BurJuman expansion project running late

Burjuman Center - which opened for business in 1992 and is described by its owner, Majid Saif Al Ghurair, as "a high-end mall, a mall for serious shoppers" - is a destination shopping center, a place where Dubai residents congregate as much to socialize as to spend their money.

Burjuman's 1.4 billion dirham ($381 million) expansion, which was originally scheduled for completion in December 2003, will clearly add to the mall's appeal. The mix of prestigious brands - including a flagship Saks Fifth Avenue (SFA) department store, more than 300 other shops, restaurants, cafés and a multi-screen complex - will undoubtedly attract hordes of upscale clients.

As well, Burjuman has embarked upon an unprecedented marketing campaign, placing promotional billboards in Manama, Riyadh, Jeddah and even London. The current effort to promote the mall, while perhaps overly ambitious, can't really be faulted: it will certainly help boost the mall's image - and the number of visitors - when the expanded version of Burjuman opens its doors.

Indeed, the main problem with Burjuman is not the future; the problem is the present. Burjuman's much-hailed expansion - which will have a total area of 4.4 million square feet, including a 22-story office tower and a residential complex - has been repeatedly delayed.

Back on March 10, 2003, a pair of Dubai dailies ran features on the project. "Burjuman expansion nears final stages," ran the headline in Khaleej Times. The same day, rival Gulf Today announced, "Expanded Burjuman to be ready by mid-December."

Both, of course, were later proved wrong about the timing of the expansion. Curiously, both these stories (which serve only to highlight delays in construction) are still available in the press clippings section of Burjuman's own website.

One has to assume, then, that Burjuman management never looks at its own site, or simply doesn't think that anyone will notice the discrepancy between these stories and reality. It's difficult to decide which is worse.

The expansion of Burjuman first got stalled over a design issue - a factor that delayed construction by nearly a year. Then, when construction restarted, the expansion project encountered still further delays. As of mid-April 2004, the new Burjuman Center remained a hardhat only area. And that led to a tense dispute between mall management and frustrated retailers - whose settlement will cost Burjuman prestige and profits.

Retailers, many of whom had planned to open at the end of 2003, continue to watch the weeks and months pass without cash registers ringing. Not surprisingly, they want compensation. At the top of the list is Saks Fifth Avenue, the American retail giant that already operates a shop in Saudi Arabia and has booked 80,000 square feet of retail space in Dubai.

Burjuman management has been trying to reassure retailers that the mall will be open for business before the end of the year, and that the delay was caused by factors beyond its control. But these reassurances have failed to placate everyone, especially Saks, which has demanded compensation for the delay.

"We have complete sympathy for our tenants regarding what has happened to delay construction for almost six months now," said Burjuman's general manager, Eisa Ibrahim, on April 20th. "We held a gathering of tenants in February, and we told the tenants who have sustained losses that we are ready, willing and able to compensate them. We are looking into this case by case. During the discussions, we told tenants that we would offer them a three-month rent-free period. We feel that - while this may not offset all the losses that they have incurred - this will at least cover some part of that."

It is difficult to confirm Ibrahim's version of events, primarily because few retailers are willing to discuss the negotiations. Arabies TRENDS was told in early April, by a source involved in the negotiations, that Saks was seeking compensation that could exceed $14 million.

A senior official at Saks's European office, who asked to remain anonymous, explained why. "We shipped merchandise into Dubai beginning in late 2003 based on feedback from Burjuman management about the mall's opening date," the Saks official said. "Now, they are going back on their contractual obligations, and that certainly represents a clear case of breach of trust. It is Saks's view that we should be duly compensated."

The official declined to place a number on the value of the merchandise, but sources confirmed in early April that it could easily be in excess of $14 million. In response to questions posed by e-mail, Rusi Motiwala, general manager of Style Avenue Middle East (SAME), the licensee of Saks, wrote in early April, "We have had a strong and positive working relationship with Burjuman.

Several of our shareholders have long associations with Burjuman and its owners, and we fully expect to continue to build upon that relationship.

"Neither SFA nor SAME have filed any legal action against Burjuman. In projects like this, delays are not unusual, and although the current delay in construction is longer than anyone anticipated - with inevitable operational and financial consequences to all parties involved - we are under discussions with Burjuman on how best to mitigate the financial impact of the delay, and are confident that we will together find a solution that is fair to both parties while preserving the objective of making the new Burjuman the best luxury shopping destination in the region."

Read between the lines, and there's no question that Saks wants payback. While Motiwala won't say how much or in what form, it's clear that Burjuman is going to have to provide compensation - or face the consequences.

David Pilnick, a senior vice president at Saks in New York, is not much more forthcoming than Motiwala. "Our partners in Dubai, Style Avenue Middle East, are negotiating directly with Burjuman on some type of agreement. I really am not at liberty to give you more information than that," said Pilnick in mid-April.

"But I can tell you that we are pushing forward with the understanding that the store will open. And it will open, we believe, during the Summer Surprise period." Asked about the possibility of taking legal action, Pilnick responded, "I really couldn't speak to that." Does that mean he doesn't know exactly what's going on, or that he does not want to answer the question? "To be honest with you, I do know," Pilnick admitted, "but I'm really not at liberty to discuss that."

Does the $14 million settlement figure strike him as correct? "I really couldn't speak to that." Is it roughly accurate, at least in the ballpark? "Again," said Pilnick, "I really could not comment on that." But Pilnick did make it clear that Saks does not intend to pull out of Burjuman altogether.

"Burjuman is a very critical location for us," he said, "and we just want it to open as soon as possible. I think everyone, including Burjuman, shares that belief. It is frustrating for us, as I'm sure it is for them. And we're just hoping that this will be resolved to everyone's satisfaction as soon as possible."

Just a few days later, Burjuman's Ibrahim insisted that the dispute with Saks had been resolved. "We sat down with them, and we reached an agreement on compensation." Could he provide details of the settlement? "No, no, no. But we agreed." Did the agreement include something besides a rent-free period? "It's a combination," said Ibrahim. "To be frank with you, we agreed on certain parameters, including a rent-free period."

Did that include a cash payment? "I don't want to say 'money,' but at the end of the day, if you give them a rent-free period, instead of paying them the money, we don't receive the money." Asked about the $14 million figure, Ibrahim was insistent? "No, no, no, no. We didn't talk about a figure like this."

Was it lower? "Yes, much lower. We had a very amicable settlement. It was in no way close to this figure." Ibrahim claims that 60 percent of Burjuman retailers agreed not to seek any compensation at all; he says that others accepted a three-month rent-free period, from the soft opening in June until the official opening in September.

However, Arabies TRENDS has learned that, as of April 21st, at least a few retailers - who were unhappy with what they saw as preferential treatment for Saks - had rejected the Burjuman offer. "Burjuman management cannot have one set of rules for Saks and another for the rest of us," the representative of a Dubai-based company that holds franchise rights for a number of top European fashion brands said in April.

"I have spoken to some of the other companies in the same situation I am in, and we have discussed the idea of a class-action lawsuit to protect our interests." For the Al-Ghurair Group, this is all unfamiliar territory. Over the last 10 years, Burjuman has been a huge popular success, all the while building a reputation for delivering results: the percentage of mall visitors buying goods ran in the upper 40 percent range, against an industry average of 25 percent.

For several years, Burjuman continued to dominate the top end of the sector. While rival Deira City Center was certainly successful in attracting footfall (with over 30,000 visitors a day), Burjuman was quietly churning out profits - with just over half the number of visitors. But it was not long before Burjuman began to feel the heat. The opening of Wafi Mall five years ago provided Burjuman with its first taste of real competition.

However, Burjuman managed to hold its ground, and continued to attract customers - from both Dubai and overseas. As well, the recent boom in new mall projects in Dubai does not seem to have had any impact on Burjuman's fortunes. If anything, the emergence of new competition helped to highlight the fact that Burjuman was the preferred address for discerning shoppers.

Did Burjuman's string of successes go to its head? The general manager of a rival mall in Dubai thinks so. "The way the expansion was handled clearly smacks of mismanagement," the mall manager said. "It shows they, too, can have feet of clay."

While the delays and negotiations are proving an embarrassment for Burjuman, they may also have serious consequences for its flagship tenant. Saks Fifth Avenue management had identified the Middle East as an area in which to focus expansion; they were reportedly waiting for the Dubai opening before unveiling other projects in the region. Saks's entry into Dubai, following on its Saudi branch, was expected to be smooth sailing.

It would be an opportunity, management hoped, to establish Saks's brand identity as a regional leader. That may go a long way towards explaining why the company's local representatives are keen to avoid any public controversy.

But controversy is now inevitable. And the timing couldn't be worse. Emaar Properties, the real estate heavyweight, is currently developing the world's biggest mall just a few minutes' drive from Burjuman - with over 2 million square feet of space and construction scheduled to be complete by 2007.

Meanwhile, the Majid Al Futtaim (MAF) Group is developing the Mall of the Emirates on the same stretch of road. This project, set for 2006, will also be one of the biggest malls outside North America. (The MAF Group is also the owner of the hugely popular Deira City Center.) If it is unable to resolve its current problems quickly and shift its focus to the future, Burjuman could find itself outgunned by rivals Emaar and the MAF Group.

In the end, Burjuman management - led by soft-spoken and thoughtful Majid Saif Al Ghurair, who is the current president of the Middle East Council of Shopping Centers - should be able to draw clear lessons from the past. The shopping mall business may be a relatively recent phenomenon in the UAE, but there are already extremely instructive examples of how to successfully manage a mall here - and how to run one straight into the ground.