Gulf’s middle class: survey

The Survey

The middle classes in Saudi Arabia and the United Arab Emirates are much more optimistic in their outlook than their counterparts in Bahrain, according to a McKinsey survey on this key consumer group.

Summary

  • The mood among the Saudi middle classes is more upbeat than from their counterparts in Bahrain and the United Arab Emirates (UAE). They have higher disposable incomes and also often have income sources additional to their work.
  • Bahrainis tend to be least satisfied with their lot. Unemployment is higher and 16% report having lost their jobs within the last two years. Overall they are less optimistic, less confident and less satisfied than their counterparts in Saudi Arabia and the UAE.
  • Emiratis have the highest job satisfaction and believe that they can progress through hard work and determination rather than through family status and connections.
  • Consumers in the UAE have increased their spending in recent years. Disposable income rose 35%, from $33bn to $44bn between 2000 and 2005, according to Euromonitor International. In Saudi Arabia growth was slower, up 15% over the same period, from $76bn to $88bn.
  • Spending on clothing and footwear makes up roughly the same percentage of consumer expenditure in both states, with 10% in Saudi Arabia and just under 12% in the UAE.
  • International retailers are increasingly targeting the Gulf states and in recent months Sephora, Gap, Banana Republic and New Look have announced ambitious plans for entry into the region.

Management consultancy firm McKinsey commissioned public-opinion research company Zogby International to survey people in three Gulf countries – Bahrain, Saudi Arabia and the United Arab Emirates – in order to try and define the mood of the middle class population. Surveying nearly 2,400 people, initial findings have discovered an upbeat mood among Saudi Arabian and the UAE’s middle class but a bleaker outlook among the Bahrainis. Two thirds of those questioned described themselves as middle class. The monthly salary range covered by those defining themselves in this class was wide, spanning 5,000 to 30,000 dirham (US$1,350 to US$8,200). Generally these are salaried employees including professionals, teachers, sales people and healthcare and office workers.

Attitudes

Around three quarters of the middle classes in all three states say they feel secure in their jobs, with over half claiming to be better off than they were four years ago. Saudis are nearly twice as likely as Bahrainis or Emiratis to expect to be better off in the next four years. This reflects national developments and regional tensions, according to the report. “Saudi Arabia and the UAE have the Gulf Cooperation Council (GCC)’s largest and most dynamic economies, and middle class Saudis and Emiratis are more satisfied with their jobs than are their Bahraini counterparts,” according to the report. Emiratis report the most satisfaction and recognition from work and are most confident that hard work and ambition, rather than family status or connections, will bring career development. However Emiratis don’t think they are paid enough or have enough time off, whereas the Saudi middle classes seem to be more financially secure, saying that they receive fair salaries. “More than half of the Saudi middle class respondents list sources of income in addition to their jobs, such as families, stocks, and rental properties. As a result, almost two thirds of the Saudi middle class report having extra income to spend or save,” says the report.

Bahraini dissatisfaction

More than 20% of the middle class respondents are unemployed and looking for work, compared to less than 10% in the other states. Some 16% say they lost their jobs in the past two years. The upshot is that there is little spare income for shopping in many Bahraini households. “The pattern continues throughout the survey, with Bahrainis indicating that they are less well off, less optimistic, less satisfied and less confident than their middle class counterparts in the other two GCC states,” concludes the report.

Retail spending patterns

The UAE has seen disposable income rise 35%, from $33bn to $44bn between 2000 and 2005, according to Euromonitor International. By contrast, the growth in Saudi Arabia was slower, rising 15% over the same period from $76bn to $88bn. People in the UAE also spend more per head with an average of $6,769 in 2005, compared with $3,345 in Saudi Arabia the same year. Following the same trend, retail sales in the UAE grew by a massive 88% between 2000 and 2005 to just under $22bn. In Saudi Arabia, retail sales also grew over the same period, but by a more modest 25% to $44bn. Spending on clothing and footwear makes up roughly the same percentage of consumer expenditure in both states, with 10% in Saudi Arabia and just under 12% in the UAE. However, per capita, consumers in the UAE spent over double the amount the Saudis did on clothing and footwear in 2005. Consumers in the UAE spent just under $800 each, compared to $336 per head for their Saudi counterparts. The total spend on clothing and footwear in the UAE in 2005 was $3.5bn, compared to the larger market in Saudi Arabia, which was worth $8.1bn.

Retailers targeting the GCC

The six markets that make up the Gulf Cooperation Council (Bahrain, Kuwait, Qatar, Omn, Saudi Arabia and the United Arab Emirates) offer huge potential for retailers. Speakers at the World Retail Congress in Barcelona in March told delegates: “if you’re in the retail business, your brand should be in the Gulf”. Recent openings and retail plans reported by WGSN’s new service include:

  • Beauty giant Sephora opening its first Middle East store in Bahrain in the Seef Mall and announcing plans for further stores in Saudi Arabia, Dubai, Qatar, Oman and Kuwait.
  • New Look opening 40 stores in Saudi Arabia, the UAE, Kuwait, Bahrain, Qatar, Oman and Jordan in the next five years.
  • Luxury store Villa Moda opening in Moda Mall in Bahrain this spring.
  • FJ Benjamin opening nine more Raoul Men stores in the Middle East by 2009, targeting Bahrain, Kuwait, Qatar and Dubai.
  • Gap opening 35 Gap and Banana Republic stores in the Middle East by 2010 through franchisee Al Tayer Group.
  • US fashion brand Nautica increasing its UAE store count to 11-plus by the end of 2010, according to franchisee Liwa Trading Enterprises.
  • UK retail giant Marks & Spencer opening its largest store outside the UK in Dubai Festival City.
  • Upscale London department store Liberty planning to launch in Dubai with either standalone stores or concessions within existing stores.
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