By Soren Billing
Dubai's appeal as a shopping hotspot may be on the wane as retailers compensate for currency shifts.
Dubai's appeal as a shopping hotspot may be on the wane as retailers ramp up prices to compensate for currency shifts.
Once the prime target of Dubai's annual shopping festival, tourists and expats from the UK are unlikely to be among the big spenders at this year's event. Despite the emirate's tag as a tax-free haven, some British high-street brands now cost 50 percent more in the UAE than they do in their home market.
British brands have become a staple feature of Dubai mall-fronts. Budget fashion retailer New Look launched itself in the Gulf as "the UK's favourite value fashion chain." But shoppers who visit its UK outlets will find there's more value for money to be had there: a men's shirt selling at AED129 ($35.1) in the firm's Deira City Centre branch would have cost only GBP18 ($26.2) on Oxford Street.
We are still in a region where growth is going to be among the strongest in the world. Retailers know this.
Similarly, a pair of trousers from Wallis' Dubai concession store inside Debenhams costs AED255 ($69.4) compared with GBP30 ($43.7) in UK outlets, while a women's t-shirt from Topshop is AED150 ($40.8) versus GBP18 ($26.2).
The ailing pound is to blame for much of this, although the trend is also in play at a well known Spanish retailer, where a AED395 ($107.5) price tag covers the original EUR59.90 ($80.2) one hanging from a grey blazer.
"I'm suspicious. I think they're making more profits [here] than on what they sell in the UK," says Topshop regular Katherine Shannon, who works as a brand strategist in Dubai. "They've got interesting new ranges coming out by different designers, and I just love the shop. I've shopped there for years."
But the price difference has now reached the point where she plans to order Topshop products online rather than buying them in Dubai.
"It's reasonable to have pricing variations around the world, but there needs to be a limit to what they can charge," she says.
But retailers aren't entirely to blame. Even if some brands do charge GCC consumers a premium for their products, it is the resurgent dollar, to which all Gulf currencies except the Kuwaiti dinar are pegged, that is responsible for some of the more eye-watering price differences.
After breaking the $2 barrier last summer, sterling has plummeted against the dollar and was last week trading at around $1.50. Partly to blame is the swell of US investors pulling out of international markets, especially emerging ones, where they were once among the biggest buyers, says Geoffrey Yu, currency strategist at UBS in London.
"The dollar has strengthened considerably since Lehman Brothers went down because of risk aversion," he says. "We're facing unprecedented times in the global financial system, and at times like these people liquidate all risk holdings and shoot for the safest asset possible, which is short-term US debt."
At the same time, the sterling has come under pressure following a sharp deterioration in the UK housing market, deepened by the country's high exposure to the financial sector.
The UK's economic outlook remains weak but Ian Stannard, currency strategist at BNP Paribas in London, believes that has now been priced into the market.
"The sterling weakness is probably likely to slow down," he says.
He sees the dollar remaining strong in the first half of this year, as a result of the actions taken by US authorities. "[Their actions] are seen as being much more proactive and aggressive in tackling the problems with regard to the financial crisis," he says.
Laila Suhail, chief executive of Dubai Shopping Festival (DSF), says the festival hopes to attract some 3 million visitors this year, the same number seen in 2008, but admits this is a challenging time for the event.
"We've learnt something in Dubai, that we need to keep going and to be optimistic," she says of the Jan 15 event. Organisers have taken steps to bolster DSF's appeal by establishing added incentives for tourists.Participating hotels will be slashing their rates by 40 to 60 percent to mark the event this year, and many are throwing in discounted meals and free breakfasts to boost occupancy.
The ninth annual DSF will also be placing less emphasis on entertainment than in the past in favour of focusing on its core activity: shopping. "This year the focus is more on shopping, in terms of the offers that will be given by the retailers," Suhail says. But is that really the right strategy? This is, after all, a city where 30 percent of tourists are estimated to come from the UK.Suhail admits, however, that Europe hasn't been the focus of DSF's marketing efforts this year. "We have focused more on the GCC, India, CIS (Commonwealth of Independent States) and Iran," she says.
For people in those markets, a combination of factors will make DSF an attractive destination, she argues.
Travelling here is cheaper than going to Europe - Emirates is offering a 15 percent discounts on flights to Dubai - and accommodation will be deeply discounted. Then there is the weather: while prices in London's Oxford Street may be unbeatable right now, there's something else to be said for the temperature outside.
Shuaa Capital's retail analyst Laurent-Patrick Gally believes currency movements are the biggest factor behind the high prices at some international retailers in the Gulf, but acknowledges that thinner profit margins in their home markets could prompt some brands to mark-up their goods.
"If you're a shop owner... you can buy goods from China or Tunisia but the transaction will usually be denominated in dollars," he says.
The rising dollar has made that transaction more expensive, but retailers in places like the UK are unlikely to pass on the cost to British consumers in the current economic climate.
"It is very well possible that [this results in] some modest price increases in foreign markets such as the UAE. Although retail consumption here might have slowed down, we are still in a region where growth is going to be among the strongest in the world. Retailers know this," Gally says.
Last week, officials in Saudi Arabia said they are considering proposals that will reveal the mark-up that retailers in the kingdom put on their products for sale.
According to a report in the Saudi Gazette, the Ministry of Commerce and Industry may announce the prices of commodities according to the value stated on the customs clearance card on import.
The experts committee at the Council of Ministers is also considering a plan to establish a uniform price index for food and consumer products, the paper wrote.
The Saudi Arabian retail market is forecast to outperform the rest of the GCC this year. Anecdotal evidence suggests the financial crisis is affecting consumer sentiment in the Kingdom, but a lack of Dubai's trademark super-malls and a young population will most likely underpin the market.
In Dubai, brand strategist Katherine Shannon admits that she will continue shopping at Topshop, even though she feels that their prices in the Gulf are unjustified.
"I'm not going to stop," she says. "It's just that I love Topshop. That's why I feel hard done by."
Shopping, the UAE is going to fall on its head if prices keep going the way they are! Why would you spend over 50% more in this country than in the UK? Depending on what you are buying it is worth flying back home buying it and some other currency and probably still saving money. Tourism is going to take a hit. The hotels are too expensive, never mind food and drink. Why, if you were in the UK, would you come here when you can spend a fraction of the price in other parts of the world. Sometime, more so in the current financal climate, the high quality 5* (or 7*) hotels are not the main appeal. Things need to change to follow the rest of the world!
I think I will have my own little shopping festival. Online. Cheaper and more choice. Everything is too expensive here now. For example, I was going to buy an Xbox game over the weekend, Gears of War 2. It retails in Dubai for AED 279.99. Shop online at play.com in the UK and it works out at AED 167.00. That includes free delivery to a UK address. All you have to do is add on postage from UK to Dubai (probably 30 Dhs) and you have saved yourself a fair sum. And repeatâ€¦
To be fair to retailers its not just an exchange rate battle but the unrealistic store rentals malls are charging along with over inflated service charges contribution to marketing budgets of malls - all of which are never transparent to the retailer. Hopefully the day will come soon when landlords start being realistic and pegging increases to increases in turnover and not demanding individual retailers to subsidise brand name rentals by charging them more and not asking retailers to subsidise extension projects or hotel projects that were completed above their budgets - sadly all this counts for goods being more expensive, here it's a catch 22