INTERNATIONAL. Is Dubai building a bubble? Will visitors eventually be turned off by seeing many of the same brands in different malls? Can the city's population growth absorb the enormous projected growth in retail space? And how is this trend toward the shopping mall culture and modern retailing panning out in other parts of the region? Leading retail expert and founder of Retail International, Simon Thomson, gives his insight into the future of retail in the Middle East.

Certainly Dubai’s ambitions as a retail attraction hinge on the assumption that the city’s world-leading economic growth, currently at around 10% to 15% a year, will continue far into the next decade. Developers of real estate base their calculations on estimated increases of population (two million by 2010, four million by 2020) and tourism (the government assumes the number of tourists will double to 15 million by 2010).

“No developer is building for the existing population. Everyone is confident that the population will come to Dubai,” Abid Junaid, Executive Director of ETA Star Property Developers states in ‘Emerging Dubai 2006’, a publication of the Oxford Business Group (OBG).

As always market research and hard data is always difficult to come by in the Gulf, which is why Retail Interntional's research paper's are always eagerly awaited. The new malls are world-beaters in terms of size, ambition and marketing talent, but there is a feeling that the retail sector is less sophisticated when it comes to market research. A retail manager in Dubai these days functions as a project manager, discussing plans and designs for a constant stream of new stores, with relatively little effort going into merchandising and the science of retailing.

But this will not always be the situation. As the Dubai market matures, competition will intensify within each retail segment, calling for more local, differentiated concepts and more innovation. In round numbers, the population in Dubai increases by 8% per year, tourism by 14% and retail space by 50% per year. Population and tourism are both growing, but there is a sense that the market must be approaching a period of consolidation.

In the absence of reliable, publicly available numbers, developers planning a new project usually have to do their own primary research, usually including a retail audit of the immediate neighbourhood, population changes and other forecasts for the proposed catchment area. Part of the data problem is Dubai’s tax-free status, and the agency system with its preponderance for family-owned business groups, which means retailers and property owners do not have to file any details of their earnings. By comparison, in Europe for example, details of vacancy levels, traffic and sales are constantly updated and available.

The legal framework for retail is also underdeveloped, with no established laws governing landlord and tenant. The UAE has yet to tackle its agency law, which allows for only one local agent for each brand or product in each Emirate, who usually both retails the product and acts as a wholesaler for other retailers. The increasing sophistication of shopping malls also cannot conceal that after all, the malls remain commercial ventures dedicated to ensuring that visitors spend their money, rather than coming just to take in the sights.

A major chunk of this space goes to the muliple licensees who sign up for 20 or 30 stores at a time and the open channel of communications between these retail majors and the mall developers is an important factor in the market. Other crucial elements of course, include getting the right mix of tenants and bringing in what the customers want for each location. The health of most of the shopping complexes to a large extent will always depend on tourism, making for a moving target in terms of demographics. Customers from outside Dubai provide as much as 65% of retail business in some of the destination centres (most notably Mall of the Emirates) and for demographic purposes it makes more sense to compare Dubai to Singapore, Hong Kong or the other leisure retail centres of the world, rather than other Arab cities.

Meanwhile, developers seem confident and are quick to point out that a high percentage of their outlets are leased even before construction gets underway. For example, the Mall of Arabia opening in 2009, already has leasing of its 1,000 units well under way through the agent Colliers International. The 5.5 million square feet Dubai Mall will overtake both West Edmonton Mall (5.3 million square feet) and Mall of America (4.2 million square feet) as the largest mall in the world. Dubai Mall is practically sold out and it has gone into shopfitting earlier this year.

Even as this article is being written new projects are coming off the drawing board, for example with the new Dubai Sports City malls, the Mirdiff City Centre for Dubai and Dubai Marina Mall being the latest announcements in recent weeks.

BI-ME: You have recently released your update for the GLA of GCC retail space, showing that the retail space under construction in Dubai has doubled and the city will reach 10 million square metres (100 million square feet) by 2010. We are constantly being surprised by Dubai’s ability to deliver on optimistic forecasts, but what is your view about how all this supply will come into the market?

ST: It is a lot of space to deliver in such a short space of time in any market – let alone Dubai - which as you say does have the ability to deliver on optimistic forecasts. The projects that are coming up are by definition sophisticated, thus one can assume the developers will have done their ‘homework’ extremely thoroughly, prior to embarking on the investment.

The concern is not so much if the shops will let, but whether there will be enough different retailers available in Dubai to populate the number of new malls. This would avoid the situation now in the UK where every High Street and shopping centre has identical brands, to the extent that it is now possible even to predict the location of individual chain brands within the centre without ever visiting the town or mall.

BI-ME: Especially with Dubai Mall, bringing another 3.77 million square feet (and the Galeries Lafayette store) to Dubai next year, do you expect much cannibalization from the two other giant malls - Deira City Centre and Mall of the Emirates - which are only 10-15 kilometres away in either direction?

ST: I would be very surprised to see any ‘cannibalization’ from the two malls you mention. They are owned by arguably the most experienced and successful developer of shopping centres in the region and it is likely that they will already have taken steps to preserve their market position. In the case of Deira City Centre which is the older of the two malls mentioned this has been constantly updated and improved over the years since it first opened and presumably this will continue not only at Deira City Centre but also in future at Mall of the Emirates. This is a fundamental duty of any shopping mall owner world wide, not just in Dubai. 
 
BI-ME: The criticism of ‘clone malls’ and the argument that too many malls have the same brands comes up from time to time, yet the tourists always seem to be happy with what they find in Dubai. At the same time Dubai has a shopping mall with an indoor ski slope sticking out of the top, but apart from that the architecture or the theme of all the malls is quite simple. They seem to let the brands create the theme inside.

ST:  I agree that mall design should be kept simple and that the mall should let the brands create the theme. With clients I use as an example the theatre. Imagine the mall is the stage and that the shops are the actors. The shoppers are the audience. As with any theatrical producer the mall owner must ensure the show always leaves the audience wanting more. If not then the actors (brands) or show (theme) must be changed.

There is a place for mall themeing especially in locations such as Dubai, where there is so little natural landscape and local culture that artificial environments have to be created in order to generate a shopper friendly mood. This is why at Mercato there is a Mediterranean pseudo-Italian flavour and at Mall of the Emirates a ski resort, although the latter is more of a leisure destination anchor than an entire theme.

BI-ME: Are the malls improving in this respect of differentiating themselves one from another, or creating this sense of ‘place’? Are they doing enough or are there examples the Middle East can learn from?

ST: The mall architecture is perfectly adequate in differentiating one mall from the other and on the whole do successfully create a sense of place. In architectural terms they are doing enough. The perfect mall remains to be built and probably never will be. Anyone involved with the shopping mall industry is always looking critically at shopping centres and looking for ideas. 
 
BI-ME: MAF Group and the other mall developers say that for financial investment reasons it is necessary to have approximately two thirds of a new mall coming from established brands, and one third coming from the exciting or ‘risky’ new names. Would you say that the malls could do more to bring new retailers to the region?

ST:  MAF Group’s comments probably mirror those of most shopping centre developers worldwide and conform to my own experience. I think the malls have contributed hugely to the successful establishment of so many international brands. This however is only part of the picture, as just about all so-called ‘foreign brands’ are in fact franchises or JVs with local partners.

The likes of MH Alshaya Group, Fawaz Al Hokair, two of the region’s largest operators of foreign brands, and others have contributed just as much as the mall developers to the dramatic growth in the influx of foreign brands on which much of the success of the retail sector over the past ten years is based. 

BI-ME: In terms of the methods and the expertise of the mall developers how do they compare internationally with say, similar projects in Europe? In the Middle East are they different in the style of the malls they produce or in the way of working?

ST: In terms of expertise they are up there with the best; partly due to the vision of the local owner or developer and partly due to the input of internationally-experienced consultants and in-house senior management. One of the main differences is the speed of the overall development process, which is partly due to developing in a virgin environment without the constraining [planning] issues that are incurred in developing equivalent size projects in Western Europe.

Also, there appear to be less stringent building controls in the Gulf that facilitate a faster building programme, sometimes it seems 24/7.
 
BI-ME: Aside from the pure retailing, do you think the malls generally have got it right in terms of events, entertainments and attractions like cooking demonstrations or local festivals?

ST:  Probably, some better than others. While these things serve to increase footfall over a short period and may thus become something of a ‘quick fix’ they are not the solution for sustained long-term success, unless the mall wants to position itself in the market as some form of exhibition centre.

ST: Obviously annual festivals such as Eid, Diwali, Christmas, New Year and the others are by tradition celebrated and are important gift buying times in the retail calendar.

BI-ME: With Nakheel (the Ibn Battuta Mall owner), Al Ghurair (Al Ghurair City), Majid Al Futtaim (City Centres and MOE), and recently Emaar / Emaar MGF (with the acquisition of the Singapore retailer RSH) are all evolving with their own retail companies. What do you think this kind of extension will bring to the market? If the mall owners are also operating more of their own stores, what are the repercussions for rents, marketing and other issues?

ST: Only time will tell, but one assumes the retail brand management will be separated by a ‘Chinese wall’ from the mall management in order to avoid conflict of interest and the knock on effects that failure to do so can cause.
 
BI-ME: Will this help to bring about more local concepts instead of just the European and American brands being franchised?

ST: It may and if so this will be a positive. It may also mean further brands, with major mall owners having to ‘buy in’ key players to anchor their new malls.
 
BI-ME: With the Arena Mall and North Point Mall coming from Dubai Sports City and Starhill Malaysia joining with ETA Star for the new luxury mall in Downtown Dubai, do you think these operators will bring something new to Dubai?

ST: We live in hope. 
 
BI-ME: Also the Mall of Arabia seems to have heavy theming, with its circular wheel shape, internal waterways, restaurants on floating pods, water taxis and being situated next to the dinosaur park in Dubailand. From what you know of the developers (I & M Galadari) or the company that designed the public spaces (Portland) can we expect great things there when it opens?

ST:  I certainly hope so and look forward especially to seeing the dinosaurs next door.

BI-ME:  Are there any current mall developments in the region that you think are doing a particularly good jobh of differentiating themselves?

ST:  I think these are obvious from the international awards and accolades that have been handed out to malls in the region. I would not want to single out any particular mall, although like most shoppers I have my favourites.

BI-ME: In your report you highlighted some emerging markets of the region like Tunisia, Lebanon and Jordan. Taking these markets in turn, what are your observations of the changes there?

ST:  Taking Lebanon first, since my year-end report the situation in Beirut obviously has not improved and this is having an impact on the retail sector. For those that know Lebanon, one can only hope and pray that normality will be restored as soon as possible. The potential there is enormous.

Tunisia has a thriving tourist industry with some 6 million visitors annually. It is a Mediterranean country close to Western Europe and seems to be relatively overlooked as a retail market. Carrefour has a hypermarket in Tunis with Monoprix and Magasin General having around 50 stores each.

Jordan is seeing significant development and investment in the retail sector with new malls opening and being planned. In terms of retail development it is beginning very much to resemble the Gulf with the same brands.

BI-ME: Can you mention any examples of your clients in these countries?

 ST: I have done a lot of work for Solidere on The Souks project in Beirut as well as on Beirut generally. And in Jordan I am advising Saraya Holdings on their Saraya Aqaba development.

BI-ME: Is it true that like Egypt and the Gulf, the consumers in these countries are turning to the shopping mall culture, rather than the high street?

ST: Yes. After initial resistance much like elsewhere consumers soon get ‘hooked’ on the convenience of supermarkets, hypermarkets and malls despite the higher prices.
 
BI-ME: Regarding Saudi Arabia, there is a lot of talk about the wave of developments there. Whilst there are some world-class malls, there are still many regional Saudi cities that are quite untouched by the mall culture or modern retailing, in the way that it has penetrated Dubai. What do you see are the big developments there coming up?

ST: I am not so sure this is still the case with developers beginning to target the flourishing and rapidly expanding regional cities. Only recently it was announced that Géant would be opening in Jizan.
 
BI-ME: In Syria, Emaar is developing the Eighth Gate, and there is rumoured to be a City Centre going into Damascus. Can you comment on any of these shopping developments in Syria?

ST:  Only from what I have read. Syria is something of an emerging market and, if unrest in Lebanon continues, may offer an alternative shopping destination for many Lebanese.

BI-ME: For the benefit of readers that do not know Retail International, what is your expertise and how can you contribute mall planning and other similar projects?

ST: I set up Retail International, as an independent boutique retail consultancy in 1993, when I identified the need for an experienced shopping centre consultant combined with experience of the Middle East. I lived and worked in the Gulf for many years and was involved with many of the early centres. These days although based in the UK my work is exclusively international with a heavy emphasis on the MENA region. Because my business is international, London is a convenient base from which to operate.

I qualified originally as a Fellow of the Royal Institution of Chartered Surveyors, London, and was invited to become a member of The Counselors of Real Estate, Chicago, in recognition of my international work on shopping centres. I was a founding director of The Middle East Council of Shopping Centres, Dubai, of which I am still a member as well of the ICSC in New York.

All in all I have been involved with the development of shopping centres spanning more than 35 years in Central Europe, the Middle East, Australia, US, and Western Europe.

BI-ME: What are the types of expertise and skills that the mall owners are looking for?

ST: These are wide and varied but can be split between the development side and the operational side. In the former, [it is a requirement] for those with experience of complex projects often literally ground-breaking in new or emerging markets where little or no market evidence or information about the economy or retail sector may be available or even exist. By way of example I have recently completed an assignment in Libya where this was precisely the situation.

On the operational side, mall owners need good administrators, marketing expertise and above all people with commonsense and who enjoy attention to detail.

BI-ME: From the point of view of a typical brand from Europe or the US, if they do not work through one of the big Middle East licensees like MH Alshaya, Azadea, Istithmar Retail, Chalhoub, who take 20 or 30 stores in a mall, the brand has little chance of getting a good lcocation. Do you think that is healthy? Are there advantages and disadvantages ultimately for the consumer?

ST: I doubt if the consumer is aware of the names mentioned, or of the distinction between a franchise or being corporate.

It can’t be healthy in the long run for so many brands and mall outlets to be controlled by so few. Sooner or later I believe the limitations that currently exist on foreign ownership of retail businesses across the Gulf will be relaxed thus paving the way for brands that do not franchise or licence to enter the market. The more retail brand owners there are available to mall owners in the region can only be for the good of all concerned.

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