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Are the Gulf’s over-the-top retail centers doomed? Trends magazine reports.
April 11, 2010 4:20 by Emily Meredith
With the available retail space in the Gulf slated to increase by about 67 percent over the next year, a concentration of brands in the hands of just a few operators and an economic outlook that continues to be bleak, the region’s retail sector is facing another tough year.
Certainly, some areas are less affected than others. Many markets in Saudi Arabia are promising, according to the regional head of mall operator Majid Al Futtaim Group, Mohammed Alawi. “Some of the retailers, the high end retailers, noticed a drop in their sales of 5 to 10 percent, but in 2009 our economic growth was very solid.”
A survey by the consulting firm Booz & Co. showed that 43 percent of Saudi consumers reported higher spending in the first two months of this year than the year before.
But in Dubai the situation is different. Mukhtar Ahmed, who works at Art Gallery Cashmere in Wafi Center, says his rent is $71,000 for the year, but he does not sell enough merchandise to cover that cost. Several Wafi shop owners say the mall management agreed to give six months of rent for free, but that deal never materialized. “I think in 2011 we will be closed,” a worker at the Hamadan carpet store, Muzafir Miir, says. His company has several other locations. The one in Dubai Mall is the most successful, though he is careful to say it does not take enough money to make up for losses at his other stores.
Wafi Center’s problems are not unique in Dubai. Latif Ahmed, who works at a shop called Curio, says that business was better in February and March of 2009. Curio began setting up a store in Dubai’s Festival City mall, but the owners heard that business there was not good and pulled out. And in late March, The National reported that several shop owners in Dubai Mall’s gold souk stopped paying rent because of decreased sales.
The characteristics of Saudi Arabia’s retail market are very different, of course. The population is eight times that of the U.A.E. True, Saudis who travel to regional destination malls spend big on expensive items, but those who stay at home tend to spend their money on value brands. And tourists on hajj are not coming to make extravagant purchases.
Al Futtaim Group’s Alawi says he still thinks there will be growth in Riyadh, Jeddah, and the eastern region, but the biggest opportunities are in under-served secondary cities with large populations. Malls in secondary cities are likely to be smaller and cater to value-minded customers.