Dubai's retail sector seeks traction

Dubai has been keen to develop a reputation as a world-class retail hub, and it has had success in attracting top international retailers to the emirate.

Dubai's emergence as a top retail destination was given credence by a 2009 report by CB Richard Ellis, which found that the emirate is the fourth-most attractive city in the world for international retailers, behind London, Paris and New York. The survey of 280 retailers from 67 countries found that 46% had stores in Dubai.

However, Dubai's burgeoning retail sector cooled in 2009, as it was hit hard by the global economic slowdown and subsequent job security fears, as well as by its dependence on tourism-driven sales.

Fall in revenues

Some general retailers saw revenues fall by up to 20% year-on-year in 2009, with the luxury segment seeing even higher declines, Laurent-Patrick Gally, Senior Vice-President of Equity Research at Shuaa Capital, told AMEInfo.com.

Department stores were hit particularly hard by the economic downturn, largely due to the fact that many of their offerings are luxury brands. A prime example of this trend was the closing of BinHendi Avenue, the upmarket extension to Deira City Centre, which boasted 26 outlets of high-end fashion brands such as Hugo Boss, Brioni, and Shanghai Tang, said Gayatri Bhasin, a Research Analyst for Middle East/Africa at Euromonitor International.

The shift in spending patterns has provided an opportunity for low-end retailers, as well as those offering special and frequent discounts, to benefit from a culture of bargain hunting that has emerged, with many consumers holding off on non-essential purchases until sales and shopping festivals.

Retailers have also focused more on the local Emirati population to boost sales, Bhasin said, noting that this is probably more of a trend in grocery retailing than non-grocery, but a strategy that may outlive the economic downturn.

Malls face glut

The recent opening of the $817m Mirdif City Centre Mall, which launched with over 350 of its 430 shops open, is a sign that some major retail projects are moving ahead. However, the project also renewed concerns that Dubai may be nearing an oversupply of malls, as in just the past 18 months the emirate has seen the opening of the mega Dubai Mall, Oasis Centre, and Dubai Marina Mall.

Gally says it is too early to tell whether Dubai has too many malls, but he warns that retail is 'a zero-sum game', and that money spent in one mall typically will not be spent in another. Therefore, it is likely that some malls might suffer from Mirdif City Center opening, he said.

In terms of international retailers, Galleries Lafayette opened in Dubai Mall in 2009 and Bloomingdales opened its first overseas store in the emirate earlier this year, indicating that most international retailers are going forward with expansion plans already in place, however they may not be initiating new ones, Bhasin said. Some projects involving international retailers have suffered setbacks, she noted, such as Australia's Myer, which put its Dubai store plans on hold.

International retailers are becoming somewhat less aggressive in their expansion plans in Dubai, Gally says, but he believes the emirate remains a growth destination. 'My view is that if retailers don't take a 6-12 months perspective but rather a slightly more reasonable and realistic one (2-4 years), it makes a lot of sense for some of them to come to Dubai,' he argues.

Future growth

Looking ahead, Bhasin predicts that retailers offering 'mid-priced' and 'economy' products in Dubai will perform better than stores offering 'premium' products, as consumers are expected to seek out quality, durability and affordability. Growth will be relatively healthy due to these factors, but not as robust as expected prior to the onset of the global financial crisis and its repercussions on Dubai.

'While bargains, discounts and standard products will drive growth, the extravagance associated with the lifestyles of certain echelons of society in Dubai is unlikely to simply dissipate and designer clothes, expensive jewellery and fancy restaurants will always find takers in the emirate,' she said.

Gally predicts that retail spending in Dubai will rise 6% in 2010 and 13% in 2011, but he points out that several factors could impact these estimates, including the economic climate and changes in demographics in the emirate. Tourism will also play a key role, as its overall contribution to retail spending cannot be underestimated, he added.