Temperature screening, long queues to get in and strict social distancing measures will make them feel right at home if home is an airport security checkpoint.

The most popular destination? It’s no longer Versace or Zara, where rows of discounted handbags collect dust on shelves, and a sea of clothes hang untouched by customers reluctant to try them amidst strict measures to combat the coronavirus pandemic.

Now, with residents still wary of leaving their homes unless necessary, supermarkets Carrefour and Waitrose are where all the shopping happens.

Indeed, Covid-19 – which has infected over 18,000 people in the UAE – has turned Dubai’s famous malls from shopper’s paradise into retailer’s nightmare. Malls that once attracted millions of global tourists every year are now struggling to fill just 30 percent of their capacity; the maximum limit enforced by authorities.

The futuristic Meydan One mall is scheduled to open in 2021 with 550 retail stores

According to a KPMG report, in the first half of March, sales at luxury and fashion retailers in the UAE dropped 20-50 percent while those at F&B concepts sunk 30-80 percent compared to the year prior. It’s the worst news in years for retail in Dubai, and which accounts for nearly 30 percent of the city’s GDP together with wholesale and F&B.

“If I tell you some of the sales of my units, they are an absolute joke,” says Sami Daud, managing director of Daud Group and founder of Gourmet Gulf, which together account for the regional franchise rights to brands like Hamleys, House of Fraser, YO! Sushi and Hummingbird Bakery among many others.

“I mean AED100, AED300, AED700, where we used to do AED20,000, AED50,000 or AED100,000. What I’ve noticed is people are now going to malls not to hang out and walk around; it’s become very transactional. You park your car, you walk to – for example Go Sport – you buy things from Go Sport, because that’s why you’re going to the mall, and then you go back to your car. There’s no ‘let me walk around or let me explore’. In the retail side, you really see that, and in the F&B side, nobody’s going. Fear is a major factor and that is here to stay for a good while,” says Daud.

“If I tell you some of the sales of my units, they are an absolute joke. I mean AED100… where we used to make AED100,000”

It doesn’t help that the pandemic has coincided with Ramadan, typically the slowest month of the year for retailers in the UAE, according to Mohammed Al Madani, chairman and CEO of Al Madani Group of Companies.

“When I look at [our books in] the past 10 years, I say, ‘Oh what is that dip? Oh, that’s Ramadan.’ Historically F&B already suffers during Ramadan,” he says.

Al Madani was the first to bring the Levis jeans franchise to the UAE in the 1990s before leaving the world of fashion apparel during a slowdown in 2017 to focus on F&B instead.

“Maybe it was a blessing,” he says of leaving the sector ahead of Covid-19. Today Al Madani is a master franchisee with brands such as Charley’s Philly Steaks and The Bagel Bar, owning eight stores across major shopping malls including Mall of the Emirates, Dubai Mall and Deira City Centre among others, while his franchised brands operate 25 stores in Abu Dhabi, 20 stores in Saudi Arabia and five in Oman. But it won’t be business as usual for any of the stores until a vaccine is found, he says.

Mohammed Al Madani was the first to bring the Levis brand to the GCC in the 1990s

“Unless they find a real cure and vaccine, which we all know is going to take a year… until then, people will definitely be scared. They won’t be going to the malls. Yes with the reopening, because people were locked, they went out, but when they heard families got infected because of this reopening, now [they] are more careful,” Al Madani says.

A spokesperson for franchise operator Alshaya, which owns the regional rights to nearly 90 brands including Starbucks and H&M, said it will take a while for mall traffic to rise to pre-Covid-19 levels.

“The world is a long way from normal right now and customers are understandably cautious about going to places where social distancing can be a challenge. Mall traffic is not at pre-Covid-19 rates, nor will it be for some time to come,” the spokesperson said by email.

But they claim shopping malls will eventually return to their glory days particularly as hot summer months hit the UAE and limit activities to those in air conditioned indoor environments such as shopping malls.

“Malls play a major role in the consumer lifestyle of this region – for shopping, dining, leisure and entertainment – with the summer heat coming that will be particularly true. If you look around the world you will see that people are keen to ‘get back out’ – we are confident that this mindset will be the same here, and malls will be a key part of the experience. It’s a question of time and patience,” the Alshaya spokesperson told Arabian Business.

Majid Al Futtaim’s managing director for shopping malls in Oman, UAE and Bahrain agrees that malls are here to stay despite concerns that Covid-19 will wipe out their footfall and subsequently their retailers.

“The experiential element will always remain, and people will [still] love to come to malls. The concept won’t change, but elements within the malls will. There will be more of a focus on service and experience,” Fuad Sharaf told Arabian Business in April, adding that the group’s Mall of the Emirates has seen “reasonable” crowds return.

Supermarkets and pharmacies have seen a massive surge in sales amid the Covid-19 pandemic, while fashion retailers and F&B suffer

But will they return to less retail stores and more empty space? The answer is more likely yes.

“The Covid-19 pandemic is a global crisis of unprecedented scale,” says an Alshaya spokesperson, “Inevitably and sadly there will be causalities, just as there will also be businesses that find new opportunities to grow. These are very tough times for retailers – innovation and customer centricity are fundamental.”

A new reality for malls

That innovation must be two-sided, according to retailers who claim that malls have offered little aid during the pandemic, and continue to request high rents despite a massive drop in their footfall and a 3-week, 24-hour government enforced lockdown in April.

While Majid Al Futtaim was the first to waive rent fees for its tenants during the government closures, Sharaf declined to say whether rent relief measures will continue now that shopping centres have resumed limited operations.

Emaar Malls, which operates the world’s biggest shopping centre the Dubai Mall, also waived base rent, service charges and yearly marketing fees for the period starting March 24-April 27 for stores that were closed down.

However it said tenants are required to pay turnover rent (TOR) calculated for each store at a base rent-to-sales percentage for the comparative month in 2019, or at the contractual TOR percentage under the lease. The announcement didn’t sit well with retailers, particularly those claim their rent in Dubai Mall rose 200-300 percent in the past 10 years.

One shop owner who spoke on condition of anonymity says malls must take more responsibility for low footfall and be “more creative” in how they reduce their own expenses.

“Why do I pay very high rents in these malls? For the footfall. If the footfall is 40 or 80 million people a year, whatever that number is, and I’m only selling AED1,000 a day, maybe there’s a problem with me or my brand. But when there’s no footfall in the mall and you’ve limited my capacity to 30 percent, and you’ve told me I cannot give the customers any ambience or the experience and I have to serve them with a plastic fork, on what basis do you want me to pay you these rents plus service charge?” he says.

“Take it on the chin for a while and work with your tenants as partners. The alternative is that the landlords will be making money in the very short term because after that, most of the tenants will be out of business,” he adds.

“If [the malls] started charging any rent or even a percentage, then we’re out. We’re already in red and barely running our costs”

Even before the pandemic, both shopping malls and brick and mortar stores in Dubai were suffering. Chalhoub Group, which distributes luxury brands like Louis Vuitton and Dior, last year saw the closure of 60 stores across the Middle East. Its CEO Patrick Chalhoub told Arabian Business in February that the city has become “over retailed” due to a surge in mall openings – Dubai had 65 malls in late 2018, with 10 more under construction – and that supply had not been met with enough demand.

This, he said, will lead to the closure of shopping centres that do not adapt to changing trends. Part of that adaptation is accepting longer paybacks on investment and a lower internal rate of return (IRR), according to Daud of Daud Group.

“The malls have to face a new reality. They’re making us [retailers] jump through hoops and figure out how we’re going to keep our lights on. The malls have to be a bit more creative within themselves and I’m not a mall owner but maybe due to the circumstances, accept that a longer payback on your investment or a lower IRR is okay at this stage.

“Maybe charging half the rent or a quarter of the rent, whatever that maybe, maybe that needs to also become the new norm until world order is restored fully because we all need to accept that our sales – for a long time – will not go back to being AED100,000 a day…,” Daud says.

He suggests mall operators take a percentage of retailers’ sales but waive service charges, which can amount to a large percentage of sales.

“Take a percentage of my sales but don’t tell me, ‘I’m going to take a percentage of your sales and above that you’re going to pay me a service charge, chilled water, and whatever else,’ because all of a sudden, I may be paying you rent of 10 percent of my sales – sure that’s fair – but when I add the service charge and chilled water, these are hard numbers in the contract, I’m maybe paying you 75 percent or 55 percent or 40 percent of my sales. How does anyone survive?” he says.

Edward Sabbagh, managing director of Farfetch Middle East

Al Madani however is concerned that any rent charge might make it impossible for him to sustain his business.

“If they [the malls] started charging any rent or even a percentage, then we’re out, I think. We’re already in red and we’re just barely running our costs so to add on top of it rent…” he says.

E-commerce emerges

While the pandemic has left the future of shopping malls uncertain, it has given the UAE’s e-commerce market the push it needed to surge. Even before Covid-19, the UAE’s e-commerce market was estimated to be worth $27.1bn by 2022. But in the first two weeks of April alone, the number of stores providing e-services for consumers in the UAE rose by a whopping 150 percent, according to a report by the Telecommunications Regulatory Authority (TRA), meaning market growth will likely exceed projections.

Dominic Nowell-Barnes founded successful online brand The Giving Movement during Covid-19

It has worked particularly well for Dominic Nowell-Barnes, founder of e-commerce fashion brand The Giving Movement, which focuses on charity and sustainability, making fabric out of recycled plastic bottles. Despite launching just two weeks ago, it has already sold one third of its range and expects to be profitable by the end of the year.

“Covid-19 is the perfect timing to be launching something like this,” Nowell-Barnes tells Arabian Business, particularly during a pandemic, when people may not necessarily be inclined to donate money to charity due to reduced incomes. Instead, he makes it an automatic transaction where the brand donates $4 per order to charities Dubai Cares and Harmony House. Based on its last 2 weeks’ performance, it estimates it will donate over $100,000 for charity this year.

He knows his stuff, having run a 22-store multichannel retail company in the UK before moving to Dubai three years ago and realising regional retail is struggling because its model is “outdated”.

He says: “As we’ve seen around the world, bricks and mortar retail stores, whilst in some areas will always be strong, definitely more market share will move towards online”.

The Giving Movement

Edward Sabbagh, managing director of Farfetch Middle East, expects many consumers to return to shopping in physical stores once it is safe to do so, but believes many will also continue to shop online, with brands that once relied solely on brick and mortar to migrate additionally to online.

“While technology is playing a big role in the future of retail, I don’t see a world without physical retail stores, at least within the luxury industry. For the luxury and other similar industries, there is so much beauty and magic in the offline experience which can never be replicated online. This said, it is very important for brands and retailers to really embrace the digital trends as I don’t see a future world where a retailer is not omnichannel and hasn’t leveraged technology to enhance the offline experience,” he says.

So what’s next for Dubai’s shopping malls? Hopefully less dust and more shopper’s paradise, at least for the ones that manage to outlive the pandemic.