Interview: Colm McLoughlin
How will the introduction of value-added tax (VAT) impact the luxury retail sector?
COLM MCLOUGHLIN: The introduction of VAT in Dubai and the greater GCC region is a positive development. The implementation of a VAT has proven to be an effective means of collecting additional government revenue for many countries. Naturally, however, it will affect us and the retail sector in general. It is unlikely to have a more pronounced effect on luxury consumption as opposed to everyday purchases.
While the specifics are still being finalised, it seems clear that there will be some sort of refund scheme for people paying VAT and leaving the GCC member states. It is also expected that duty free sales, in particular those outside the GCC zone, will not be taxed: although goods sold in airport shops outside the immigration barrier will be.
To what extent will new infrastructure and tourism developments drive increases in retail spending?
MCLOUGHLIN: Tourism is vital to Dubai’s overall success, as well as its success as a retail destination. Take my home country, for example. Tourism is a very important part of the Irish economy, with the country attracting nearly 8m visitors every year. Dubai, on the other hand, is a fraction of Ireland’s size but saw more than 14m overnighters in 2016. When put in perspective, that figure is astounding and shows just how good a job Dubai has done in developing destinations that people want to visit, as well as establishing air connections with the rest of the world.
New projects such as Expo 2020, Dubai Parks and Resorts, and Dubai World Central reinforce these advantages. The city hopes to attract 20m visitors by 2020 and tens of thousands of new hotel rooms are currently being built in the city to cater to them. Not only will this drive increased spending at the country’s shopping centres, but it will also boost duty free sales. Dubai is also working to grow significant new source markets, such as China, that if developed properly will yield considerable dividends in terms of visitor numbers and spending in the emirate.
How have local retailers been successful in developing e-commerce capabilities?
MCLOUGHLIN: E-commerce has been slower to advance here than in many other countries. While this is changing – the acquisition of Souq.com by Amazon and Emaar’s entry online being good examples – this is a market that values the physical retail experience. Part of the attraction is cultural: many people who live here use malls as leisure destinations, places where they meet with friends for a meal or coffee.
Dubai has also done an excellent job of building its tourism industry around its malls, and the overall retail experience. Visitors come from all over the world to see the fountains at The Dubai Mall or the ski slope at Mall of the Emirates, for instance. So while it definitely will continue to grow, e-commerce is unlikely to ever fully supplant the importance of malls. The number of new destination malls that are already in the pipeline attest to their long-lasting appeal.
How do you respond to the view that Dubai no longer offers competitive pricing for luxury goods?
MCLOUGHLIN: Dubai has been disadvantaged in relation to prices over the past few years due to the strengthening of the dollar relative to other currencies, such as the pound and the euro. While this has affected the competitiveness of Dubai somewhat, retailers have responded in several ways that have helped soften the impact of price increases. For example, more are offering discounts that reduce the end-price for customers. They are also renegotiating conditions with suppliers, some of whom have been very flexible in making adjustments. Dubai will remain a competitive retail destination because of its unique offering in terms of the retail experience.
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