Despite suggestions to the contrary, luxury retail spending is still rising in the UAE, albeit at a slower pace.
Dubai, in particular, is leading the way. In a survey carried out before the World Retail Congress last month, Dubai Chamber said the retail sector in the emirate was expected to grow by 5 percent annually until 2017, by which point it was forecast to reach $55bn in value.
The research, based on data from Euromonitor and an AT Kearney Research study, suggests luxury retail still offers multiple opportunities in the UAE.
“There is growth of wealthy and ultra-rich consumers, the main potential customers of the luxury segment. All in all, consumption is going up and retailing in the UAE is a major sector, which is supportive of economic growth and offers a lot of business opportunities,” the analysis says.
The research is supported by Savills, which ranked Dubai at number four in the world in its Global Retail Destination Index 2016, behind New York, London’s West End and Hong Kong.
The report focused on Dubai Mall, and ranked it higher than London’s Regent Street, New York’s Fifth Avenue and the Champs-Elysees in Paris in terms of the overall quality of its retail facilities and amenities. Further enhancing Dubai Chamber’s findings, the Savills report says, “Dubai is forecast to report the strongest growth in retail sales over the next five years of the seven Global Cities examined, potentially challenging London’s West End’s current global position.”
The growth is supported by a strong tourism sector, with 14.3 million overnight visitors to Dubai last year, according to the Mastercard Global Destination Cities Index 2015, which led to a total spend of $11.7bn, an average of $819 per visitor.
“Dubai is now perceived as a top global retail destination,” says David Godchaux, CEO of Core Savills, the UAE associate of Savills. “But this is only the tip of the iceberg as we now start seeing developers trying to improve the shopping experience not only for tourists as in the past 15 years, but also for residents.
“This trend of moving away from the ‘bigger is better’ approach, to more user and resident friendly retail developments, bringing a real city experience and European-style shopping to areas of Dubai similar to those found in London, Paris and Milan, is something that was much awaited by the market and that we see finally happening.”
Dubai Chamber estimates the emirate’s retail market reached $35.4bn last year, and says it is expected to grow by 7.7 percent in 2016 and an average 8.1 percent annually between 2017 and 2020, when retailing sales turnover are expected to surpass $52bn.
This predicted growth comes despite the backdrop of uncertainties surrounding economic conditions due to the drop in oil price, and the obvious currency effects of a strong dollar and a weak rouble affecting the number of high-spending visitors coming to the emirate.
That effect was reflected in last year’s Luxury Goods Worldwide Market Monitor, compiled each year by Bain & Co, which said the luxury goods retail market in the Middle East had plateaued, driven by a reduction in tourism spending.
However, the report’s author Cyrille Fabre, partner and head of Bain’s Retail and Consumer Products practices in the Middle East, said at the time the report was released: “Going forward, we expect the Middle East market to show new signs of life driven by mall openings, but the region’s growth will occur at a much slower level versus the last five years.
“A sustainable high single-digit growth rate will become a new normal for the market with important implications of the required capabilities for success.”
Knight Frank’s head of commercial and retail, Matthew Dadd agrees: “At the moment in the UAE, we’re not seeing much take-up of new luxury retail space.”
The confidence in the luxury retail market, however, has been fairly evident at the city’s two key shopping malls, he says, with other cities keen to develop their luxury retail offerings as well, which have continuously lagged behind Dubai in the luxury segment.
“Within the major malls there is the configuration-extension of the luxury segment offering, both within Mall of the Emirates and Dubai Mall,” he says. “Also, when you look regionally, there is the provision of quality, prime retail centres such as Mall of Qatar or the forthcoming Majid Al Futtaim centres in Riyadh regarding new luxury space for the market segments which have traditionally been under-served.”
Looking to the year ahead, Dadd says the single-figure growth is quite likely, but confidence remained high. “It’s going to remain fairly stable in its current state, which has been more subdued than it has been in previous years,” he says.
“We’ve still got a high GDP per capita for locals across the GCC. There is still a lot of personal wealth that can be spent in the luxury segment. You will see the mall developers looking to position themselves as the focal go-to destination of luxury spend and the access and the add-on amenities in terms of leisure that really make the mall appealing for the whole family will be paramount to obviously increasing the spend per head in these malls and retaining that spend within Dubai, UAE or the region rather than going internationally.”
That confidence is also reflected in the ability of some malls to increase their rent.
According to Knight Frank, Emaar Malls Group has 18.5 percent of the emirate’s 3 million square feet (sq ft) of retail gross leasable area. The publicly-listed company, 84 percent owned by Emaar Properties, said it raised rent prices for renewals by 25 percent in 2015. It is also planning to add 92,900 sq ft to its “trophy asset” Dubai Mall this year, further underlining its confidence in luxury retail.
“The Dubai Mall, our trophy asset, is today the first choice for luxury retail for high net worth individuals [HNWIs] from a wider catchment area of the Middle East, Africa, South Asia and China, thus serving over 2.5 billion people,” chairman of Emaar Malls and Emaar Properties, Mohamed Alabbar said while announcing Emaar Malls’ annual figures for 2015. The division recorded a $451m net profit and rental income growth of 11 percent to $815m.
However, Dadd says the rental increases have been limited to “the core markets”.
“Across the markets, you’re not seeing exorbitant rent increases,” he says. “I think the market is being more realistic in terms of where spend is and it has got to be truly reflective of the overall performance of the mall before they can actually start putting in any increments.”
The perennial issue for luxury retailers is exodus of HNWIs from the Gulf region to cities in Europe and the US, as they escape the desert summer.
The Saudi government estimated that in 2014, tourists travelling outside the kingdom spent at least $20bn on shopping trips abroad every year.
A report towards the end of last year, by the Travel & Tourism Intelligence Centre, said GCC outbound expenditure would reach $100bn by 2018, up from $65bn in 2013.
Knight Frank’s recent wealth report emphasised the seasonal fluctuations of multi-millionaire ($10m-plus) populations around the world, showing a 571 percent difference in the number of multi-millionaires in Dubai between the winter and summer months (10,470 at peak, 1,560 at low).
Maintaining brand loyalty has been an important facet when it comes to luxury retailers. Luxury brand public displays and activations are a weekly occurrence in Dubai’s malls. Dadd says it is important to enhance customer consumer experience in order to develop brand loyalty.
“When you go into any shop, it doesn’t matter if it’s luxury or mainstream trade, your experience is paramount to your return visit,” Dadd says. “When you look at international brands that have local stores that experience has got to be the same level of standard and quality [as the home market] in terms of customer experience with the staff and the shop, the fit-out, the apparel or the merchandise that are being sold. So you’ve really got to ensure that is kept to a high standard when you’re talking about an international brand.”
An extension of the brand loyalty is the need for luxury retail brands to implement an omni-channel experience into their customer engagement strategies, which means engaging in e-commerce.
“If you’re looking at the base case scenarios of where online trends are at the moment, they’re obviously coming from a very low base,” Dadd says. “I think they are picking up and if you look at where the UAE is in terms of digital accessibility, it’s number three in the world after UK and US, so when you look at where the take-up is in terms of mobile access and access to retail platforms, that is growing very quickly.”
While still in its infancy in the region, recent moves by high profile companies based in the Middle East have underlined the need to develop and grow an online presence.
“You can look at where Marka VIP have launched their new online portal and obviously we see Mohamed Alabbar taking a stake in [European online luxury fashion site] Net-a-Porter to expand that across the Middle East. It’s showing how the market is developing, maturing and following the trends that we’re seeing in Europe, US and Asia.
“But I still don’t think it will necessarily be of concern yet to any of the bricks-and-mortar of the retail industry, because it’s still very much an experience when you’re going to buy a luxury product.”
A natural extension of that has been social media, in particular Instagram, which has become one of the most influential online tools for luxury brands.
“Instagram is obviously a visual tool and when you’re looking at the luxury segment — IWC or Prada — these brands can very much sell a lifestyle through images which is a very quick and easy way of targeting large proportions of the population which has access to social media,” Dadd says.
“The influence of Twitter can’t be underestimated in Saudi Arabia, which has the highest penetration of Twitter followers.”
At the heart of brand loyalty — online or in the malls — is the customer.
“Customer experience is paramount and it has to transcend everything — online or in-shop,” Dadd says. “The brand is core to any business, and in the luxury segment it is key. Brands have got to work a little bit hard to make sure they position themselves correctly throughout all platforms.”
