US retailers bet on Dubai as consumer confidence rises
Source: BI-ME with Bloomberg , Author: alsteph_sgadmin
Posted: Sun August 28, 2011 8:29 am

UAE. Limited Brands Inc., operator of the Victoria’s Secret chain, and American Eagle Outfitters Inc. are among retailers seeking a foothold in Dubai as consumer confidence in the emirate reaches a seven-year high.

Sales in Dubai are up about 10% this year, according to store companies such as Rivoli Group, which sells watches from brands including Tissot, Burberry, Gucci and Cartier.

U.S. retailers, traditionally reluctant to enter the region, are coming to Dubai as sales in their domestic markets and other fashion capitals remain subdued.

“There are more people in the malls here in Dubai than anywhere else in the world,” said Sheeraz Hasan, founder ‘Millions of Milkshakes,’ which will open its first branch outside the U.S. this year. “We wanted to show the West that Dubai is the place to be.”

Consumer confidence in the United Arab Emirates, the second-biggest Arab economy, is the highest since 2004, according to MasterCard Worldwide Index of Consumer Confidence released August 18. Confidence was 95.6, compared with 73.6 six months ago, exceeding markets such as China and India. The score is calculated with zero as the most pessimistic and 100 as most optimistic.

Dubai is the second-most attractive emerging market for retailers after China, in part because high disposable income, according to management consulting firm A.T. Kearney.

Retail accounts for 30% of gross domestic product in the emirate, home to about 40 shopping malls, Standard Chartered Bank Plc estimates. Dubai’s malls feature an indoor ski slope, an aquarium, ice rink, and a ‘dancing’ fountain, similar to the Fountains of Bellagio in Las Vegas.

Williams-Sonoma Inc. (WSM), the 55-year-old housewares chain that owns Pottery Barn and Pottery Barn Kids, opened the first stores outside of North America and Puerto Rico in the emirate last year. Bloomingdales, owned by Macy’s, also opened its first store outside the U.S. in Dubai in 2010, while Victoria’s Secret and American Eagle Outfitters opened stores in the emirate earlier this year.

“With limited opportunities for growth in their own markets, more retailers have taken the plunge and made inroads into the region, typically using Dubai as a springboard into the region’s other markets,” research company British Monitor International said in a July report.

Visitors from Gulf Arab nations and China are coming to the U.A.E. as political unrest in other Middle Eastern countries diverts tourism. Uprisings in the region this year have toppled governments in Egypt and Tunisia and sparked conflict in Libya, Syria and Yemen. In 2009, the U.A.E. and China signed an agreement to facilitate travel between the two countries which has helped boost Chinese tourist number to the Gulf nation.

The possibility of a “second dip” globally could hurt sales, said Daniel Starta, managing director of A.T. Kearney in the Middle East. However, “only catastrophic drops in oil price or truly fundamental stability issues that challenge both emerging and mature markets would likely have an impact on the regional retail sector,” he said.

Dubai’s retail industry is recovering after the global financial crisis caused sales to plunge 45% in 2009, according to BMI. Retail sales in the emirate will likely increase 7.2 percent this year, up from last year’s 3.6% growth, the Dubai Chamber of Commerce and Industry estimates. Across the U.A.E., BMI expects retail sales to grow to US$41 billion by 2015 from US$31 billion this year. 

David Macadam, head of retail for the Middle East and North Africa at consulting firm Jones Lang LaSalle, said retailers are reporting annual sales growth of 5 percent to 8 percent, with some as high as 12 percent. That’s returned revenue to 2006 levels, he said.

Sales at Marks & Spencer Group Plc (MKS)’s Dubai Mall store increased 20 percent in the first half of the year, according to Ikram Farah, assistant store manager.

Dubai-based Chalhoub Group, which sells 280 luxury brands in the Middle East, increased U.A.E. sales by 19% in the first half, helped by Chinese buyers, Joint Chief Executive Officer Patrick Chalhoub told Bloomberg in an e-mail. The group has joint ventures with brands such as Louis Vuitton, Fendi, Christian Dior, and operates franchises for others including Swarovski and L’Occitane.

Sales at Rivoli’s 35 U.A.E. outlets rose more than 15% in the first half and the company plans to open 25 shops in Dubai and Abu Dhabi this year.

“We’ve had a very robust year so far,” said Ramesh Prabhakar, managing partner at Dubai-based Rivoli Group.

 

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

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