Discount rules hamper Dubai budget retailers

Pricing rules that restrict discount deals are deterring rise of value brands, says retailer
Discount rules hamper Dubai budget retailers
Dubai Mall
By Elizabeth Broomhall
Mon 13 Jun 2011 01:38 PM

Pricing rules that restrict the number of discount deals that Dubai stores can offer shoppers could hamper the city’s emerging value retail market, analysts and retailers said.

Rules that limit the number and mix of promotions stores can offer may be deterring discount retailers whose business model is based on super-cheap deals.

“The system is from the dark ages,” said Hasit Kakkad, retail manager of UK budget fashion chain Matalan, which operates three stores in the UAE.

 “In the UK, Matalan do ‘three-for-two’ offers on ladies underwear all year round, but we cannot do that here. We cannot have ‘three-for-two’ as well as ‘buy-one-get-one-free’ at the same time.”

Under Dubai Municipality rules, retailers must pay a fee to gain permission to run a sale and must abide by strict rules that dictate how long a sale can run for, and the combination of offers.

Twin discounts – such as 25 percent off and a
‘buy-one-get-one-free’ promotion – can only be offered concurrently if shops obtain permission for both.

The city claims the rules aim to stop retailers undercutting other brands and from falsely promoting sales to consumers.  But retail chains say the regulations prevent them passing international promotions on to Dubai shoppers and from clearing out and renewing their stock.

“This absolutely risks brand integrity,” said Kakkad. “Customers in Dubai will be aggrieved that they can’t get the same offers that they can in the UK, and are likely to perceive the brand as money-grabbing. The truth is that Matalan wants to pass on the benefits to our customers, but the system won’t allow it.”

The answer is easier for major supermarkets, which can bundle together products in packages and sell them under one barcode, he said.

“It’s hard to do that with fashion. Firstly nobody wants two of the same item, and second, everybody is different sizes. So you can’t put a trouser and top together because people will need different leg lengths to go with different top sizes.”

In the wake of the global crisis, Dubai has seen the emergence of a secondary retail market offering goods at lower price points to budget-conscious consumers.

According to analysts, budget shops are slowly changing the face of Dubai’s malls, a significant feat in a city that ranks second only to Hong Kong for its percentage of luxury fashion brands

“When a recession hits what do you do? You buy cheaper things. It’s no secret that since the recession the luxury brands have struggled more than the mid-range or value brands,” Mike Leighton, retail analyst at property consultants CB Richard Ellis, said last month.

But residents of Dubai, which established its name as a luxury tax-free shopping haven, have long argued that clothing and lifestyle goods in the city can be more expensive than in their home markets.

Analysts say the city’s retail rules work to the advantage of luxury retailers, who are less likely to offer promotional sales to consumers.

“A lot of luxury retailers don’t provide promotions, and many actually avoid discounting, so this regulatory environment isn’t such an issue for them,” said Richard Adams, a Middle East retail analyst for Verdict Research, part of Datamonitor.

Intensifying the problem for value retailers - but not for luxury players - are the high cost margins in the region, which Adams said is one of the key outcomes of Dubai’s existing rules.

Dubai’s Department of Economic Development said the city is in the process of overhauling retail regulations, but said stores can offer unlimited discounts during festival periods.

In a statement, the department said there are “ample opportunities” for retailers to refresh stock, using warehouse sales and through outlets in the Dubai Outlet Mall.

“The core objective for a retail promotion policy is growth of the retail sector in Dubai through policies which strengthen the attractiveness and competitiveness of the sector,” said Mohammed Shael Al Saadi, CEO, Business Registration and Licensing Unit.

“A large focus is also on ensuring the transparency and fairness of promotions.”

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