Are the Gulf’s over-the-top retail centers doomed? Trends magazine reports.
April 11, 2010 4:20 by Emily Meredith
“You start to approach the main operators such as Alshaya, Azadea, and Al Tayer, and they tell you: ‘If I cannot put all my brands, I’m not putting any of them’,” he says. Then, because the franchise operators are taking so much space and know the owners need their business to attract other retailers, they negotiate their rents down. “So I have to double my space to bring in all the mall operators which will pay higher rent,” says Bouyer. “If you are a retail developer and you want to develop a big shopping center, you have no choice but to accommodate these people.”
Uncertain which malls will be successful, retailers feel forced to open in as many shopping centers as possible, increasing their fixed costs even though total spending has not seen a corresponding increase.
In mature markets, retailers have three strategies to ensure their sales do not drop even if the market is slowing, according to the director for ERP at the Challoub Group, David Vercruysse. The first is to do more things to increase “differentiation,” an industry term referring to the ways in which one store appears unique next to its competitors. “It’s up to us and at least we control it,” he says. Second, the retailer can partner with the brands they sell, bringing in experts or making special offers. Third, they can partner with the malls. Vercruysse said this is difficult because he believes the owners are not as worried by drops in sales as the retailers are. Frequently they continue to collect rent even when sales decline.
There are two main ways rents to retailers are structured: either as a fixed rate or as a percent of sales. With a fixed rate, the shopping center operator is guaranteed an income. The percent of sales format is more complex and provides both retailers and operators with incentives. Mall owners, in particular, are more incentivized to attract traffic to the mall through advertising or special events.
In mature markets, Vercruysse says, the malls can do this in two ways. Small malls such as Burjuman Center could take a segment of the market and focus on it, rather than try to draw all consumers with a mix of general retailers that matches the regional malls in mix but not in size. “Thinking of the mall as a brand in order to position it is crucial,” he says.