Economic Update

Published 22 Jul 2010

This month, the leading regional retail event in the Gulf, the Dubai Shopping Festival (DSF), will kick off on December 20 and will run until February 2.

Retailing is now clearly part of Dubai’s overall strategy to promote tourism. The DSF, which was created in 1996 by the government, has been developed into a comprehensive tourist product, with state carrier Emirates offering packages for foreign shoppers. This year, as part of its entertainment programme, the DSF will also include performances by Cirque du Soleil.

The other main shopping festival is the Dubai Summer Surprises. This year, more emphasis was put on the summer festival given that the 2006 edition of the DSF was cancelled following the death of Sheikh Maktoum bin Rashid Al-Maktoum. The festival drew 1.51m visitors, primarily from Gulf Cooperation Council (GCC) countries.

These two festivals allow retailers to make roughly 50% of their turnover. Dubai expects 15m tourists a year by 2010, which will further boost the emirate’s retail industry, as foreign shoppers account for 65% of retail business. It is estimated that total spending could reach some $7.6bn, in comparison to Saudi Arabia ($6bn), Bahrain and Qatar (both with $1.4bn).

Aware of the the retail industry’s lucrative potential, Emaar Properties and Nakheel, two government real estate companies, took the lead in setting up new retail outlets while the private sector, led by family-owned enterprises such as the Majid al Futtaim (MAF) and Al Ghurair groups, successfully brought the concepts of shopping malls to the region.

Dubai boasted 36 malls at the end of 2005, and this figure is expected to reach 50 in the next two years. Major retail mall projects are underway, such as the planned giant Mall of Arabia as part of the Dubailand theme park project, which is expected to be four times bigger than the Mall of the Emirates. Overall Gross Lettable Area (GLA) or retail space should reach 2.51m sq metres by 2010, which represents 30% of the total retail space in the GCC.

Neil Tunbridge, head of retail services at GRMC Advisory Services, told OBG that there is still room for growth, especially for the mid-income market.

As the retail industry matures, the market is getting more competitive, and customers are becoming more selective as they realise that 90% of the malls offer similar entertainment concepts. Therefore, promoters will have to be more creative in their advertising and marketing campaigns. Some malls already offer novelties, such as MAF Mall of the Emirates and its famous ski slope, or Nakheel’s Ibn Battuta mall with its “six themed malls within a mall”.

In tandem with the development of the industry, the government has decided to ease existing regulations concerning the establishment of subsidiaries, in line with the WTO requirements. As of today, major international players such as Ikea and Mercedes are represented by a limited number of family-owned conglomerates as they cannot set up fully owned subsidiaries.

The relaxing of the laws will give foreign companies greater flexibility, enabling them to review their contracts after the first year. As a result, more cooperation is expected between foreign companies and family-owned groups.

Another positive step towards transparency was the passing of a new consumer law in August, which will protect consumers by requiring prices to be clearly indicated. The law also created a new department, the Consumer Protection Department, which was set up to receive consumer complaints and keep an eye on price hikes.