Published: Sunday, 13 July, 2008, 09:22 AM Doha Time

Many well-known UK retailer brands have already moved into the Gulf markets and competition is now fierce

LONDON: With Gulf countries enjoying continued growth at a time when the UK economy is slowing, well-known British retailers are looking to expand in the region.
Walk into any mall in Dubai and the UK high street is never far away. Marks & Spencer, Debenhams and Next are just some of the names that have become popular with locals and expatriate workers alike.
The demographics from a retailer’s standpoint are attractive. These are countries with young and expanding populations that enjoy some of the highest levels of disposable income in the world.
Cities like Dubai, Abu Dhabi and Doha are also homes to rapidly growing middle-to upper-income expatriate communities.
Many well-known retailer brands have already moved into the market and competition is now fierce.
But while Gulf markets might look attractive, UK companies wanting to enter them will find the rules of the game very different from what they are used to.
Foreign retailers within the region have to be represented by a locally owned partner. For this reason, the UK ventures are usually franchise operations, with a handful of franchisees holding the rights for most of the well-known Western brands.
The franchise holders usually don’t disclose information about sales and profits, making it difficult for analysts to gauge the size of the market and future earnings potential.
“It’s a very, very strange market,” said Neil Tunbridge, head of retail services at Dubai-based GRMC Advisory Services.
With mall owners rarely revealing visitor numbers, all analysts have to go by is the amount of leasable space available. “Anything you might normally take as a retail market metric … is clouded in secrecy,” Tunbridge said.
Still, on the rare occasions malls do release figures, they show that footfall is higher than anywhere else in the world, he said.
Whereas the focus in UK and US shopping centers is on having the right mix of brands, Gulf malls have become an attraction in themselves. Many have large performance spaces that offer everything from theater performances to people riding unicycles.
Market analysts say there is a risk of the Gulf states building too many malls, leading to an oversupply of retail space in the years ahead. Dubai is poised to see gross leasable area rise from 1.35mn sq m in 2006 to over 4mn sq m in 2010.
But both analysts and retailers agree that there is a large potential market of tourists within about four hours’ flight time from Dubai, catering to which is underpinning many of the large retail developments.
Dubai’s gross leasable area per capita, a measure of retail space compared with the size of the local population, will soon be on par with the US, but Tunbridge said there is demand to support even more retail space if tourism is factored in.
“Dubai has a population of about 1.5 million and last year it had 7.5mn tourists,” he said.
Simon Thomson, managing director at retail consultancy Retail International, said that many other Gulf cities are seeking to learn from the Dubai experience, but that it remains to be seen whether they will succeed.
So far there is no sign of empty malls in the region. “Nobody questions whether there are too many casinos in Las Vegas or theme parks in Orlando, yet based on local demographics arguably there are,” Thomson said.
He said UK retailers, some of whom got burnt trying to expand into Asia in the 1990s, now manage their franchise operations abroad more carefully than they have in the past.
“Only retailers who have a secure and strong home market position should consider taking their eye off the ball by looking overseas,” Thomson said.
“Too much damage can be done to a brand’s image by not being able to devote adequate time to developing its international presence.”
He added that the downside risk for a company is relatively low since the franchisee picks up most of the financial input.
Whether an economic downturn in Western countries will hurt the visitor-driven retail model being embraced in the Gulf is an open question.
Russell Hendry, a director and fund manager at Mena Capital in London, cautioned that tourism in the region could be hurt by an extended economic downturn in the West.
“If people’s disposable income is falling, ironically because of high energy prices, there is a distinct possibility that [Gulf countries] will see a fall in demand in some sub sectors of the tourism industry,” he said.
But high energy prices have also meant that countries close to the Gulf – the Levant countries and North Africa — have seen an inflow of petrodollars, making people there more likely to go on shopping trips. – Dow Jones Newswires

Comments are closed.

Looking for something?

Use the form below to search the site:

Still not finding what you're looking for? Drop a comment on a post or contact us so we can take care of it!