Sale over?

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BinHendi president and founder Mohi-Din BinHendi believes the amount of retail space in Dubai can be justified if the emirate’s visitor figures stay true to forecasts.

Locally, middle income earners in the service sector, who previously comprised one of the largest consumer categories, will be among those cutting down the most on their spending as their job security comes under pressure.

Store closures are "always a possibility", Thomson suggests, but there is likely to be much cooperation between mall owners and retailers to prevent that from happening.

Most mall outlets in the Gulf are international brands held on franchise by a relatively small number of players. The major malls are owned by a cluster of even larger players, and store closures would be bad news for both parties.

"However, because so many malls are populated by a limited number of major franchisees, it does mean that the latter are in a very strong position to renegotiate rents and lease terms in their favour," Thomson says.

Asked about the performance of new entrants to the market, such as The Dubai Mall and the Dubai Marina Mall, he says: "Large shopping malls are much like super tankers; they are difficult to stop unless they ‘hit the rocks'. With some careful navigation...they should avoid running aground in 2009."

For the moment, retailers looking to enter the Gulf may be better off focusing on the underserved Saudi market rather than Dubai.

"If you open a mall in Saudi Arabia in a big city at the moment, you are in a much better position than in the UAE," says Laurent-Patrick Gally, a retail analyst at Shuaa Capital.

The financial crisis is already affecting consumer sentiment in the kingdom but a lack of Dubai's trademark super-malls and a young population will underpin the country's retail market in the near to medium-term. "My latest feedback from Saudi is that people are starting to worry about the security of their jobs... but there is still a massive lack of retail space," Gally says.

Over the last 15 years Dubai has emerged as the region's retail hub and the city is a popular destination for young Saudi shoppers. Around 60 percent of the Saudi population, some 17 million, is under 25 years old, and many are keenly aware of western brands.

"I think people are really eager to buy Western European products - you can see this as soon as they travel," Gally observes. "I think the reason they [buy] so much when they travel is because they don't have enough of this at home."

In the UAE, many retailers are likely to see revenue fall next year, partly because the first nine months of this year were unusually strong. "Luxury products, jewellers, all those guys...they're going to see a decline in revenue year-on-year for the first six months," Gally says.

Should the global economy begin to stabilise towards the middle of next year, sales in the third quarter could be flat with some rebound in the fourth quarter. Experience suggests retailers of food and other essential items will do better than others, while the lower end of the luxury market is likely to face headwinds.

"The very top end might be largely unaffected," Gally says - with "top end" meaning products such as Rolls Royce, Ferrari and $30,000 pieces of jewellery. Cheaper than that, and most upscale brands are in for a bumpy ride next year.

At the value end of the market, big-box retailers such as Carrefour are likely to do well. But an extended downturn could also see the re-emergence of more traditional players.

"Perhaps there could be a return to the traditional souks who have lower overheads and where fixed prices are less prevalent than in the modern malls," says Thomson of Retail International. "If so, this would be an interesting turn of events."

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