UAE shopping malls tick all the right boxes for retailers
dubai — A prolonged period of low oil prices coupled with the currency fluctuation has impacted retail and tourism to some extent, however mall developers remain confident about the market in the medium to long term and are exploring expansion plans with a bullish outlook, says an expert.
Anurag Bajpai, partner and head of retail, KPMG Lower Gulf, said mall developers continue to announce plans to develop new projects in the region amid a promising future for the retail sector.
He said retailers and mall developers have fully understood the potential of tourism to boost retail. Even neighbouring markets like Saudi Arabia have been investing more aggressively in mall expansion and they remain confident of the potential despite short- and medium-term market challenges.
“While it is true that retail in the UAE and the wider Middle East region is growing, the format is evolving. So, on the one hand while brick and mortar retail has established itself as formidable concept in the region — where people look at shopping malls as entertainment destinations, online retail and ecommerce is slowly gaining a foothold in the market,” Bajpai told Khaleej Times during an interview.
With Amazon buying Souq.com and the impending launch of Noon. com, more consumers in the region are likely to experiment with online shopping, but the share of online retail is still very low compared with some of the international markets including the US or Europe, he said.
“Several retailers have hailed ecommerce as the next big thing, it will only supplement brick and mortar retail. Increasingly, we are seeing the lines between both blurring — Amazon announced the launch of physical bookstores in the US and there are reports that they could open physical grocery stores in some other markets. This seems contradictory to the perception that retail is increasingly moving from offline to online.
“In the UAE and the Middle East, as long as shopping malls remain family destinations — that offer a mix of retail, F&B and entertainment offerings — we expect that online retail will gain popularity, but will not rival physical stores anytime in the immediate future.”
Growth opportunities
To a question on which retail segments offer growth opportunities in the UAE, Bajpai said the online grocery market is growing rapidly in some international markets — including South and South East Asia — and while some of the big supermarkets and hypermarkets in the UAE have been experimenting with this model, no single operator has emerged as a major player.
“In a market where convenience and ease of shopping are key drivers for growth, we expect that grocery retail is a very exciting category with very strong potential for growth.”
About the growth sustainability in this market for international retailers, he said: “We are seeing some of the major international retailers — from Bloomingdale’s to Macy’s — announce plans to set up or expand their footprint in the region, when they have been exiting operations in some major markets internationally. This is because the appetite for brick and mortar retail slows down in the West, it continues to pick up here.”
Elaborating the factors driving the retail industry, he said rising levels of disposable incomes, young demographics, affluent lifestyles and the region’s ability to attract tourists, among others, will keep the sector’s outlook bright. Also, as the region gets ready to host major international events such as Expo 2020 and Fifa World Cup 2022, it is expected that there will be a suitable demand created for international retailers.
He said it would appear that there is a risk of oversupply in some markets in the region like the UAE — but when looked at as part of the wider plan for economic diversification, including the growth of tourism, leisure and entertainment, and the role of retail in catering to demand from a growing number of visitors, international events and a thriving resident population — the expansion of malls and retail seems proportional.
“Alongside the expansion of big shopping malls, we are also seeing the rise of community malls. It would be interesting to watch this space and see if their rising popularity could pose a challenge to bigger malls in the future,” he said.
Challenges ahead
Bajpai cited the rising cost of doing business as one among the biggest challenges for regional and international retailers in the UAE.
Online retail will gain popularity, but will not rival physical stores in the immediate future Anurag Bajpai, partner and head of retail, KPMG Lower Gulf
“The impending introduction of VAT is also likely to impact the attractiveness of the UAE as a destination for investors. Furthermore, as neighbouring countries continue to see growing investment from international retail chains, consumers who looked at Dubai as a premier short haul destination for retail — including India and China — could be reevaluating this.”
He said the transition from brick and mortar to omnichannel is also putting a significant amount of pressure on retailers to adapt their traditional business models and use technology to enhance the customer experience.
For retailers looking to enter the UAE, having an online presence will play a very important role in determining success.
About how competitive Dubai’s mall leases are, Bajpai said rents at super prime malls come at a premium and retailers understand Dubai’s positioning as a leading international retail destination.
“This is directly linked to the high footfall and retailers understand this correlation. For international retailers looking to have a footprint in Dubai, they remain confident of the destination’s growing attraction for tourism, leisure and entertainment and the positive impact this would have on their sales,” Bajpai concluded.
— muzaffarrizvi@khaleejtimes.com