Is Dubai’s applecart of retail getting overcrowded?
Dubai may still be the mall capital of the region but challenges are growing and so is its reliance on tourist numbers.
October 7, 2008 9:05 by kippreport
In a matter of years, a corny coinage “Do-Buy” [Dubai] has turned into a deluge. Mushrooming malls in the city and beyond are offering wider choice to those with purchasing power and lending impetus to retail businesses, but they are also beginning to stretch the region’s demographic balance and impact the quality of services. Even authorities admit overspending is one of the major reasons behind the current high inflation levels.
The change is also evident in the form of long queues at the cinema snack bars where fewer personnel are forced to manage bigger turnouts. Today, sales people are often at sea explaining the nuances of their own products. Clearly a rapidly growing industry is running out of backend support as quality is compromised in the rush for quantity. Notwithstanding the downsides for the young and the old, malls have become a coming-together of provisions, entertainment and even socializing needs. Yet even as the juggernaut of retail rolls on, no one has an answer to the eternal question – how much is enough?
Colliers International estimates that Dubai will need to more than double its annual per capita retail spending to $8,400 per person by 2010 from the current $3,500 if the planned retail space is to be sustainable. This is based on the premise that no new large-scale projects will be launched in the near future which, going by the look of things, is highly unlikely.
This ‘cycle of consumerism’ is considerable and is increasingly boosted by readily available credit cards from banks. The Department of Planning and Economy (DPE) in Abu Dhabi reports consumer spending accounts for almost half of the UAE’s Gross Domestic Product (GDP), rising by 122 percent during the last five years from $39.2bn in 2002 to $87.1bn in 2007. “Consumer spending has been on the rise at the average annual rate of 18 percent, twice as high compared to the overall economic growth rate of the country during the same period,” says DPE’s June 2008 report.
Another survey reveals that 30 percent of consumers in the UAE go shopping solely for the purpose of entertainment at least once a week. On a global scale, the UAE is second only to Hong Kong, with 36 percent listed as ‘entertainment shoppers’. They spend over 12 times the amount spent on basic commodities in other Arab countries. This is an average of around 100 dirhams a day on consumer items, compared to around 13 dirhams elsewhere. Add to this the fact that an estimated 11.2 million tourists are expected till 2010 in Dubai alone and the city seems justified in its overdrive to create more retail space.
Demand > supply. It is not difficult to fathom why recent years have witnessed a retail revolution and why it is likely to continue. It has been a combination of availability of disposable income and an urge to create the Western-style shopping experience in the region. Dr Jasim Husain Ali, member of Bahraini Parliament and the finance committee of its Chamber of Deputies, says the mushrooming of retail outlets is “supported by availability of funds on the back of firm oil prices and also relates to the willingness of GCC consumers to spend”. Ali’s view is that there is no stopping the phenomenon at the moment, not even inflation, which is the worst enemy of retail business. “Consumers tend to reduce purchases of luxury goods during tough economic conditions but the declining purchasing power is partly offset by outstanding growth levels in all GCC economies,” he says.
Perhaps the biggest driving force behind the retail revolution in Dubai has been its ambitious plan as a city for the future, an endless icon of modern infrastructure that attracts curious travelers from around the world throughout the year. Chris O’Donnell, the chief executive officer of master-developer Nakheel, believes Dubai’s retail has what it takes to repeat the Las Vegas model. For him, and more of his ilk, there is still room for more. “You have to look at Dubai as a tourism and a commercial hub. Currently tourist numbers are around 9-10 million per year while Las Vegas gets 45 million tourists a year,” he says.
O’Donnell believes, even without the gambling bit, that the attractions that Dubai offers could easily see tourism arrivals getting to Las Vegas’ numbers. “With that being the case, the amount of retail that is being proposed will definitely be viable.” With precisely that in mind Nakheel plans to start development on 13 million square feet of new retail space across five of its major projects. “By 2012, Nakheel’s retail shopping malls division will be the largest shopping mall developer, owner and manager in the Middle East. By 2018, it will be one of the largest in the world,” a Nakheel spokesperson recently said.
As retail is the off-shoot of the city’s burgeoning real estate industry, master developers have little option but to build retail outlets around their developments to ensure the commercial viability of their projects.
For Haiyan Mujarkech, the chief executive officer of Dubai Retail, a combination of factors is leading to this situation. “Increasing household consumption, affluent population and booming service industry including tourism, banking and trading sectors are some of the factors that have been propelling the retail sector,” he notes.
Mall capital? Years before hosting three of the world’s ten largest malls, a feat likely by this year end, Dubai had established itself as the regional shopping and retail destination. The Dubai Mall, which is scheduled to open on October 30, is expecting some 30 million customers in the very first year of trade. Compare this with Mall of the Emirates, which said it has registered Dh1.5bn in sales with 6 million visitors during the 2008 Dubai Summer Surprises. Studies predict that by 2009, retail spending in Dubai’s shopping malls alone will exceed $7.6bn, the highest among the GCC countries.
Dubai’s track record and future projections demonstrate its first-mover advantage in the regional retail sector. Ali, who recently visited the city with his family, says events such as DSS and Dubai Shopping Festival continue to attract families such as his to the city. “Dubai’s weather in the summer is not friendlier than that of Bahrain. Still, availability of choice [several mega malls] influences the decision. The commissioning of [the] first phase of Dubai Metro in 2009 should further boost Dubai’s fortune,” he says. This first-mover advantage is being eroded, however, with increased competition from Abu Dhabi and other cities across the region, such as Doha, Riyadh, Jeddah and Manama.
The UAE’s capital city of Abu Dhabi, for instance, is positioning retail alongside its strong areas such as financial reserves, culture and tourism initiatives, major real estate projects and an investment-friendly environment. Banu Tas, the general manager of Abu Dhabi’s ‘Deerfields Town Square’ project, says there were no destination retail venues in Abu Dhabi in 2000. “Since then, there has been a notable shift towards providing international standard shopping malls, doubling-up as visitor destinations. The Marina Mall and the Abu Dhabi Mall opened during 2001, contributing a total GLA of 139,000 square meters, followed by a further 35,000 square meters at the Meena Retail Park in 2002,” he says.
The popular perception though is that even if other destinations expand their retail space, they will not be able to match Dubai’s current status because its learning curve began way before others. “Because of its unique initiatives in launching new trends, other destinations in the region will continue to track Dubai closely for a long time and it will not be that easy to deprive the emirate of its status as the market leader,” Tas admits.
The downside. While businesses laugh their way to the bank there doesn’t appear to be a ready-made solution for the economic and cultural fallout of the “mall culture” for consumers across the region.
The UAE Central Bank recently announced that consumer loans in the UAE surged 46 percent during the past 12 months rising by more than 73 percent since the end of 2006 and almost doubling during the past four years. Personal loans have also shot up. It is likely that some of these earnings may have gone into maintaining a flashy lifestyle that the UAE is dishing out.
Nassim Ghrayeb of YouGovSiraj says it hard to accurately assess whether creditworthiness and purchasing capacity impacts the retail industry. However, according to him, the indication seems to be that consumers are making up shortfalls in their disposable income with the use of credit facilities.
A recent research – conducted by job site Bayt.com and market research company YouGovSiraj – said consumer confidence has dropped considerably for the second time this year in the UAE falling 8.2 points with other GCC countries faring relatively better. But some industry insiders find it hard to correlate consumer confidence to actual market sales data because they say nothing is published. Neil Tunbridge, the head of market research GRMC Retail Services, says in any other market, sales would be an indicator of the trends in the industry. But it’s not an indicator here, because sales aren’t exposed within the sector in the region. “No mall announces its sales or profit margins or market share and they are certainly reticent about things like footfalls and GLA, leave alone what sales they are doing,” he says.
It’s a mystery. Although there are exceptions to Tunbridge’s claim, it is true that for a normal market parameter, one turns to a published report on the sector anywhere else in the world. Such a paper tells the story of sales, profit margins and market share which is yet to become the norm in this part of the world. Tunbridge says you can walk around the Mall of the Emirates and get a very subjective view of the place. “As an industry person I know that the footfall is up at around 20 million but there is nothing to say that Carrefour is exceeding its profit over last year or other stores are outperforming their expectations. I just don’t have a clue even though I am reasonably well-informed,” he says.
There are also the grave issues of manpower because hiring and retaining will probably be the most difficult obstacle to growth going forward. “Currently there is not enough skilled manpower,” says Ghrayeb of YouGovSiraj. “In the UAE and Qatar it is an issue of bringing people in and in Saudi Arabia it is investment in human development that is lagging. No real strategy is in place to put the vast unemployed national population into the workforce,” he says. In Bahrain, Ali says, locals are increasingly willing to work in retail shops due to the inability of the public sector to offer new job opportunities. “In particular, females tend to be ready to work in retail business as the jobs there do not require extraordinary physical efforts. Employers are even providing training to those prepared to work in retail,” he says.
The industry also needs to address other issues craving for its attention such as the Company Agencies Law. The Oxford Business Group report 2007 report says “unresolved issues surrounding the law, which stipulates that foreign non-resident companies must have a local agent through which to sell their products, continue to deter some international retailers from entering the market at this stage.”
The industry must be willing to forgo minor irritants as long as its main objective of attracting buyers is met. Yet this solely depends on the ability of the region to continue to attract expatriates and tourists at the rate it has done so far. Any slump in those numbers would surely upset the applecart of retail that has only seen good times during its current evolution.
First seen on www.trendsmagazine.net