(Bloomberg) Giorgio Armani, who started his fashion empire with an unlined jacket in 1975, is counting on a $US1 billion agreement to develop hotels with Dubai's Emaar Properties to help double sales at Armani Casa, his five-year-old homewares business.
The first hotels are scheduled to open by 2008 in Dubai and Milan, and the designer will provide furnishings and amenities. Armani Casa brings in about 5 per cent of sales at Armani's company, which had annual sales of €1.3 billion ($2billion) last year.
"I know there will be a lot of hotels opening in Dubai, so I am going to have stiff competition," the designer said in an interview in the emirate. "I am trying to offer the same thing in the hotels that I do in my fashions: a certain balance and elegance."
Armani and competitors including Bulgari are expanding into hotels as travel demand revives, helping the €143 billion luxury-goods market rebound after sales stagnated for three years. Visitors from the Middle East contributed to last year's 10 per cent climb in the number of international tourists to a record 760 million, according to the World Tourism Organisation, a United Nations agency. Growth was the highest in 20 years.
Mr Armani, who is the keynote speaker at the International Herald Tribune
's luxury-goods conference in Dubai, is working with Emaar Properties, a development venture backed by Dubai's government.
Emaar is building the Burj Dubai tower, which will house an Armani hotel. Chairman Mohamed Ali Alabbar wants to make Burj Dubai the world's tallest building and a landmark for the emirate, where property prices have doubled in the past three years.
Some investors aren't convinced that fashion companies should be in the hotel business.
"So far, if you also look at Bulgari and Versace, the big success of fashion labels opening up hotels still needs to be proven," said Scilla Huang Sun, who manages a $US100million luxury-goods fund for Clariden Bank in Zurich. "Let's see what kind of return these hotels can actually generate."
Bulgari opened a Milan property with Marriott International last year and plans a second one in Bali. Gianni Versace started running an Australian hotel in 2000 with developer Sunland Group and plans another in Dubai. Emaar will develop at least seven luxury hotels and three resorts during the next 10years under the agreement with Armani.
Armani Casa has been raising sales as much as 28 per cent annually, and the hotel accord together with store openings may help the unit double revenue in coming years, according to Fabrice Gouffray, who heads the division.
The homewares business has 25 shops and plans to add five more over the next two years, about half of them in the Middle East. Armani has been opening about two Armani Casa stores a year in the region, which has six outlets. The unit also aims to increase the number of store-in-store boutiques it operates to about 100 from 70.
Like Armani, competitors such as Gucci and Louis Vuitton are investing in the Middle East as oil prices soar. The Gulf States including Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Oman and Bahrain may increase oil sales 24per cent to a record $US270billion, according to a Standard Chartered report.
"Increases in oil prices have a direct relationship with increasing sales of luxury goods in the region," Obaid Al Tayer, whose company has opened almost 100 stores in the region over the past 20 years for customers including Armani and Yves Saint Laurent, said.
"As long as oil prices stay above $US50 and government expenditure continues, we expect to be growing our luxury business at more than 20per cent a year."