Luxury boom cools

Sales at high-end brands in Dubai and Abu Dhabi dropped sharply in March as the Iran conflict hit what had been one of the industry’s fastest-growing markets, with declines of 30-50% y-o-y at luxury brands housed at the Mall of the Emirates, Reuters reports, citing a source familiar with the data. Even Abu Dhabi, which is typically more insulated and less tourism-reliant, saw sales at the Galleria mall fall by around 10% across the board.

Footfall tells the same story: Traffic at Mall of the Emirates fell around 15% in March, while the more tourist-heavy Dubai Mall saw visits drop by roughly half, according to two industry sources cited by Reuters.

The worst case scenario actually happened: The luxury retail sector is only one of many victims of the regional conflict. Around 60% of luxury spending in the UAE comes from tourists, many of whom are staying away due to the ongoing conflict, according to Morgan Stanley. Knock-on effects from rising oil prices and disrupted supply chains could dampen retail appetite even further. Back in March, Bernstein analyst Luca Solca had told CNBC that a 50% dip in sales for the month would constitute a worst-case scenario.

The trend hits what was a key growth engine for the Middle East. The region, which accounts for about 5% of global luxury consumption, delivered consistent double-digit growth in recent years, head of luxury research at Barclays Carole Madjo told Reuters. It was the fastest-growing market last year, expanding 6-8% while growth elsewhere stalled, according to Solca.

And for the UAE in particular: An AED 10 bn retail platform from Aldar and Mubadala announced earlier this year was the latest step from the Emirates to scale its destination retail offering. The plan came just as retail supply continued to tighten, with prime mall occupancy nearing 98% at Dubai.

Dubai had been doing most of the heavy lifting, driving roughly 80% of the UAE’s growth, with the country itself accounting for more than half of regional gains, according to Morgan Stanley data cited by CNBC.

Investors are already reacting: Shares of LVMH and Hermès are down roughly 16% and 20% this month, compared to a smaller drop in the S&P 500.

An international issue: The global luxury market had already been under pressure, with annual sales slipping 2% last year and more than EUR 100 bn wiped off the combined market value of major luxury firms, according to Bain & Company data.

The outlook: A recovery had been pencilled for 2026, but now the timeline could slip as investor confidence is at its lowest in years, UBS analysts warn, according to CNBC.

Not everyone is stepping back: Mytheresa is still planning to expand in the Middle East, arguing the region’s concentration of wealthy clients remains intact despite the disruption, the group’s CEO Francis Belin told the Financial Times. The region already accounts for 10% of Mytheresa’s revenues. Some retailers are also still active, bypassing physical outlets and selling to customers directly, or in other markets, he added.