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Mon 26 Dec 2011 08:31 AM

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Gulf retailers could drop product prices next year

Retailers say the region could be impacted by price reductions in the US and Europe

Gulf retailers could drop product prices next year
High street stores could be impacted by price reductions in Britain, retailers say

Retailers in the Gulf could drop their prices next year in a bid to retain regional customers amid tough economic conditions, brand managers have said.

Stores in the high street segment could be impacted by price reductions in Britain, experts say, which in 2011 saw the biggest slump in retail sales for more than 16 years.

“I think most retailers will decrease their prices [next year],” said Hasit Kakkad, retail manager for Matalan in the region.

“A lot of the big high street brands are bringing their prices down in the UK and that normally reflects in the region within weeks. We are seeing it with the autumn-winter [collections] already this year, and I’m sure the spring-summer range will be a lot cheaper in 2012, as it will be our toughest ever for retailing in the Middle East.”

Dubai-based distributors say US and Asian firms have also been cutting costs in an effort to lure spending, slashing the prices of many of their latest gadgets in the hopes of outselling the competition.

This will continue to have a domino effect on the region in 2012, retailers said, driving down the prices of many top quality technology goods.

“We've seen prices continue to drop throughout 2009, 2010 and 2011, and we don't expect this trend to stop,” Ashish Panjabi, the COO of Jacky’s Electronics in the UAE, told Arabian Business.

“Ultrabooks which are currently priced at $1,000 are expected to cost $699 by the end of 2012 according to the Chairman of Acer. Tablet prices are already being challenged in the United States where Amazon released their Kindle Fire recently at close to half the price of the competition. Apple prices are the only real exception.”

The Gulf has attracted a spate of local and international retailers in recent years, all of whom are looking to capitalise on the high disposable income per capita and regular inflow of tourists.

Dubai, the region’s shopping hub, has added more than one million sq m of shopping space since 2006, and is home to around 40 shopping malls. Retail now accounts for around 30 percent of gross domestic product in the emirate, Standard Chartered estimates.

But despite the high number of brands and availability of products, foreigner residents complain that prices are too high in Dubai.

A survey by Arabian Business earlier this month found that 64 percent of expatriates avoided spending in the tax-free emirate in favour of bulk-buying goods in their home countries when on leave, in a bid to save money.

More than 90 percent of those polled said they considered cosmetics, clothes and electronics to be more expensive in Dubai when compared with the UK and US. More than half said prices were between 10 and 20 percent higher.

“It really affects the way I shop,” said one British expatriate. “I will wait until I go home to buy most of my stuff. I wouldn’t buy things that are more than 15 percent more expensive.”

In UK clothing store River Island, operated by franchise partner Alshaya, several items reviewed by Arabian Business were found to be significantly more expensive in Dubai than in Britain.

A top which was priced at £33.84 (AED195) costs £25 in the UK, while a dress being sold for £51.19 (AED295) in Dubai was just £36 in England.

Apple’s 13inch 500GB MacBook Pro was also just $1,138.94 on Amazon.com, but $1,579.04 (AED5,799) in the Gulf state. 

Analysts believe the gap in costs could be a part reflection of the franchise model that dominates GCC retail markets, and allows local partners to choose the price point of goods on a local level.

Others said higher prices were linked to costs associated with shipping goods and franchise frees, and the region’s notoriously high mall rents.

Distributors argue they have no say over prices, with most being decided by the manufacturers.

Price drops next year may go some way to solving the problem, forcing retails to reduce prices if they want to remain globally competitive.

“Whether all the franchise partners in the Middle East will definitely drop their prices I’m not sure,” said Kakkad. “But most of them who are worth their salt will, because it’s the right thing to do.”

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charles 8 years ago

I am never sure how to read these articles.
They always pick up the words "would", "could", "should" etc. but never "will", "have done", "definitely".
Still, we live in hope and till then we buy abroad.

British Expat 8 years ago

Retailers in UAE need to drop their profit margins from 30-40% to more realistic 10-15% like in Europe.

Shopper 8 years ago

Very much so. Just bought the latest Iphone and Ipad abroad and with the VAT refund, I am paying 35% less than in UAE. No the ticket is paid by the company as I had to make a trip. So no extra cost. I also had some jeans 50% cheaper. Continue with the "would", "could", should and the shopping areas "will become" ghost galleries.

PParker 8 years ago

UK - 20% VAT on items and still cheaper than UAE.

Few years back UAE was known for being a city to shop till you drop. I agree with other comments. Once a year we goto UK and my family and purchase all things from there saving almost 30% on clothes and electronics.

Dubai Government need to impose a fix price scheme to attract more shoppers. As you made Dubai into a World Tourism attraction...

SAM 8 years ago

Retailers will drop prices because they have to. There is no such thing as being nice or a sudden realization that prices in Dubai are outrageous when compared to Europe and North America. If they can squeeze a penny out of consumers they will do it. Prices will drop because demand has dropped and retailers are left with obsolete inventory, especially when it comes to electronics and fashion.

Retail Expert 8 years ago

I am not sure if you really know that retailers in Europe work on 10 to 15%, that is unreal.
however for sure because of the franchisee model retailers here are operating on more than 60 to 70%, the brands to be real.

His Excellency Dr Paul 8 years ago

I assume retailers are hard-pressed on price because of unrealistic mall owners charging high rents. But if that is the case, move somewhere else. Plenty of empty retail space around to open an out-of-mall superstore. If the price is right, people will desert the malls.

And the retailers can hardly blame mall owners for the fact none of them appear to sell through the web (something Apple does do for the UAE, and rather well).

The problem with the big UAE chains is that they seem to be stuck in the 1980s retail model, obsessed with being at the malls where the footfall is instead of competing on price so that people will come to them.

They should stop blaming everyone else and sort themselves out. A decent online store would cost a fraction of the fit out for one single mall store, and zero rent. They could pass the savings on as happens everywhere else.

Ben 8 years ago

Even including courier charges to the Middle East, it is often cheaper to buy an item online from a UK or US site than it is to buy it locally. Local retailers are taking monstrous profit margins that are totally unjustified. UK goods have VAT included in the price, but once the goods are exported outside of the EU the VAT is paid back to the retailer. So, the premium you are paying on UK (or EU) goods in the Middle East is even higher than it appears.

Other than spending on essentials for life, I think you have to be crazy to buy stuff in the Middle East. Not only are the prices unjustified, sometimes the model on offer can be obsolete or heading that way, especially when it comes to electronics.

Red Snappa 8 years ago

I would have said that it was essential that prices dropped, what pulls the tourists is cheap shopping. Whilst I apologise for my constant repetition, Thailand, as did Dubai once upon a time, built it's reputation on cheap shopping. Everybody arrived with empty suitcases and left bearing gifts from afar.

Money is no longer 'No object' for many holidaymakers, plus the reverse Arab Spring effect, as in countries are trying to win their tourists back. There are many packaged holidays in Egypt at half-price advertised in Europe now, example below, truly does include everything: flights, full board, taxes, all bar beverages and they're putting it in writing daily!:

"£299 -- 5-Star All Inclusive 7-Night Break in Sharm with FREE Transfers & Room Upgrade" converted at AED 5.76 to the British Pound Sterling = AED 1,722 per person. So from the sun, sea and sand perspective, hard to beat at least this year.

Deluxe is off, seems the festive season was its swan song, belts to tighten in New Yr.

British Expat 8 years ago

Retailers in UAE need to drop their profit margins from 30-40% to more realistic 10-15% like in Europe.