Retail Mania

The retail indusrty in the Middle East has grown tremendously in the past 5 years and is expected to get even bigger in the coming decade, is there a need for all the shopping malls popping up every other day?

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By  Massoud Derhally Published  January 30, 2002

|~||~||~|Wherever you go in the Middle East today, there seems no shortage of shopping malls. Mall construction projects are popping up by the dozen and it’s not only in the Gulf, but also in places like Egypt, Jordan and Lebanon. Dubai is known today as a shopper’s paradise and whatever the occasion, there seems to always be some form of a promotion or another encouraging people to spend. That said, the Middle East retail market perpetually keeps growing. But nowhere is there an abundance of shopping malls like Dubai that has been identified as a key market for international retailers. Bahrain plans to launch its own version of Dubai’s famous shopping festival.

Simon Thomson, managing director of Retail International, who has a career of more than 30 years in the international shopping centre and retail business, estimates that the retail market in the Middle East will be worth $500 billion by 2010. “Over the last 10 years, retailing generally in the Gulf can be said to have ‘come of age’. There are now some 300 cross border brands represented in the Gulf and the range, quality and standard of retail offered in the leading centres is commensurate with the best in the world,” says Thomson. “This has helped indigenous brands to improve their own quality and standards to match international levels to the extent that some are now themselves developing cross border activities beyond the Gulf,” explains Thomson.

However does the size of the market determine the success of ventures and with all the construction mania that is going on will there be a shortage of real estate space? Simon Thomson managing director of Retail International maintains, that there is 7 sq ft of gross leasable area per head of population in both Dubai and Sharjah and Abu Dhabi compared with around 5 sq ft in Singapore and a US average of 20 sq ft per head. “The US is the most densely shopping centred market anywhere with the highest levels at 30 sq ft per head in Delaware. By comparison the UK and the rest of Europe are below 3 sq ft per head. Within 5 years, the number of new projects coming to fruition will bring Dubai and Sharjah levels up to 30 sq. ft per head—equivalent to the highest anywhere today,” says Thomson.

Whilst this may appear alarming the rate of growth is slowing, Thomson points out, with for the first time, the amount of space in the pipeline being overtaken by the amount completed - a trend that is forecast by Retail International to widen by 2005.
Moreover, isn’t the current market in some parts of the Gulf over shopped and near saturation? “Yes, the fashion and apparel market in the region is becoming over-traded, as more and more retailers set up operations in the region,” says Mohammed Alshaya, CEO of Alshaya Retail. However, “As retailing in the region approaches saturation, the weaker operators will fall away, and the companies that are able to operate seamlessly across the region, and that are prepared to invest in appropriate infrastructure and good management, will be the ones that will probably get stronger. added Alshaya.
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That said, several industry insiders believe the market in the GCC states is not entirely saturated yet. “This is primarily due to the soaring population and the buoyant economies in the region,” says Faisal Jawad, CEO of the Bahraini Jawad Group of Companies. “These two criteria will generate demand in all sectors of the trade. There is an extent of saturation in specific markets in the region, like Dubai, Sharjah, Bahrain and Qatar. Having said this, there are also markets which deserve good shopping opportunities within Saudi Arabia and Kuwait,” added Jawad.

The development of shopping centers in the region has certainly played an important role in the maturity of the retail industry. “The development of shopping centers has helped elevate the standard of retailing whilst taking trade away from downtown shopping areas and souqs and the phenomenal growth of retail brands in the region has primarily been due to the rapid development of Shopping Centers,” says Jawad. Today, most shopping centers offer an ambience conducive to shopping as well as entertainment offering vast food courts, amusement area and cinemas, much like malls in the US and Europe. Alshaya agrees that shopping malls helped facilitate the entry of international brand names and draws parallel to his own experiences as a retail player. “Six years ago, the majority of our stores were situated in main street locations, now the emphasis has swung completely to malls, with the obvious benefits of air-conditioning, parking facilities, food halls, and entertainment areas. The increase in foreign brands has meant that standards have inevitably risen, and competition has become more intense.”

Business houses or individuals who have the finances look at retailing in the Gulf as a lucrative sector to be in, especially when it comes to building a mall. This period has ushered in with high street fashion names from Europe and other parts of the world. According to Jawad, “these names have eliminated the time lag between availability of products abroad and here. This has also created considerable brand consciousness amongst the population.” “We, as retailers, should improve our bottom-line by investing in the right brands and also improving productivity through the right processes like logistics, IT, buying and marketing. There is a great deal of money being spent in acquiring both infrastructure and skills to run a well-oiled retailing operation. However, when comparing ourselves with world class retailers, we are yet scratching on the surface,” adds Jawad.

Saudi Arabia, which is the biggest consumer market in the region but not as developed as Dubai when it comes to the retail industry relative to its population, also has its share of shopping center landmarks. So attractive is the Saudi market that Harvey Nichols, the famous English department store, decided to venture beyond Britain’s shores and open its first store in Riyadh three years ago. Under the patronage of Prince Alwaleed, Saks Fifth Avenue, a famous American department store also opened a 5,700 square meter store in Riyadh’s state of the art 400,000 square foot multi-use development Kingdom Centre. But that is only the tip of the iceberg when it comes to examples of behemoth projects that are popping up in the kingdom. Al Faisaliah, an 875-foot tower slightly taller than Canary Wharf in London, is the tallest building in the kingdom and contains a shopping mall with a full entertainment center.
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According to Menareport.com, the Saudi clothes market is currently valued at $15 billion, expanding at five percent annually, making it the biggest market in the Gulf for traditional Arab and modern wear. Menareport attributes the success and profitability of the Saudi apparel market to a young, fast growing population that is constantly in search of new and trendy brand name clothing. “The air of privatisation and liberalisation over the Saudi economy, combined with the emerging role of the private sector and diversification of industries, have brought an influx of international brand names into the Saudi market, boosting the kingdom’s franchising sector at a phenomenal rate of 10 percent a year,” says Menareport.

“Investment in Saudi franchises is currently estimated at more than $250 million, with eight percent of the total retail activity already franchised, and nearly 50% of Saudi clothes shoppers are affluent nationals or expatriates, 15% are general expatriate labor force and two million pilgrims and tourists a year make up the remaining 35% of the market,” says Menareport. Yet the sector is dominated by fast-food franchises, leaving the non-food segment virtually untapped. A reason for that is that many of the branded stores serve the high-end segment of the market.

Harvey Nichols, for example, is not performing as some might expect. Many shoppers from Dubai have reported that they always manage to come back with discounts on their purchases. Bernard McGrehan, vice president and chief operating officer of Harvey Nichols in Riyadh says, “Harvey Nichols is not a pedestrian magnet and we have had major increases over last year. Sales are up 30% year on year.” “The average sale is very high and from target customers. Because we are expensive it is not for everybody,” added McGrehan. Saudi Arabia is still underdeveloped and not over stored according to some industry analysts. McGrehan agrees and says “there is room for growth but not much room in the top end of luxury where we are. At the same time, the price value relationship at Harvey Nichols exists and we are also looking at expanding into other markets in the Gulf,” says McGrehan.

The situation is a bit different in Dubai, where the Emirate realised early on that oil would not be the sole element fueling its growth. Dubai’s spending binge has translated into multimillion-dollar grand mall projects that go hand in glove with a booming hotel industry. Both of which blend in nicely with a growing tourist industry, estimated to reach 15 million by 2010. Recently, Bur Juman Centre a landmark in Dubai secured a AED 600 million loan as part of its plans for a the redevelopment of its premises, which will cost a total AED 1 billion. The completed project will increase the current retail space from 300,000 sq. feet to 800,000. “In Bur Juman, we have a successful premium product that has carved a niche for itself in the highly competitive retail environment in Dubai,” said Majid Saif Al Ghurair, president of Bur Juman Centre.
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Perhaps one of the best case studies in the UAE and Middle East is the Majid Al Futtaim Group, which is synonymous with developing malls in the Gulf, and is progressively expanding into other markets in the Middle East. The Group has successfully brought the concepts of the mega mall and the hypermarket to the region and its portfolio includes Deira City Centre, Sharjah City Centre, Ajman City Centre, and Muscat City Centre.

Moreover, the group is in the process of starting construction of two malls in Alexandria and Cairo and others to follow, with the total investment over the next decade in Egypt coming to 2 billion Egyptian pounds. It is also looking at Lebanon, Jordan, Saudi Arabia and perhaps Syria and has a joint venture agreement with Carrefour, the French food retailer. That joint venture has gone into all the City Centres and also in other places in the UAE and Doha where Carrefour is also present stand alone or in other developers’ shopping malls.

In what may be described as the largest undertaking yet by any of the retail groups, Majid Al Futtaim Group recently announced plans to develop Souk Al Nakheel, a massive new complex that will mark a departure from traditional malls into what it says is a new generation of malls. The new initiative will focus and offer much more in the entertainment and leisure field than traditional malls. The new site will start to progressively open late 2003 and completion is expected in late 2004.

Souk Al Nakheel will have the first indoor ski slope in the Middle East, and will include 60,000 sq meters of retail stores, a 20,000 sq meter Carrefour, and enough parking space for 5000 cars. Its total entertainment and leisure facilities are 45,000 sq. meters, including a 2,000-seat cinema complex, and a food court and coffee shop area totaling 100,000 sq feet. In addition to all of this, are a multi lane bowling alley, roller blading area and largest indoor rock-climbing site in the Middle East. In terms of size and shopping alone, Souk Al Nakheel will certainly rival the Dubai Deira City Centre.

The choice of location for Souk AL Nakheel — 15 minutes outside of Dubai on the Sheikh Zayed road — could prove inspired. According to official government figures, the population will rise more than 320% south of the defense roundabout between 1998 and 2008; the increase elsewhere in Dubai will average around 57%. By 2010, 40% of Dubai’s population will live in the southern corridor on Sheikh Zayed Road, according to the same study. This will include resident and tourist populations.

If the Dubai government’s city planners are correct, Majid Al Futtaim would appear to have made yet another shrewd real estate investment. Even if the growth projections prove to be over-optimistic, there are few entrepreneurs in Dubai better placed financially than Majid Al Futtaim to hang in for the long haul.

Even before the recent sale of his 50% stake in the Al Futtaim Group to his cousin Abdullah, which netted him anywhere between $700 million and $950 million, depending on which industry sources you believe, Majid Al Futtaim has ongoing cash cows like City Centre, Securicor, Magic Planet, Cinestar and Carrefour swelling his bank accounts.

Sharjah, neighbor to Dubai, will also have its own mega mall, as Citadel Properties recently announced that the emirate is part of its collective AED 1 billion investment in developing malls in the region. Additional locations for mega malls will include Dubai, Cairo and Beirut, according to Raffi Ayad, vice president and general manager of Citadel.

Everything that is taking place in the retail market indicates that the projected 30 sq. ft per head figure by 2005 is no mirage but a reality, according to Simon Thomson. “I think that 30 sq ft per head is sustainable provided economic growth and population continue to increase at the levels we have seen in recent years,” says Thomson. “I anticipate a level of equilibrium being reached by about 2005. Inevitably however some centres may fall by the way-side as newer and better centres come on stream thus maintaining a general balance between supply and demand. It is important to stress that there are cities in the region where this level of retail space will not have been reached, thus opportunities for additional supply may well arise in these locations in the coming years.” —Massoud A. Derhally
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