Effect of Economic Crisis on Saudi Arabian Consumers' Behavior Towards Luxury Goods

Effect of Economic Crisis on Saudi Arabian Consumers' Behavior Towards Luxury Goods

Afshan Azam (College of Business Administration, AlYamamah University, Riyadh, Saudi Arabia)
Copyright: © 2017 |Pages: 12
DOI: 10.4018/IJSEM.2017100101
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Abstract

This study aims to investigate the effect of economic crisis on Saudi Arabian consumers' behavior towards luxury goods. This article develops a model based on previous researches. The proposed model used three contracts household income, social group influence and personal saving to investigate the effect of economic crisis on Saudi Arabian consumers' behavior towards luxury goods. Using structural equation modeling (AMOS 19.0) allows for statistical tests of the conceptual model and the hypothesized paths. The findings show that economic crisis have significant influence on household income and social group influence, ultimately affect the Saudi Arabian consumers' behavior towards luxury goods. Limitations and practical implications are discussed at the end of the paper.
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Introduction

Luxury is “a brand of goods/service with exclusive/selective distribution; usually higher than the average price of goods/service in the same category; typically have higher quality/design; while commanding a strong appeal to the desire and aspirations of its potential customers…” (Wong, 2007). The global luxury market tracked by Bain & Company comprises 10 segments, including personal luxury goods, luxury cars, luxury hospitality, luxury cruises, designer furniture, fine food, fine wines and spirits, yachts, private jets and fine art (D'Arpizio et al., 2016). The overall market grew at 4% in 2016, to an estimated €1.08 trillion in retail sales value. Luxury consumption shifted away from goods and toward experiences such as travel and gastronomy, which grew faster than luxury goods by at least 5 percentage points (D'Arpizio et al., 2016). The best-performing categories were luxury cars, luxury hospitality, fine wines and spirits, and fine food (D'Arpizio et al., 2016). Luxury consumption is described as the motivation to purchase specific brands of products, how these products are used and the meaning of those products behind the consumption (Jones, 2016).

There are many factors which affect the luxury good consumption and one of them is financial crisis. Most of the consumers spend less during a crisis and purchase selected products (Ang et al., 2000). However, consumer behaviors are also impacted according to the different circumstances and drivers of luxury purchases during the financial crisis (Ammi, 2010). The luxury market continues to grow despite the worldwide economic downturn, with an expected growth rate of more than 35% over the next five years (D'Arpizio et al., 2016). The economic crisis caused markets to contract and major changes appeared in their structure. The buyers changed their buying behavior. They start to worry about their jobs and do not enjoy spending their money anymore. They postponed or reduced a big amount of purchases related to leisure and entertainment. People may start buying less quantities, or switch to larger size items to avoid repeated purchases. They also started to switch brands, and focus on price rather than quality and they also have started to intensify the search on the web looking for valuable bargains.

High growth in discretionary spending has led to huge demand for international clothing and luxury brands. Currently, KSA has all major clothing, accessories and grocery brands that are further increasing their presence in the Kingdom. “As per CBRE, KSA has 43% of the 294 brands the entity tracks, significantly higher than leading markets like Hong Kong and Russia” (Aljazira capital, 2016). Continued growth in disposable income, supported by increasing supply of world-class brands, is likely to further boost discretionary spending (Aljazira capital, 2016). Growth in retail demand is estimated to be complemented by an equally aggressive increase in supply with the retail floor space estimated to increase from 4.2mn2 miles in 2010 to 5.4mn m2 by 2015 (Aljazira capital, 2016).

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