Dubai's great shopping mall race

It's the kind of company that students in business schools around the world dream about. Since it was launched in 1992, the Dubai-based Majid Al Futtaim (MAF) Group has registered meteoric growth, making it one of the top businesses in the United Arab Emirates.

Today, the MAF Group is active in businesses ranging from automobiles to financial services, from entertainment to tourism. But the group's strongpoint is its retail and shopping center activity, which began in the mid-1990s with the opening of Deira City Center, the largest shopping mall in Dubai. The mall quickly climbed to the top spot, displacing several established players in the sector.

The second stellar performer in the MAF group is its tie-up with France's Carrefour, the second largest retailer in the world. MAF has obtained exclusive franchises for Carrefour in the Gulf and has been opening stores rapidly in the region. Having obtained the right kind of business deals, Majid Al Futtaim set out to get the right kind of people to execute those deals.

To head MAF Investments - the key vehicle for looking after the shopping center business - Futtaim brought in Peter Walichnowski, an Australian who had been making waves in Britain by having brought to life London's famous Bluewater mall, Europe's largest shopping center.

Al Futtaim set a challenge for Walichnowski: to build a mall in Dubai that was even bigger and better than the one he had built in London. That is the mission for Walichnowski, chief executive officer of Majid Al Futtaim Investments, the investment arm of one of the largest business houses in Dubai.

Walichnowski recently oversaw the launch of the construction of Mall of the Emirates - the biggest project ever undertaken by MAF Investments. Formerly called Souk Al Nakheel, the project involves an investment of over 3 billion dirhams (about $850 million).

Located in a newly developed part of Dubai, the Mall of the Emirates will measure over 6.5 million square feet in total area and 2.4 million square feet in leaseable area. It will house 350 shops, a huge hypermarket, a 12-screen cinema and parking for over 7,000 cars. As well, the mall will include the world's biggest indoor ski resort, which will feature real snow.

However, within days of the launch of work on the Mall of the Emirates, another, even bigger project was announced in Dubai, barely a few kilometers from the location of the MAF project. Emaar, the government-owned real estate giant, announced its own venture into the business of shopping malls.

Emaar's complex will have the world's tallest tower as well as the world's largest shopping mall, sitting side by side. Ibrahim Al Hashemi, executive director in the retail and leasing department at Emaar Properties, says that the Emaar project has received over 1,000 trade inquires from potential retailers since the project was announced.

'We have been inundated by inquiries from around the region,' he says. 'With a footfall projection of 35 million shoppers in the first year of operation and projections for an annualized growth in mall traffic of about 20-30 percent, it is no surprise that the region's retailers have spotted a lucrative opportunity.''

These two malls - which between them will add nearly 5 million square feet of retail space - are not the only ambitious new projects in Dubai. In the past year, two new shopping malls have opened in Dubai, while two more well-established malls have massive expansion plans.

Al Ghurair has completed its expansion, which has seen a 12-screen cinema and 140 shops set up in the mall. Across Dubai Creek, the Burjuman Center is also about to conclude its own expansion plan, which will see its retail space double to over 800,000 square feet. Then there's the other new player in Dubai, Mall of Arabia.

A few weeks before Emaar announced its Dubai Mall, the Dubai government launched its own ambitious project, Mall of Arabia, part of a $5 billion project that will also include a giant entertainment center, theme parks and museums. Simon Townsend, head of Cluttons, a British real estate consultancy, says that the three malls together will lead to four-fold growth in Dubai's total retail space.

'Demand for retail space in Dubai is currently being tested,' he says. 'It seems, though, that there remains strong interest in these schemes: retailers see new malls as important parts of their expansion strategy, while not discounting existing malls.

'There is still a waiting list, for example, to get into Deira City Center; the Wafi Mall expansion was also oversubscribed,'' he points out, adding that the retail expansion will complement the efforts of the Dubai government to attract 15 million tourists to Dubai by 2010.

Townsend says that most of the marketing of the Mall of the Emirates was carried out prior to the announcement of any of the other new megamalls. 'I believe that there is a great deal of confidence in the MAF Group to provide retailing locations that mirror the City Center example,' he says.

'Retailers signed up because they had confidence in the scheme and its location but, importantly, also because they have confidence in the developer. Companies now looking for retail space may face a considerably more difficult decision than those who did so 12-18 months ago.''

Even before the new malls were announced, Dubai, with over 20 million square feet of retail space, had one of the highest per capita availabilities of retail space in the world. Simon Thompson of Retail International, a British shopping mall consultancy, says that in the United States - the largest and most advanced retail market - a shopping mall with 500,000 square feet of retail space needs a population of more than 500,000 within a driving distance of 10-15 minutes.

Dubai, with its population of under 1 million, already has four times as much shopping area per capita as the United States. With Dubai's even greater expansion on the way, trouble seems inevitable.

Industry analysts say that although Dubai may be able to absorb high shopping capacity - due to the large number of tourists and its highly mobile population - the emirate will soon face oversupply.

'We are already finding examples of some malls close to collapse,'' says a Dubai-based retail analyst, 'and business in others is definitely slowing down. The drop in footfall has not yet hit the big players - including Deira City Center - but the future is not as bright for new players.''

Moreover, analysts say that by building another megamall, within 15 minutes of driving distance from its star performer - Deira City Center - the MAF Group is taking a big risk. 'There will be an overlap of populations between City Center and Mall of the Emirates,' says the analyst. 'Either people will shop at the new mall or continue to visit City Center. Either way, one of the malls will suffer.''

However, MAF's Walichnowski says that there will be no cannibalism within the group. 'City Center will keep its clients,' he says. 'Dubai is growing rapidly - both in terms of residents and tourists.

Mall of the Emirates will be a must for every tourist; among residents, we will tap the population in the newly developing areas of Dubai. There will not be any significant overlap between City Center and Mall of the Emirates. And we are constantly upgrading and adding value to City Center to ensure that it does not lose its appeal.''

One of the MAF Group's greatest assets, helping to ensure that its shopping malls are a big draw, is the joint venture between MAF and Carrefour. When Deira City Center opened seven years ago, it had a unique feature: the first and the only Carrefour outlet in the Middle East. Such hypermarkets are the proven anchors of shopping malls around the world, and Deira City Center rapidly climbed to take the top slot among Dubai's shopping malls.

Since then, the MAF Group has repeated this strategy in all of its malls. It now owns and operates malls across the region - in the neighboring emirates of Ajman and Sharjah, as well as in Muscat - and it is hardly a coincidence that the Mall of the Emirates will house the largest Carrefour in the Middle East.

Walichnowski says that the group plans to add a shopping center a year in the region for the foreseeable future. 'The business has a long gestation period, and there are numerous opportunities in the market. There may be some years when you will have two malls opening and nothing for the year after. But growth will continue.'

The larger challenge for the company, says Walichnowski, is to make sure that the Dubai office does not start dictating the terms to everyone else in the group. 'That is fatal for any company,' he says.

'Here, the executives have been told to travel as much as possible, spend time with consumers to lay out market research and not have any fixed ideas about what's going to work and what's not going to work.'

Another challenge for MAF, as it grows across the region, is to have its people discuss issues across the table. 'In American and European companies, people disagree openly with their superiors. That's not because there's a lack of respect.' he says. 'Here, though, people will never challenge you, even if you are totally wrong. So I am trying to create a pool of people who are prepared to challenge each other and not see that as a lack of respect but a collaborative approach.''

Another challenge for Walichnowski lies in maintaining good relationships with his staff across the region. This has become more challenging as he has expanded the company's base rapidly. Walichnowski says his response to the challenge is to hire local people in each country, who bring with them knowledge of not just the local business environment but also the cultural values of the particular country.

'I provide them with my many years of experience, and they show me how they translate that into the local context. I don't know the language or culture and have to rely on my people. The challenge is personal: to be as sensitive as I can to different markets.''

Financially, despite the huge investments being made in the Mall of the Emirates and other projects, Walichnowski says there is little risk for the group.

'The challenge is more in terms of getting the right kind of return from the investments made. We have our own benchmarks and processes to ensure that we get there,' he says. 'In terms of fresh capital for new projects, Majid has always said that there is no shortage of capital for good ideas. So even if the capital is not available from him, it comes from banks and from our partners.''

In any case, argues Walichnowski, the limits of growth for the group are defined by opportunity rather than capital. 'At this point of time, I just can't get enough good sites - in the right location with the right demography - to build more shopping centers,'' he says.

That's a challenge that will soon face every player in the region, as the retail expansion continues. Indeed, the limits of growth are already being tested. The fear - for the Majid Al Futtaim Group, Emaar Properties and others in the sector - is that they have already been crossed. But with a fortune invested in testing those limits, there's no going back now.