The bricks-and-mortar retail experience seems to be powering ahead in the UAE, but are there warning signs ahead as more malls and shopping centres come onstream?
According to a new report by CBRE, Dubai is the second top destination for new market entrants in the retail sector, surpassing traditional hotspots such as New York, Tokyo and Paris.
The report also noted that 1.5 million sqm of new retail space will be delivered to the Dubai market, adding roughly 50 percent to existing inventory.
But technology and innovation is rapidly changing the retail landscape and the way in which retailers gather information about their customers.
Arabian Business gathered Nicholas Maclean, managing director for the Middle East and Turkey at CBRE, Ghaith Shocair, CEO of shopping malls at Majid Al Futtaim Properties, Natasha Patel, a CBRE director, and David Close, executive director of EMEA retail at CBRE, to look into the questions of supply, oversupply and the brick-and-mortar shopping experience.
CBRE report: Dubai number one for retail but what about mall oversupply?
According to pipeline figures, 1.5 million sqm of retail space will be added to Dubai by 2020. How can the market absorb this additional supply?
Nicholas Maclean: This is not a level of supply which is going to be delivered overnight; it’s over a four-year period. I should also say that it’s not just three million sqm plus 1.5 million sqm of exactly the same supply. It’s going to be a variation on that as we’ve also seen in the residential and office sectors here.
But it is a significant increase and we’re going to see an evolution in the retail space. Some of the existing space will fall out of use and will have to be put to alternative use; some will be replaced by more modern facilities that are better located.
There is a flight to quality and the quality of management is important for those malls to ensure that the occupiers and the users, the shoppers, get best use out of the facilities that are available. The design of some of these malls, which we can see from those that are on the drawing board at the moment, is going to change to make them more experiential.
The trick for this new accommodation is going to be to ensure that the volume of facilities within these malls doesn’t detract from what they’re there for, which is to shop. So, the balance between creating an experience, but also ensuring that the people who go there spend money in the retail units, is a very clever art and the developers are working very hard at that at the moment.
Is this already happening in terms of the secondary malls having to rework their business models? Some of them already seem to be half-empty...
NM: Mall of the Emirates and The Dubai Mall appeal to a very large geographical area. The secondary and tertiary malls here appeal to a smaller geographical space, and therefore the tenant mix within these units has to be very different. There’s no point in putting a very high-end retailer in one location because you won’t have enough footfall to make it successful in a particular location. So, the tenant mix is going to be critical to their survival.
And I think that these locations, in some ways, are going to change use. It may be within the retail component, so they might become large food courts, co-working spaces or medical malls, or find some other usage. Or they may be demolished completely and the land reused for an alternative purpose.
When it comes to these facilities, what kind of innovations are you looking at?
Ghaith Shocair: It’s principally around the changing consumer. The innovations, whether they be design or service related, or about how one operates a mall in a better fashion, are really driven by our insight into the consumer and what the consumer values. We’ve had a very intensive measure put in place for almost three years now, in which we measure 500 data points of the customer journey.
We’re able to distinguish exactly what needs to be worked on and we have plans for that. It runs the gamut, but it’s also supported by a tremendous amount of effort and resources that we are putting behind digitising operational and consumer analytics. The idea here is that we need to run as fast as the consumer is changing.
Natasha Patel: We expect that retailers and logistics operators will be able to almost predict consumer behaviour in a much more sophisticated way than they do now, and will almost be able to look ahead and know exactly what you’re going to buy before you’ve made that decision yourself. We also expect things like 3D printing to be far more commonplace in the future.
Can you give some specific examples of what that looks like in practice?
GS: Look at parking and the frustrations that customers have with egress, for example. We are looking at utilising the capacity better, essentially targeting segmented consumers with different offers in the parking lot.
That’s only a small example, perhaps, but it could run all the way into wi-fi analytics, looking at which parts of the mall are operating best, and then pricing differentially around those heat zones within the shopping centre. It’s really upping the game using analytics and sharing those analytics with our retail partners to be able to better drive performance in the centres; making sure, essentially, that we remain top of the league.
When you compare Dubai to other cities around the world, how advanced are our retail offerings? Where are we compared to other markets in terms of innovation trends?
NP: Dubai now ranks number one in terms of international retailer presence, so with 62 percent of brands present here, I’d say Dubai is pretty advanced compared to other cities. I think that the consumer here is pretty sophisticated in terms of incorporating technology and digitisation. We’ve got a pretty advanced consumer and the market is well advanced.
David Close: There’s a big difference. If you look a traditional city like Paris or London, they have areas of those cities that have independent retail, such as Carnaby Street in Soho, London, or Le Marais in Paris. It’s a very different way of looking at retail and this is an element that Dubai is missing. Will that ever happen here? Probably not, unless home-grown talent, designers and entrepreneurs come through the system. And to be fair I can see that sort of transformation taking place in the F&B sector.
Obviously Dubai is very successful, but is it missing out on a trick in terms of what it could do to raise performance in the sector? Or is it just different?
NM: It is different, but you could look at initiatives around shopping centres, such as creating village areas and different experiences. Retailers could also bring in smaller brands when they’re starting out rather than when they’ve reached maximum expansion in their home market.
GS: The mall is evolving. It is evolving from a purely retail destination into one that supports the lifestyle of the community that it serves. You hear a lot about F&B, but there is a whole story to be told about common leisure areas and co-working spaces. That’s where the mall will evolve, or at least the successful ones, to create a “third space” between work and home. In this part of the world, malls have a unique advantage due to the climate. People need a place to go. So the thinking that a mall is a retail collection has gone, or certainly needs to go.
The other thing is that the industry as a whole is changing and I think some of what you see today is the tail-end of a supply-driven investment thesis behind what is happening in terms of additional supply. The industry is moving into a much more demand-driven model that requires much more sophistication on the part of designing shopping centres and servicing customers, beyond just “build it and they will come”.
With regards to e-commerce, in the UAE it’s only about three percent, while in Europe it’s more like 12 to 15 percent. But as e-commerce goes up, does physical commerce go down?
NP: It’s more complicated than that. Consumers love to shop, and that includes the physical form. If you look at someone like John Lewis [a British department store] 80 percent of their sales touch the store in some ways. We can see that the physical store is still a very key component for retailers. We’ve seen online players like Warby Parker [an American eyewear retailer] opening physical stores because they know it’s the only way to create that connection and point of experience with the consumer. Hence the physical store remains a key part of retail strategy.
DC: Some of the experiences we’ve had from retailers and online stores have been very positive. We’ve seen that when an online retailer opens a physical store in a region like the UK or France, their online sales increase by 52 percent within six weeks of that store opening in the surrounding postal code. It’s called the “halo effect”.
What other trends are we seeing in the West that we’re not seeing here yet?
DC: It’s very much around health and fitness. We’re seeing a lot of concepts focusing on that area. The differences we’re seeing with these people is that they’re really engaging with the community before they get to the market.
They send people in two or three years in advance to work with the health, fitness and healthy eating community, work out where there market is and what their market looks like before they enter. It takes the risk out of expansion when you’ve got people in the market doing groundwork well in advance of opening a physical space. I don’t know if that happens here as much and it will be interesting to see that going forward.
NM: It’s not just what this location can learn from the rest of the world. It’s the other way around as well. The concept of stabling, i.e. in which one organisation or one family has a number of brands is actually quite important. It’s facilitated some brands who otherwise might be timid coming to market to arrive here because there’s a shared risk.
What we’ve seen for the last three or four years is that some of these stables are now taking their brands to newer markets. We see it in Eastern Europe and Africa, that as they fulfil their requirements for this market, they’re going somewhere else and achieving the franchise of those brands into new markets. Some of the receiving markets are places where those brands would have never thought to go.For all the latest retail news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.