By Elizabeth Broomhall
Dubai might be famed for its luxury fashion houses but, post-recession, budget brands are back with a bang
Unrivalled globally for its designer malls, lavish brands and a high level of disposal income, Dubai is one of the most unlikely candidates in the world to witness an emerging value retail market. Ranking second only to Hong Kong for its luxury clothing makes, the city provides an exciting shopping experience for tourists and locals alike, with seemingly little room for budget names. Adorned with luminous trademarks of upmarket designers and fancy shop windows, its largest shopping centre, the Dubai Mall, speaks for itself.
And yet, surprising though it may be, there is no doubt that this glamorous emirate is indeed seeing a significant growth in its budget shopping industry - most notably when it comes to fashion. Only last week, Asda, the UK supermarket chain owned by retail giant Wal-Mart, announced plans to launch its discount fashion label George in a series of stores across the Middle East. And, whilst retailers themselves are forecasting ambitious increases in sales and store openings around the region, analysts are confident about the opportunities for low-cost firms to make a profit, particularly following the recession, which has impacted on spending.
“It is absolutely not the case that this region does not provide a good market for budget brands,” says CB Richard Ellis retail analyst Mike Leighton. “If you look at Red Tag, which is a value clothing operation, they are expanding aggressively at the moment. Landmark [another fashion group] has also got some very good value brands such as Splash, which does very well, and Matalan is here, so a lot of budget brands are here.” What has boosted the low-cost industry further, he says, is the increasing demand for bargain items following the recession. “When a recession hits what do you do? You buy cheaper things. The recession has hit here as well, we’re not immune to it, and it’s no secret that since then, the luxury brands have struggled more than the mid-range or value brands.”
Certainly, the value retailers are cashing in. As well as capitalising on what they consider to be one of the few undersupplied markets left in Dubai, firms which have made a living out of cheap pricing structures report increases in sales since the downturn, whilst noticing a clear advantage over luxury brands in being able to cater for a wider market of customers.
“During the crisis, a lot of those customers who could have moved up or down [the brand chain] decided to move down,” says Ramanathan Hariharan, CEO of Max, a value fashion range in Dubai and part of the Landmark Group, which is planning on opening another 20 stores in the region in addition to its 120 existing shops in the next twelve months. “Also, the biggest market in terms of population and size is always the bottom of the pyramid, so we get an opportunity to cater for more than 60-70 percent of Dubai.”
However, bearing in mind the sheer amount of luxury brands in Dubai, some fear the change in consumer spending behaviour could threaten to unhinge the city’s lucrative retail sector. But on the contrary, it seems to be driving footfall at mid-range and low-priced malls. Shoppers passing through Nakheel’s Ibn Battuta Mall and DragonMart for example, increased 89 percent and 84 percent respectively in 2010 compared with the previous year, whilst in the same period revenues at both malls increased around twelve percent. Meanwhile, Dubai Outlet Mall, which offers discounts of between 30-90 percent on designer brands, said it has been welcoming more than 150,000 customers a week, whilst witnessing an eight to ten percent increase in footfall in the first quarter of 2011.
“Everybody loves a bargain,” says the mall’s director Vishal Mahajan. “Value is a very consistent segment. It’s always been there, it’s just that now people are noticing it more because we are passing through the downturn and value is a big thing.”
Recently, he added, the outlet mall had seen a renewed interest in the number of companies wanting to open outlets there, and he expected this to boost occupancy levels. “We are about 86 percent occupied at the moment, but because of the recent popularity of the mall we are seeing renewed interest from people who would once not consider coming here. Hopefully we’ll be crossing the 90 percent occupancy rate soon.”
As for the more expensive malls, operators have responded to new shopping habits quickly. Just last week, the BurJuman in Bur Dubai announced it was adding several new high street brands, though it declined to name them, whilst according to Leighton, Deira City Centre is a particularly good example of malls adapting to new buying trends. He hints that the flagship Dubai Mall could be the next in line for a refurb. “Deira City Centre repositioned itself, they got rid of some of the more luxury brands and brought in more value fashion. I would not be surprised if the other malls followed suit. What you may see in some of malls is more budget fashion coming in.”
Hariharan agrees. “I think every mall is now recognising [the growth of the value market],” he says. “The malls want to keep a certain tenant and retail mix and make sure there is space for the value brands, because these are the ones that can bring in the footfalls.
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“They also structure the malls in such a manner so that they’ll be a section for the luxury brands, and then the mainstream and then the value brands.”
But the really good news is that there are still plenty of business opportunities for new retailers. Though Dubai was hit hard by the economic crisis, many of the malls are being expanded and additional malls are being developed outside the city. Other emirates for example, such as Fujairah and Ras Al Khaimah, continue to focus on mall development in an attempt to bolster their tourism trade. The Majid Al Futtaim (MAF) Group — a Dubai-based malls giant — will complete its Fujairah City Centre offering next year, adding to its other properties in Dubai, Sharjah and Ajman. Those malls are all anchored by French hypermarket chain Carrefour, itself a hugely popular budget destination.
At the same time, those retailers already established in the market say a big part of their success continues to be based on the lack of market saturation and commercially destructive competition. “We started in 2004 when we did not see any organised value retailer in the market,” says Hariharan. “We are now seeing people like Matalan coming into the market, but for every ten mainstream brands you’ll only find two value brands.”
What’s certain is that the UAE budget retail sector has an awful lot going for it. Abundant supply and a perception of the UAE as a tourist shopping superhub has left Dubai as the most targeted destinations in the world by international retailers. In addition, the culture of online shopping is considerably less advanced here — partly through cultural fears over security and partly due to little effort on the part of retailers. The result is that even more shoppers are forced to head to the malls, rather than pick up items from the comfort of their own homes.
“What’s also significant is the online and mobile penetration, but the underdeveloped online shopping activity in comparison with Europe and the rest of the world. If you buy online you are much more likely to pick bargains,” says Michael Dehn, group exhibitions director for Beautyworld Middle East. “The people here buy more from the physical shops and so there are less opportunities to go bargain hunting and compare prices.”
Perhaps the only real question left to answer is why the likes of TK Maxx, Primark and low-budget fashion brands owned by supermarkets are still not opening stores in the Middle East when the UAE presents such huge opportunities for value retailers. In an emailed statement to Arabian Business, Primark, the UK’s largest value retailer, confirmed it had no plans to open stores in the region in the near future, and that it was instead focusing on the UK and continental Europe.
“It is not really a question of the attractiveness or otherwise of the Middle East as a market,” said the statement, “it is simply that Primark’s strategy is to focus on the UK and Continental Europe where it has an existing infrastructure to service its shops. To expand into the Middle East would require substantial investment — a single store in Dubai or wherever would not be realistic. This does not mean it will never happen, it is simply not on the agenda while there is so much to do in Europe and the markets that it knows.”
But according to Leighton, the main reason why firms are reluctant to come to the Middle East is more to do with the franchise model here. “With Primark, it’s because it’s a franchise model. The region is becoming a bit more flexible, so it’s easier now for retailers to enter the market alone if they come into a free zone or they have a silent partner, but still 98 percent of retail is done through the franchise model.” He adds that this can present a problem for companies who aren’t happy with sharing profits or control of their brand, and who often fear losing brand integrity.
Whether this will continue to create an issue, is at this time unknown. Certainly Asda has opened up to the franchise idea after announcing the launch of its budget fashion brand George in the region, which marks its first overseas franchise. And, according to Leighton, even American brands, which have traditionally always been against franchising, are beginning to open up to the Middle East model, with firms such as American Eagle, and Victoria’s Secret among several now operating here.
“The mentality among retailers is changing and becoming more relaxed with the franchise and the JV model. In truth, a lot of the US retailers never had the need to trade outside of their borders, but now the recession has hit they have had to look elsewhere to generate revenue.”
It would be a shame, he adds, if the franchise model did deter firms, with the Middle East showing such strong growth potential. “It’s such a good opportunity out here, because there is fantastic grade A retail stock available. And more so than anywhere else in the world I’d say.”