Retail Challenge

Retail

Economic News

22 Jul 2010
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Dubai's retail sector is pushing forward with the launch of several large new shopping centres, though there are concerns that the ongoing global economic crisis, combined with fears of an oversupply of outlets, could see retailers come under pressure as they compete for trade in a tightening market.

The spotlight was on the emirate's retail industry again in early November with the gala opening of the first phase of The Dubai Mall, one of the world's largest shopping complexes. Upon full operation, the centre will feature 1200 retail and more than 160 food and beverage outlets.

At the launch on November 3, more than 600 outlets opened their doors, many of them overseas retailers making their Middle Eastern debut, with other retailers set to commence operations as successive stages of the mall are completed.

Emaar Properties, the firm that developed the project, has rejected suggestions that the economic crisis could undermine its target of bringing 30m visitors to the shopping complex in its first year.

Mohamed Ali Alabbar, chairman of Emaar Properties, said that the viability of the mall would be ensured by an 11% projected growth in annual Gross Domestic Product (GDP), a corresponding rise in per capita income, and increasing tourist arrivals.

"This in turn translates to greater purchasing power and a demand for world-class retailing," he said at the opening ceremony. "The Dubai Mall is a response to that demand and will be the choice retail and leisure destination regionally and a magnet for tourists across the globe."

Not all are as optimistic. Eckart Woertz, an economist at the Dubai-based Gulf Research Centre, believes falling purchasing power due to higher rental charges in Dubai as well as bank-imposed restrictions on lending could impact retailers.

"The impact of the financial crisis is being felt everywhere, and that includes the United Arab Emirates, where the appeal of shopping centres could suffer from restrictions imposed by banks on the use of credit cards," he told the international media on November 2.

Woertz added that the potential fall in overseas tourist arrivals could also hurt retailers' bottom line. "The current financial crisis could reduce the number of visitors, especially Westerners," he said. "Even if tourists continue to come to the UAE, they will be spending less than before."

Additionally, the downturn in the international financial sector could directly affect Dubai's retail market. Having established itself as a major financial centre, one that analysts say could rival London and New York in the future, Dubai could also face something of a downturn, though not to the same degree as the traditional financial hubs.

Laurent-Patrick Gally, a retail analyst with Shuaa Capital, said concerns over tightening conditions in the finance industry, including fears of layoffs, could result in a more conservative approach to spending from those in the sector.

"They might be starting to be slightly worried about their jobs, depending on which sector of the economy they work in, specifically if they work in the finance industry," Gally told the local media on November 9. "They may not be inclined to spend as much as they might have six months ago."

In the future, retailers may be comforted by a possible fall in rent, as an increase in floor space could mean that supply will exceed demand. According to some estimates, Dubai will have at least 3m square metres of retail space by 2010, double the total as of the end of last year. Should there be excess capacity, property owners may be forced to reduce rents to maintain high levels of occupancy.

According to Robert Ziegler, director of the A.T. Kearney management consultancy firm, per capita retail spending in Dubai would have to increase by 280% from present levels by 2010 to support the expansion of retail space.

While high-end retail developments like The Dubai Mall may not be greatly affected, there could be a decline in occupancy rates, Ziegler told the local press on November 3. "The overall market in Dubai is heading towards overcapacity," he said.

Though there may be concerns regarding the short-term future for the retail sector, there are even bigger projects in the pipeline. The Ilyas & Mustafa Galadari Group's Mall of Arabia, which will house more than 1400 retail outlets, is scheduled to start its phased opening in 2010. When completed it will add nearly 930,000 square metres of leasable space to the retail sector. In June, the developer announced that 89% of the first stage, covering over 370,000 square metres, had already been contracted and reserved.

Though harder economic times may make life tougher for retailers, it appears that Dubai is determined to maintain its reputation as one of the world's most stylish and vibrant shopping destinations.

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