my order in just now because I was talking to my representative in Germany where I guess they do the tuning.

And he said, if I had put it in a month later, I would have had a year long wait. So you basically, you know, I don’t know what that means in terms of the number of people that are waiting to buy this car, but just the fact that there is a year long wait of people that are willing to put $500,000 on a car like a G-Wagon, a special, special G-Wagon, just shows to me that at the very high end, it’s a wide open opportunity. And I think that the luxury brands, if they can figure out how to capture that market and serve that market with

with high-end products that are gonna be very high-end margin, I think it’s gonna be a gold rush.

Shelley E. Kohan (21:22.688)
See, and I would say there’s two things. One, the K economy has not helped that aspirational middle tier, you know, luxury shopper. They’ve just kind of evaporated. And the second thing I’ll say is I would argue, Eric, that that car that you’re talking about, that’s an experience. That’s an absolute experience because you’re in the car experiencing that every day. So going back to what Pam said about this shift of, you know, luxury physical goods, I know it’s a physical good, but see, I deem that as an experience every day.

PAMELA N DANZIGER (21:50.785)
Yeah.

Arick Wierson (21:53.848)
guess you could you could argue that we’re you know wearing a Birkin bag to brunch is also an experience right?

Shelley E. Kohan (21:58.583)
I love it.

PAMELA N DANZIGER (21:59.692)
Except now there’s so many faux, you know, knockoffs, faux Birkin bags.

Shelley E. Kohan (22:07.04)
dupes, our dupe culture. Okay, so Eric, what I’m hearing from you is you don’t anticipate this big grand brand exodus of luxury markets from the Gulf, but you do think there’s other emerging markets that, you know, the smart, you know, luxury brands are gonna be looking for, right?

PAMELA N DANZIGER (22:08.321)
Yeah.

Arick Wierson (22:27.714)
Yeah, my view is I like I don’t think they’re going to de invest automatically. I mean, I think it’s really going to be a function of does this continue to be sort of a hot war where missiles could be flying at any moment? Or is this do we kind of go back to some sort of a status quo? My personal view from a geopolitical perspective is this just unrealistic to think that we could be in a little hot war that much longer here. There’s just too many sort of forces at play. 20 percent of you know, everyone talks about that of the world’s oil passes through the Strait of Hormuz. It’s already caused some ripple effects from a

I don’t know if you noticed recently, recently, as in like yesterday, I believe, I don’t know when this podcast is going to come out, but the Emirates decided to leave OPEC because they’re not satisfied with the production volumes that the group, the cartel is putting forth. So there’s going to be some geopolitical fallout for sure. But I think that the, you know, the billions and billions that have been invested in luxury infrastructure across these major sort of, you know, capitals, Abu Dhabi, Dubai,

Shelley E. Kohan (23:08.468)
Yes.

Arick Wierson (23:27.568)
Nama, Doha, particularly also Kuwait city. I think it’s too early to say that they’re gonna move. But I do think long-term, I think in the next sort of, know, horizon of say five to 10 years, I think within the Gulf region, you’re gonna see a lot of that pressure moving south to the Red Sea along all this development that’s happening. Also the Riyadh, which is the capital of Saudi Arabia.

There’s massive sort of investments that are being made there by MBS in terms of how to make that more of a luxury global sort of travel hub, much like Dubai used to be. Of course, in Riyadh, you just have the heat and the desert. You don’t have the beautiful ocean in front of you. then I think also broadly speaking, I would look at global centers. I mentioned a lot, Guyana, but I think Lagos, Nigeria is another one. There’s a few other sort of hotspots around the world where you just have this agglomeration of people. You may be surrounded in poverty, but the numbers of people you’re

talking about means that there’s going to be tens of thousands of families that are, you know, have, you know, disposable income over a million dollars a year and they’re going to be tapping into that.

Shelley E. Kohan (24:27.572)
Pam, your closing thoughts?

Arick Wierson (24:27.928)
Commander.

PAMELA N DANZIGER (24:28.78)
Yeah, I would say that we should learn from what happened in China. instead of looking for and, you know, again, we do have to be finding new markets and finding new opportunities and tapping into new distributions of wealth. But I think the big opportunity is to realign back to the core, the established markets and bring back

the qualities that made luxury special in the first place, which I think got lost in the shuffle in this post pandemic period.

Shelley E. Kohan (25:12.05)
Awesome, excellent. Well, it was great to have both of you on. Thank you so much. And if you have anything else you wanna add, please do so. Any last thoughts, Eric?

Arick Wierson (25:24.814)
I think this is a really interesting topic because.

You I think that when you talk about luxury, people, you know, it depends who you’re talking to, what they think about luxury. You talk to someone who makes half a million dollars a year, they’re going to have a certain concept of what luxury is. You talk to someone that makes 10 million a year, they’re going have a completely different view. And if you talk to someone that makes 150, they’re going to, you know, they’re, they think that, you know, entry level luxury like coach is that that’s the end all in BL. So it’s, you know, I think defining what you mean when you talk about luxury is really important at the outset. But I think today we focus mostly in at least what I’ve been considering

Shelley E. Kohan (25:53.408)
Yeah.

Arick Wierson (25:58.522)
be that sort ultra high end luxury but certainly you know the the bulk of the revenue is going to be in like those lower tiers although the higher margin stuff is obviously at the top.

Shelley E. Kohan (26:08.086)
Absolutely. Well, thank you both for joining Retail Line Wrapped and obviously thank our listeners.