By Andrew Mernin
The Middle East has caught the attention of the world's retail giants, says Andrew Mernin.
Last month the Adidas roadshow came to town. While a galaxy of soccer stars descended on Dubai to strut their stuff in a tournament, the three-striped CEO stood on the touchline talking up his plan for victory in the region. But more than a mere branding exercise perhaps this was a sign of something much bigger.
In the past, the planet’s retail giants would battle it out for the US and European markets while the Middle East remained on the periphery – an area where the multinationals would do little more than set up a small operation to swell global profits. Today however, nothing could be further from the truth.In this month’s cover story, Adidas CEO Herbert Hainer tells of his plans to treble the company’s presence in the region in the next year – a claim that I’m sure he will achieve. And all across the retail sector, global players are stepping up their game to snaffle as much Arab consumer spending as possible. All indicative of the fact that the retail opportunities in this part of the world are now too lucrative to ignore.
The rate at which the region’s retail sector has grown in recent years has been nothing short of phenomenal. Back in 1985 there were only 20 global fashion retail brands with a presence in the GCC.
Today there are well over 400. And this growth looks set to continue for years to come. In 2008, British retail giant Marks and Spencer’s will open a 65,000 sq ft store in Dubai — the group’s biggest store outside the UK. Next year will also see the opening of the Dubai Mall. At five million sq ft, the project will become the largest mall in the world and is expected to attract 35 million visitors in its first year. The main reason behind the region’s retail boom is it’s value as a franchise destination. Currently worth over US$14bn, the MENA franchise business is now growing at 27% per year. As well as the region’s strategic location between Asia and the West, international brands are joining local partners here to reap the benefits of a young, heterogeneous market with money to spend.
With 160 different nationalities living in Dubai, the emirate is a franchise-holder’s dream. A diverse consumer base ensures a huge and varied demand for products from all over the world. The MENA is also a baby-boom market where 50% of inhabitants are under 29 years of age and the population grows by 3.5% every year.
Of course the region still has a long way to go before it overtakes Europe or Asia on the agenda of the multinational retail kings, and there are a number of obstacles that could hinder the ongoing growth of the sector. Despite the good work of bodies such as the Brand Protection Group, there is currently US$3.3bn worth of counterfeit goods in the region, causing an obvious dent in consumer demand for genuine products. The industry also suffers from a senior and middle management skills shortage — let’s hope the recent arrival of specialised recruitment agencies in the Middle East alleviates the problem. Then there is Saudi. The country has huge potential for retail growth, but bureaucratic red tape continues to deter multinational brands from fully exploiting the immense market. Hopefully this will change with time and the KSA will one day become a shopping paradise to match Dubai.