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Fri 16 Jan 2009 07:58 AM

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Retailers blame high prices on soaring mall rents

EXCLUSIVE: Dubai shop managers paint bleak picture as rental costs rise amid a spending fall.

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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Hal-Luke Savas 10 years ago

From my own experience of cheap and expensive cities around the world, current rating for Dubai is too expensive and it is unsustainable so.. Whilst I agree that Dubai is meant to be the playground for the rich and affluent, sadly concrete for that ground is still unset and may need another 10-15 years or so to reach the St-Tropez proportions!! In any away, keep it up DUBAI, you are on the right track if the abacus is handled properly (but the opportunity cost for the tallest tower in the world does not look right to me on the abacus!!).

Martin 10 years ago

Why should consume always go up and up. We can not always buy and buy, we have all our things and since quality improves there is no need to replace. For example my DVD Player can do everything I need and even more, so why should I buy a new one? Consumer spending comes down because we are satisfied.

Robert 10 years ago

They (the owners) who have been charging ridiculous rents are now getting the bill presented. Businesses are closing down, customers are going somewhere else (internet) because Dubai has priced itself out of the market. Luckely we (consumers) have a choice and I have choosen not to spend my money in Dubai anymore because I get better value for my money outside of Dubai. Real estate owners and landlords, who have made loads of money need to rethink their strategy quick.

dave h 10 years ago

I am not surprised Emaar refused to comment. They have some of the highest rents per sq ft in Dubai, yet they give the least value. the new Dubai Mall, carpark half-finished, many shops not open, foot traffic way down, yet rents for retail space have been the highest from day 1. Our company had originally planned to have several outlets in the mall, but when we completed a feasibility study we changed plans to have one outlet only, even that is struggling to find customers, whereas our other retail outlets in other locations are doing well. The landlords response? Pay the rent until you go broke, then we find another tenant.

Pawan 10 years ago

So when we buy from malls we are actually "Donating" so much of the proceeds without our will to the many landlords here who would then get expensive GMs and Retail Floor Managers (who actually try their best to portray that THEY are pushing the botton to increase footflow and consumer satisfaction). Brands are patient for a year or two to inject money to stay in a volatile market or a new mall and then strategically inflate the margins on products to cover uo these losses during better times. Eventually the consumer would end up paying Much More Than The Value to accomodate these unwanted middlemen who want to make their quick and easy buck in the name of RENT. Its going to be a looooooooooooooong time for THIS market to get liberalized or get to the real sense of doing sustainable business. Sorry for the sarcasm, but its the truth ... and we haven't started to talk about the "residencial dvision" of this business yet!

Bill Smith 10 years ago

In the past Dubai was the place to shop because things were cheaper in Dubai than the rest of the Middle East. That has changed now. There is no reason for shoppers to fly to Dubai, spend money on hotels and even pay more for goods than , say, Bahrain or Qatar. I found that the malls in Dubai are too big and makes shopping a nightmare. The malls in Bahrain and Qatar are much better and practical.

John Doe 10 years ago

Ridiculous! And I agree with the report, recent trends in the malls with 50-70% off have been funny,these were exact same prices a year ago so where's the sale,this report can be a dangerous prelude to the DSF on which sadly the country has besed their hopes! Again this is not NY,so any thoughts on promoting is such is delusional, and even in the near future it won't be,not with the current disaster in Dubai right the theme goes for DSF,a happy shopping experience for everyone,I think the powers that be need to start working hard towards that.

Sanjay 10 years ago

Retailers are clearly in Catch 22. Consumers love shopping in Malls and Malls know that and hence the price they charge, which the retailers HAVE to pay along with percentage of profits at times. I was unaware that Foot Fall was equal to $ spent by consumers (?) - i have seen some malls like Town Centre for instance where the foot fall is very very low - probably since they have no solid attraction shops and yet people come bcuz of Sumo Bento restaurant and thanks to which other shops benefit. On other hand, in DUbai Mall on weekends, thousands visit - but who is buying? I for one dont as i would be too lazy to drag my shopping all over the mall and then take trouble to take it to my car. Besides, what is it i cant get at say Bur Juman or Wafi - which is not half as large. In Dubai Mall, I hear rents are 1250 AED psft or so... pls correct me! With these rents it is one way - the highway - for all retailers there. All i can say is Good Luck!

Expensive 10 years ago

Once we had tourists pouring into the city as it was a shopping destination of the region, even for some european countries and many asian countries. Today, we get everything old, and at highest expensive prices. The reason Dubai has lost its image – RENTS RENTS RENTS. Until residential and commercial rents ease down to its levels (5 years back), we will not see any healthy competition among retailors and henceforth no big savings. Consumer spending has dropped. IT IS A FACT. Ask any retailor. I am surprised to find huge price differences between Kuala Lumpur and Dubai. In Dubai any attraction is minimum Aed 100-200. While same in Kuala Lumpur it is AED 10-30. No wonder, KL has more tourists than Dubai. Dubai needs to realise, less price, more footfall and more profit.

paul 10 years ago

The mall owners are short-sighted. They need to "get with the programme" and realise that the bubble has popped. Rents need to be slashed and stores need to pass that saving on to customers. And this needs to happen quickly. Many stores will not last long in the present climate. Otherwise retailers will lose customers, stores will close and then the landlords will be faced with empty stores generating no income. That is good for no one. Dubai has become a victim of its own bubble mentality where greedy landlords are blinded to economic reality. I have the sad impression that Dubai will still be proudly justifying its exorbitant rents even as the very last business switches off the lights and leaves. Dubai - wake up and think about what you are doing before it is too late. You are supposed to be a 'dynamic' city, but now we find that prices were very 'dynamic' on the way up, but completely static now that the situation demands cuts. And my experience of DSF so far has been pretty much as I expected. No real discounts other than for 'end of line' products left over from last year. And prices on desirable items significantly more than in the UK and Europe. No wonder the shoppers are hanging on to their money and staying away. The government should take the lead and start cost cutting on visas, business services and rents they control (via govt owned developers).