Retailers blame high prices on soaring mall rents

EXCLUSIVE: Dubai shop managers paint bleak picture as rental costs rise amid a spending fall.
Retailers blame high prices on soaring mall rents
By Soren Billing
Fri 16 Jan 2009 07:58 AM

Retailers in Dubai are blaming their high prices on soaring rents in the city’s shopping malls, as tourist spend slides and cautious consumers turn to the internet for better deals.

The ninth annual Dubai Shopping Festival (DSF), which kicked off on Thursday and runs until Feb. 15, is hoping deep discounts will convince credit-struck consumers to visit the emirate this month.

But retailers claim the high cost of retail space is pushing up their prices, putting further pressure on tourist spending, which some say is down by as much as 50 percent compared with last year.

“It’s been four or five years that the rent has been rocketing up, and there’s just no basis for what they’re charging,” a shop owner with stores in several different malls said.

Comparing rents here with those in Western markets is misleading because the number of visitors per square foot is generally lower in Dubai due to the large number of malls, said the shop owner, who asked not to be named.

In addition, trade license fees in the emirate are based on rents.

Lower labour costs are partially offset by longer opening hours in this part of the world, and have risen on the back of the soaring cost of accommodation.

“You can no longer just pay people 2,000 dirhams ($545) a month like you used to, years ago,” the shop owner said.

“I’m trying to keep the same rates as in Europe and the US, because that’s where most of my products are from, but then your profit margins are very, very low.”

For franchise operations, which make up the majority of stores in Gulf malls, there is the added cost of buying products at wholesale prices from the international franchisor.

For example, whereas GAP in the US sources its products from factories around the world, Gulf franchisees have to buy all their products from the same franchisor at a significantly higher rate.

Still, the chief executive of Saudi-based Jarir bookstores, one of the largest retailers in the Middle East, recently told Arabian Business that his company is avoiding the Dubai market due to the high cost of setting up a showroom here.

Dipesh Depala, co-owner of independent fashion brand Ayesha Depala in Jumeirah’s Village mall, said the rent currently paid by his firm is reasonable, but that “prohibitive” rents in other malls have curbed the company’s expansion plans.

“We pay considerably less than we would in one of the larger malls. I’m not sure why the rents are so high in other areas,” he said.

Depala said he thinks it is unlikely rents will come down in the near future. “This is something that we’ve always heard…and I don’t really see that happening.”

Another shop owner said that she was paying a preferential rate to her landlords because malls value having independent names in their mix of stores, but that mandatory deposits and advertising fees were becoming unsustainable in the current economic climate.

Tourist spend is currently down by almost 50 percent, she said.

Majid Al Futtaim (MAF), the owner of Mall of the Emirates and City Centre branded malls in Dubai, Muscat and Bahrain, said its rents are based on the number of customers a store attracts.

“We like to look at rents in relation to annual sales and footfall for our shopping malls while also taking into consideration the location of a store within the mall, its size and type of use,” said Fareed AbdelRahman, Vice President of Divisional Asset Management, MAF Shopping Malls.

“Our malls are leaders in their respective markets and have been the chosen destinations for shopping, leisure and entertainment. Looking at the volumes generated, we have the most competitive rents in the region.”

Al Ghurair Group, owner of the Bur Juman, Reef and Al Ghurair City malls, declined to comment.

A spokesperson for Emaar Malls, owner of The Dubai Mall, was unavailable for comment.

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