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Dubai’s retail space is growing, despite wavering consumer confidence and sliding tourist spending.

The UAE's retail empires look set for a lean new year as credit-hit consumers tighten their belts.

Emaar's Dubai Marina Mall opened last week amid a perfect storm for the city's retailers. While consumer confidence is wavering and tourist spending is on the slide, the amount of retail space is growing.

The jury is still out on just how hard the credit crunch will hit private consumption in the UAE, but for luxury retailer BinHendi, franchise-holder for brands including Calvin Klein and Hugo Boss, it is clear that this part of the world hasn't been exempt. Sales at some of the group's stores have fallen by as much as 20 percent.

"I think it's people in mid-management, people who are worried about their jobs and have to save money," president and founder Mohi-Din BinHendi says of the customers tightening their purse strings. The very top end of the market is still buoyant. "The people who have money have been spending," he reports.

BinHendi, whose hospitality division includes casual dining restaurant Ruby Tuesday and coffee chain Second Cup, believes the amount of retail space in Dubai can be justified if the emirate's visitor figures stay true to forecasts.

So far, the group's 20 outlets at the newly opened Dubai Mall have underperformed. Just over half the mall's shops are open for business and several retailers have cited this as the reason for sluggish sales. "It would be our request to the management to get the shops to open as soon as they can because it is vital for other people's business that all the shops are open at the same time," BinHendi agrees.

But his outlook for 2009 is upbeat. "The beginning of the shock is always when people don't know what to do. After they come to grips with the situation, things start to improve," he says.

Damas, the largest retailer of jewellery and watches in the Middle East by number of stores, says tourist figures in its UAE stores began to decline in October, but that its full year performance will be unaffected thanks to slightly higher spend per head.

"There has been a slight drop in the number of tourists but this has been compensated for by higher expenditure by the remaining tourists," says deputy managing director Tamjid Abdullah. "The first quarter of next year is going to be the real indicator for the rest of the year, but we're still very positive within the UAE and the Middle East in general."

Consumer confidence in the UK, one of the UAE's key tourist markets, improved slightly in November but stayed near a three decade-low amid fears over a protracted recession, according to the monthly GfK NOP survey.

Stock markets in Russia, home to many of the UAE's wealthiest visitors, have been hit harder than in many other emerging economies, with energy giant Gazprom losing more than two thirds of its value since May.

"Much of the mall retailing, especially in Dubai, has been predicated on tourism and not only that, but on swelling numbers year-on-year. International tourism is likely to be one of the casualties of disposable income as job security becomes less certain," states Simon Thomson, a UK-based retail consultant who has worked with some of the region's biggest malls. He was also a founding director of The Middle East Council of Shopping Centres.

"The collapse of the UK pound against the dollar and euro will also reduce the number of tourists from the UK," he says.

Retired people, who until now have had relatively large amounts of disposable income available for sunshine breaks and shopping, are being severely hit by pension cuts and reduced interest rates on their savings.

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