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Mon 12 Jan 2009 09:29 AM

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Revealed: The cost of shopping in the Gulf

EXCLUSIVE: Retail expert says goods can cost 15% more compared to likes of UK, Europe.

Products at international retailers in the Gulf should cost 10-15 percent more than in their countries of origin, but currency shifts could widen that difference, a leading expert has said.

Readers of Arabian Business have been expressing their outrage over the price of many goods at well known retailers, who sometimes charge 50 percent more for a product in the Gulf than they do in places like London, Paris and Singapore.

“The price difference between the UK and this part of the world should not be more than 10-15 percent,” said Naeem Ghafoor, chief executive of Skyline Retail Services in Dubai whose calculations included the UK's VAT levels.

One of the reasons it’s not is the strengthening of the dollar against most other major currencies over the last few months. All GCC currencies are pegged to the dollar, except for the Kuwaiti dinar, which is pegged to a basket of currencies.

Six months ago, sterling was worth just over $2. On Friday the exchange rate stood at $1.52.

Retailers in the Gulf typically pay for their goods six months before they appear in the shops, meaning that any price comparisons need to be based on the exchange rate that applied half a year ago.

In addition, retailers have to pay for transportation, royalties to the brand and an import duty of around five percent.

“Duty and freight could be anything between 10 and 15 percent,” Ghafoor said.

The wholesale price a franchise holder in the Gulf pays for a product from an international brand is also likely to be higher than what the brand charges its own stores.

“That’s a hard one. You wouldn’t be able to put a figure to that,” he said.

Some believe international brands may be raising that charge for Gulf franchisees in a bid to recoup losses elsewhere.

The rising dollar has stoked manufacturing costs for companies trading in sterling and euros, but retailers in places like the UK are unlikely to pass on those costs 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,” Shuaa Capital retail analyst Laurent-Patrick Gally said.

“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.”

Inditex, owner of the Zara, Massimo Dutti and Pull and Bear brands, admitted that it considers the purchasing power of each market before pricing its goods.

“Inditex chains fix their prices in line with the commercial positioning of its products in each different market, taking into account the purchase capacity of its clients and the competitors’ level of prices,” the company said in a written statement.

“Also, we must to consider the different level of costs of each individual country (labour, space rents, services, etc.).”

The Alshaya Group, holder of the GCC franchise for brands such as Debenhams, Next and Topshop, declined to comment on the pricing of its products.

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IncidentFlux 11 years ago

Finally some real news not another rehash of some press release! Shopping in UAE has been expensive for at least 12 years. People who pay attention to mature markets knew that. If it wasn’t for the shipping cost, I’d be buying from the States, most computers and parts were always more costlier here. That’s not the end of it, since the Middle East and UAE have no consumer rights enforcement. Manufacturers dump their crappiest products in this market from cars to consumer electronics, with fewer options to models that never get released here. Might as well bear the shipping cost and buy from the US, Singapore or South Korea.

Lizzie English 11 years ago

I've found in past years that the cost of clothes in Inditex shops in Europe (Mango / Zara) in Germany, France and UK are considerably more expensive than they are in the UAE. Of course there is VAT in the UK so they are a lot more expensive there. In Germany they were about 10% more than here. Magrudy's Bookshop seems quite fair on pricing of books, they do reduce in price with the pound, although of course in the UK it's usual to get a 3 for price of 2 in most bookshops which we don't get here.

paul 11 years ago

I commented the other day how much cheaper the UK is than Dubai. The UAE cannot hope to market itself as a shopping destination while prices remain more expensive than the UK. I imagine part of the problem is shopping mall rents (if they are anything like as absurd as residential and office rents). The malls need to cut a deal with the retailers - we reduce rent, you reduce prices. Otherwise they are all going to end up out of business and with empty malls. DSF is going to bomb unless these guys realise that things have changed.

Faisal 11 years ago

What a fairytale response: - No justification for inflated prices on items discarded/ pulled out of market in the west - I am amazed that the retailers are working in international markets with completely nincompoop in-house treasury dept who cannot predict the rise and fall of currencies and properly hedge their commitments - Even if we accept the argument that GDP was at 2 dollars 6 months ago, were no purchases made prior to that or after that? - I'd suggest the writer to take the views of the main franchise holders (western) as well to agree with inflated franchise fees (to dent their market share). Incidentally the franchise fee is usually included in import costs since most of the products are not usually made in the country of franchise origin. I am wearing a GAP shirt right now (bought from US for 2 Dollars which includes all sales taxes) Made in Cambodia. Are they trying to inform us that US does not pay for transporting items from Cambodia to US. - The argument that rents are unjustifiably high over here is very much acceptable since the landlords in their greed are wrecking havoc on this economy by forcing retailers to inflate the pricing. - Same goes for the automobile industry which is also feeling the pinch - just comparing the prices of international models and their specs one gets a fair idea

Maryam 11 years ago

On a recent trip I saw a bag in Burberry (Harrods) for 995 GBP. In Abu dhabi the same bag retails now for 8695 dhs. Even with the old rate of 7.3 dhs against the gbp the price would be 7263 and with the new rates 5572. In the UK the price also includes a 17.5% VAT so the bag is way overpriced here. This is just one of the many many many examples.

CT 11 years ago

wasn't part of Dubai's appeal the duty free shopping? have we lost those rose-tinted glasses too now? whatever next! don't get me started on these supposed sales, where all last season's left overs are hauled out from the warehouse for the month......

CT 11 years ago

Wasn't part of Dubai's appeal the duty free shopping? have we lost those rose-tinted glasses too now? Whatever next! Don't get me started on these supposed sales, where all last season's left overs are hauled out from the warehouse for the month......

Photographer 11 years ago

Well, here's another analysis: check prices at local retailers and check prices online in US stores. A lot of times I have found a difference exceeding 25%, sometimes even 40% on higher end photography gear. For that difference in price you also get a less professional staff and a total lack of service! Shopping for clothes? One trip once a year to the USA will pay for the ticket. I fail to understand why VAT should be included? There is no VAT on exported goods and is therefor irrelevant. If you live outside the EU and export the goods, you will get your VAT back at the airport.

rob 11 years ago

Can't help but wonder if some of this is franchise-holder greed (and a lack of e-commerce options). Am shopping for computer speakers, my nephew in California related getting a great pair for USD $100. That same day, I saw the exact pair in q8 for the equivalent of USD $167. I've had the same experience with Nikes. In California, $110, including tax. Here, $174. Sure, people could try to get $174 in California, but there would be other options, including e-commerce.

Sussex Sheikh 11 years ago

The reasons advanced for retail prices being 10 to 15 per cent higher in the Gulf than UK are spurious. Just about 100% of manufactured goods such as apparel are imported into UK just as they are in the GCC. The import costs into UK may well be higher than into the GCC. Labour, property costs, heat light power, and taxes all are generally higher in UK and Europe than the GCC. Furthermore, there is no VAT in the GCC, thus to argue that prices in the Gulf should be as much as 15% higher than say in UK, is giving the retailer a 30% margin based on UK VAT of 15%. Come on Gulf retailers get real - or else with the cheap Pound Gulf shoppers will once again flock to London to do their shopping!