If you’re more inclined to dish out more cash for an hour-long massage than you are to buy a designer pair of shoes, chances are you’re not the only one.

According to the latest report on global luxury markets from the Boston Consulting Group, consumers are more likely to spend their money on experiencing luxury, rather than buying a physical luxury good. In fact, experiential luxury now makes up almost 55% of total luxury spending worldwide and over time has grown 50% faster than sales of luxury goods.

“More and more luxury shoppers tell us they love experiences that make them feel pampered,” says Dr. Klaus Kessler, Senior Partner and Managing Director at BCG’s offices in the Middle East.

In a survey of approximately 1,000 affluent people in eight developed markets, including France, the U.K., and the U.S., and four emerging countries, including India and China, researchers found that total annual spending on what those consumers described as luxuries now tops $1.4 trillion. At least $770 billion of that spending goes toward luxury experiences, compared to only $280 billion on physical luxury goods like watches, handbags and shoes, and $350 billion on luxury cars.

Of course, the definition of the business of luxury experiences is also expanding — besides exclusive art, safaris, and spas, other businesses are now offering deluxe accommodations. At some hospitals, the luxury experience could include butlers, specialty chefs, and marble baths, while in some airlines, private suites are the experience of choice. Today, new luxury apartment buildings even offer movie-screening rooms and virtual-golf facilities.

What are the trends causing this move toward the experience, rather than the physical ownership of luxury? In the U.S., Japan, and Europe, consumers who were part of the luxury boom in the 1990s are now retiring and pampering themselves. Secondly, middle-class consumers in developing markets are becoming more affluent and more disposed to splurging on themselves. Thirdly, Generation Y (today’s late teens and young twenty-somethings) tend to define themselves more by what they have done and experienced than by what they own. Finally, consumers are indicating a need for lasting satisfaction, and say that luxury experiences, not things, fulfill this need.

Doha, Qatar

“All over the world, luxury shoppers tell us they’d rather spend more on experiences than on clothes and jewelry — they’ve gone from ‘all my friends and I wear Cartier’ to ‘I cherish spa days with my friends,’“ says Aldous Mitchell, Principal at BCG Middle East. “Although experiences are more intangible than an item, consumers consider them more memorable.”

GCC Insights

These recent trends could mean big bucks for the GCC region and popular GCC tourist destinations abroad. According to the report, the Gulf region has yet to realize its full potential as a luxury tourist hub, and should focus on actively developing tourism offerings for incoming tourists in order to fully capitalize on this trend.

“Leveraging the uniqueness of recent 5-star-plus hotel developments, luxury spas, luxury malls and upcoming cultural heritage assets will allow the GCC countries to compete successfully in these market segments,” says Kessler.

Kessler adds that there is also a strong correlation between inbound luxury travelers and continued growth in sales of physical luxury goods — that is, although tourists travel for the luxury experience, they also tend to spend money on luxury items during their vacations. Dubai's luxury tourist flow from Russia, China and Western Europe during the wintertime is a strong example of this tendency.

Some of the report’s highlights on the GCC:

  • Burj Khalifa, Dubai, UAE

    GCC retailers need to spice things up within the store. That is, local luxury consumers are looking for excitement and novelty. One way to meet this consumer demand is through private fashion viewings; bringing the store to the customer is a luxury experience in and of itself.

  • Local service providers at tourist destinations must meet the demands GCC residents prefer on their luxury vacations. These service providers stand to profit from GCC tourists, especially in popular destinations such as London, Paris, and southern France. Specialized tours are a prime example of the services these providers can offer.
  • GCC residents love customizing their luxury physical goods, and this seems to be a trend that will continue in the future. Retailers can start providing personalization options for their products in order to meet this demand.
  • Traditional branding also remains strong in the GCC. That is, incoming tourists are still likely to spend money on physical luxury goods in the region. This is because the GCC draws tourists who are more inclined toward product luxury. According to the report, conspicuous consumption is more acceptable in the GCC, compared to Europe and the U.S., where recent economic downturns have attached a certain stigma to indulgent consumption.

– Kawther Albader

All data was collected from the Boston Consulting Group’s “Luxe Redux: Raising the Bar for Selling of Luxuries” report. The BCG is a global management consulting firm that partners with clients from private, public, and nonprofit sectors to identify their highest-value opportunities and transform their enterprises. BCG is a private company with 77 offices in 42 countries, including in Abu Dhabi and Dubai. A copy of the report can be downloaded at www.bcgperspectives.com

Images by Omar Chatriwala

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