Gulf malls risk ghost brands as retail recession claims victims

Shopping malls in the GCC could find themselves playing host to ghost brands as increasing numbers of once-booming chains fall victim to retail recessions in the US and UK markets.

Franchise stores operating locally could be the last trace of former retail heavyweights, as dwindling sales and rising costs push chains into administration in their domestic markets.

“If [retailers] are doing well in Dubai, for example, then why would they close if the agreement is such that they can trade as a separate entity even if the parent company or the original company ceases to trade,” said Jonathan De Mello, retail analyst at CBRE. “Some [retailers] are still making decent money in other markets, including Dubai and the wider Middle East.”

UK retail insolvencies are forecast to reach the highest level in four years as weak Christmas sales leave chains struggling to meet rent costs, restructuring firm AlixPartners said last month.

Increasing numbers of shops are expected to collapse into administration or announce store closures as the consumer slowdown takes a stranglehold on the UK high street.

The Centre for Retail Research said 31 major retail companies fell into receivership last year with 24,025 jobs affected.

A string of retailers with franchise deals in the GCC have struggled to stay afloat in recent months. US-based bookstore Borders and UK clothing retailer Jane Norman filed for bankruptcy in February and June respectively but have continued to trade in the GCC. Both regional franchise partners said last year they remained in talks with administrators.

Maternity retailer Mothercare, which holds a franchise deal with Kuwait-based retail firm MH Alshaya Co, said in May it would close a quarter of UK stores but planned to ramp up its presence in fast-growing markets such as the Middle East, India and China.

Lingerie store La Senza last week confirmed its Middle East operations would be spared despite its UK arm being put into administration.

But Mohi-Din BinHendi, president of Bin Hendi Enterprises, said there was a risk the retail recessions in overseas markets could hurt the brand value of franchised stores in the GCC.

“If the parent company has closed down, how long can they sustain the business over here? Most businesses are sustainable because you see them advertise in other places in a very high manner that’s why they enjoy the same success over here,” he said. 

Retailers in the Gulf have continued to buck the global trend on the back of rising oil prices and high disposable income. Retail sales in the GCC are expected to grow 8.3 percent annually to reach $240.3bn by 2015, according to consultants Business Monitor International.

Dubai, which has long been the Gulf’s leading shopping hub, has added more than one million sq m of shopping space since 2006, and is now home to about 40 shopping malls.

De Mello said foreign retailers not already represented in the region could look to tie-up deals in an attempt to bolster their revenues and offset the crisis in their domestic markets.

“You can reach a point where the consumer just isn’t there or the demand isn’t there and at which point you need to think about other markets and those markets tend to be in the Middle East,” said De Mello. “Debenhams was a big pioneer in that regard but I know a number of other stores are looking to follow.”