A destination for everyone: Rising incomes mean outlet options continue to diversify

A number of factors are shaping Oman’s developing retail market. While competition has increased as more companies have set up retail outlets in the sultanate, salaries have also grown, boosting consumer spending as a consequence. Other, less obvious factors are influencing the market including increased infrastructure spending, more contemporary retail formats and a rise in tourism.

Selling Wide

The country’s unique demographics also play a substantial role in the sector. Unlike many of its neighbours, Oman’s expatriate population is comparatively small, only making up roughly a third of the country’s 3m or so residents. In addition, much of the sultanate’s population is relatively spread out, rather than concentrated in one or two dense urban centres. Oman’s hydrocarbons supplies are also less abundant than in some GCC countries, which means the government is not in a position to pay as high salaries as in other parts of the region. These demographic factors have pushed the retail market towards a more value-driven and comparatively restrained model. Although consumer demand in Oman was predicted to remain primarily stagnant over the short and medium term, this forecast is proving to be off the mark. Indeed, overall demand only appears to be strengthening. Salman Stores, a local house ware and kitchen ware retailer, recently reported that it had experienced growth of approximately 20% during the first eight months of 2012. Much of the growth can be directly linked to a jump in salaries in 2011. Ajay Chopra, the managing director of OTE Group, highlighted this when speaking to OBG, pointing to its effect on automotive sales in particular. “The review of labour and wage laws has put more money in the pockets of the consumer, so despite recessionary trends elsewhere, retail in Oman has not been negatively affected; auto sales are actually growing, but margins for dealers are under pressure due to competition,” Chopra told OBG.

Average interest rates for a home mortgage have dropped significantly over the past two years as well, which may also be having a positive effect on consumer spending. The improved market conditions can be seen in MasterCard’s most recent Worldwide Index of Consumer Confidence. Published in July 2012, the report ranked consumer confidence in Oman as the second highest in the MENA region, with a score of 91.5 out of 100. MasterCard calculated that average confidence for the region stood at 83.5.

At The Top

Perhaps more significantly, in 2012 Oman joined the ranks of the top 30 developing countries in terms of retail investment, according to a recent report published by the management consultancy A.T. Kearney. The firm’s annual Global Retail Development Index (GRDI) ranked Oman as the eighth most attractive market, with the UAE being the only MENA country ranked higher. Along with several other countries, the firm identified Oman as a “small gem” for global retailers. In addition, while the market for luxury products is quite small in the sultanate, the report noted that it provides an attractive investment option to high-end retailers with a wealthy but concentrated target audience. A.T. Kearney’s 2012 GRDI gave Oman a score of 70 out of 100 in terms of overall market attractiveness. However, it was in the areas of market saturation and country risk that Oman scored particularly well. Out of the 30 ranked countries, Oman was listed as the second least saturated market on the list (in a tie with Chile) as well as the country with the second least country risk.

The sultanate’s retail market is also developing at a steady pace, which means investors have ample time to set up operations before the market fully matures. Relaxed government restrictions, an expanding middle class and consumers willing to try more structured formats all help make it an attractive market.

Take Your Pick

For the most part, retail in the sultanate is divided between shopping malls or destination centres and smaller roadside retail units located on the ground floor of residential and office buildings. There are two main shopping malls in Oman: Muscat City Centre and the newly opened Muscat Grand Mall. In terms of footfall and rental value, City Centre leads the market, according to the property consultancy Cluttons. First opening in 2001, City Centre originally measured around 33,000 sq metres. After undergoing OR22.5m ($58.6m) of expansion projects, the mall now provides over 60,000 sq metres of gross leasable area and contains 147 retail units, according to City Centre figures. The shopping centre’s developer is Majid Al Futtaim Properties, a firm based out of Dubai.

The shopping mall segment is changing, however, with the recent entry of Grand Mall in 2012. Providing over 60,000 sq metres of floor space, the new retail facility contains 160 retail shops and is anchored by a Carrefour Express. Grand Mall is part of a multi-use development in Al Khuwair known as the Al Tilal Complex, which includes 180 apartments and 110 serviced apartments in addition to 40,000 sq metres of office space, according to recent data provided by Cluttons. A five-star hotel is proposed for the development’s second phase of expansion.

Multi-Use Developments

A number of new retail outlets in Oman are part of multi-use developments. For example, The Wave, an integrated tourism complex (ITC), offers residential free-hold property in addition to tourism-related infrastructure such as a golf course and retail centre.

The Wave is Muscat’s first major ITC, with construction beginning in April 2007. Part of a larger area that includes 3700 sq metres of commercial space and 2000 sq metres of office space, The Wave’s retail area measures about 5100 sq metres, according to recent data provided by the ITC. In late 2011, seven retail outlets opened at The Wave. These include restaurants, a WH Smith book shop, a convenience store and a dry cleaners. An eighth retail unit is scheduled to open by the end of 2012, and The Wave also aims to bring in the British supermarket Waitrose. Further expansion plans will eventually increase the ITC’s total retail space by around 12,000 sq metres with new units constructed in various precincts around the village area and marina, according to The Wave. While increasing the supply of retail space, The Wave’s retail units target a niche market of more high-end shoppers. As a result, the new space should not affect footfall in City Centre and Grand Mall or in Muscat’s smaller shopping destinations.

However, there is still some oversupply of shopping mall space. This is partly because many retailers are reluctant to invest outside of the capital area – a trend that is beginning to change, though, as the northern city of Sohar continues to grow. According to the latest official estimates from the Ministry of National Economy (MoNE), Sohar’s population grew by roughly 12% in two years, from around 125,000 residents in 2008 to over 140,000 in 2010. About a three hour’s drive up the coast from Muscat, Sohar is a growing industrial centre.

Always In Demand

Oversupply of space has not been a challenge for ground floor retail outlets. In fact, demand for these roadside shops – particularly those of good quality – is extremely high. Many local retailers do not have a notable brand name or a large budget and, as a consequence, are not a good fit for one of Muscat’s larger malls. Many of these retailers look for good-quality ground floor space instead. As of September 2012, average ground floor retail units were renting for about OR8 ($20.85) to OR10 ($26.06) per sq metre per month, according to figures provided by eqarat.com, a property consultancy. Retail space in shopping malls was leasing for an average of between OR15 ($39.09) and OR20 ($52.12) per sq metre per month.

Value Segment

Value fashion is currently one of the strongest segments in Oman’s retail sector. This segment includes brands such as UK-based Matalan and Dubai-headquartered Red Tag, both of which are doing well in the sultanate. A Matalan outlet is located in Markaz Al Bahja, and Oman’s first Red Tag recently opened in the Muscat’s Al Khuwair district in August 2012. Much of the value fashion retailers’ success may be due to relatively lower average incomes in Oman than elsewhere in the region.

“Value fashion retailers have done well in Oman because these brands understand the market,” said Kim Jepsen, the general manager of Markaz Al Bahja. “Other types of value retail have taken notice and are entering the market as well.” Indeed, Markaz Al Bahja reported in September 2012 the non-fashion brands moving into its units are value-driven.

Restaurants and coffee shops are having success for much the same reasons as value fashion. Many coffee shops and restaurants in the sultanate are less expensive and therefore can attract a wider market. Costa Coffee, a British chain, has 18 coffee shops in Oman and will open two new stores before the end of 2012. One will be located in Muscat, while the other will open in the southern city of Salalah.

The Tourism Angle

Tourism has a mixed impact on the retail sector. A significant number of tourists come for business purposes or to see natural sites but are less interested in shopping. This means that the sultanate’s malls are not large, dedicated tourist destinations. At the same time, however, the restaurant and coffee shop market has recorded significant gains from catering to foreign visitors. The tourist season in Muscat runs from around October through February, while in Salalah the season picks up in April and continues through the region’s unusually cool summer months until September. Although the sector is relatively underdeveloped, the government is taking steps to increase tourist numbers, and Costa Coffee reports that tourism is picking up, especially in Salalah – an assessment that matches recent Ministry of Tourism (MoT) data. According to the MoT, more than 31,000 tourists visited Salalah during two weeks in late June and early July 2012. This represents an increase of over 10% from the 28,000 or so visitors during the same period in 2011.

Hypermarkets

Hypermarkets have done particularly well in the sultanate, and the segment continues to grow. In May 2012 UAE-based chain Lulu opened up its 12th outlet in Oman. Located in the northern governorate of Al Buraimi, the new hypermarket provides shoppers with a multiplex cinema, a food court, coffee shops and an amusement area in addition to usual product lines. Lulu reported that over OR20m ($52m) was invested in the outlet.

Further hypermarket growth has come in 2012 with the launch of a Carrefour outlet as the anchor store to the new Grand Mall. A French-headquartered retailer working in partnership with Majid Al Futtaim for its Gulf operations, Carrefour’s Grand Mall hypermarket is its fourth in Oman. In addition, the locally based Mars International opened a new hypermarket in Barka in July 2012.

Much like the rest of the world, Omanis shop at hypermarkets due to the value of products offered. Yet the market is not entirely focused on price, and there are signs of some diversification. The Al Fair chain sells slightly more expensive products and its stores are medium-sized; more well-off and typically Western expatriates are the firm’s target market.

Smaller shops can still thrive. “Growth of SMEs in retail will be more prevalent in the outlying areas of Muscat,” said Pankaj K Khimji, the director of Khimji Ramdas, a diversified local corporation. “Basic goods do not require a long and costly trip to a hypermarket. There is a certain amount of street front retail that will flourish in Oman but they will need to change the service approach and product offering to remain competitive with the large malls and markets.”

Labour is one of the more significant challenges faced by retailers. Many potential employees are either not interested or lack sufficient training for some positions, and turnover is high. A number of steps are being taken, however, to upgrade the labour pool. For example, the government runs two manpower offices which provide potential employees with a three-month training course and helps graduates set up job interviews. The National Hotel Institute, a private organisation funded by the government, also provides vocational training.

Outlook

In spite of some labour difficulties and increased competition, the retail sector presents a variety of investment opportunities – not only in the larger, more traditional segments, but also in a number of niche markets. For example, Oman’s geography is well-suited for adventure tourism, and it has been on the rise, yet most adventure sports enthusiasts travel to Dubai for equipment purchases due to the lack of local options. Another possible niche is in catering to the Indian expatriate community. While a number of small-scale, family-run firms serve this market, there are no organised Indian retailers. In addition, one Muscat-based retailer recently suggested that an auto accessories shop located within the sultanate would likely be successful.

With a relatively recent increase in national incomes and multiple segments of the retail market growing steadily, the sector should continue to expand. Value-driven retail is likely to remain a key driver, though there are still opportunities to invest in luxury retail. Coffee shops, restaurants and hypermarkets also have a positive outlook, and have seen increased revenue figures from visitors to the sultanate, indicating they might be able to expand alongside an increase in national tourism arrivals.

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The Report: Oman 2013

Industry & Retail chapter from The Report: Oman 2013

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