Dubai - Is the desert oasis still on ice?
Since Dubai announced the $23.5bn restructuring of the state-owned Dubai World, the region, like the rest of the retail world has been in the financial doldrums. However, last month Dubai returned to the capital markets - an event that has given financial markets renewed confidence. To see what the mood is like on the ground, our resident retail specialist Karl McKeever, brand director of retail consultancy Visual Thinking, paid visit to the land of the opulent supermall to find out.
Dubai's authorities and business titans have made credible efforts to get their house back in order, but reports suggest that the emirate and its state-owned companies still face a $110bn debt. I have worked in Dubai on client projects many times over the past 10 years and I can't recall it ever being this quiet before, and nowhere more than in the shopping malls, showing that its old 'build it and they will come' mantra is being severely tested.
With such a choice of stores, many brands in Dubai are now discovering something new - a need to compete. Where previously they could just open their shops and sales could be expected to take off.
Here many retailers are already in sale mode, and earlier into a new season with large volumes of reduced products. Interestingly, this was most common in mid-market brands, often with a UK or European base - brands that have previously enjoyed strong growth fuelled by the numbers of overseas tourists and expats. With fewer people around, merchandise takes longer to sell through, collections linger for longer and product phasing patterns become distorted. These brands in particular seem to find it harder to compete alongside international retailers or those in the luxury sector that can afford to hold their prices high for longer and without the complications of fast fashion product strategies backing up fresh trouble at the rear.
Despite all of these downward signals, retail rents have actually fallen by approx 25% in the last three years, which in theory should help retailers setting up shop - a situation almost unheard of with the UK's typical upward only rent reviews. The gigantic cranes are moving again on building projects, albeit fewer, scaled down and operating in just daylight hours. Additionally many building projects have been cancelled altogether. A state-run planning organisation has taken control and cancelled over 500 building schemes - a big deal in a city that was propelled by a construction boom.
The recent retail openings appear to represent the end of the work that was in the pipeline when financial troubles first hit the region. Now this work is complete, Dubai faces a period when these buildings will have to work hard to make up ground and recoup the vast sums spent on their construction.
Brands here still face many challenges. Retailers here though will have the chance to discover new ways of attracting people into the malls and to encourage them to buy. There's some evidence of increased 'events' activity in the malls - to encourage visitor footfall, but getting those who are around to venture out into 'temptation' may require much more than retail entertainment and slash and burn discounting.
The Dubai Mall, is a good barometer of how the retailers are weathering the storms. Owned by Emaar Property, a Dubai Government Company, the Dubai Mall is one of the world's largest shopping malls and part of the 20bn $ Burj Khalifa complex. It opened in November 2008 initially with 600 stores open, but with a 1200 capacity. It had over 37 million visitors in first year and filled 1000 units by the end of 2009 - now it has just a few remaining units and just a few stores have closed since opening and it attracts more than 750,000 visitors every week. There's tight lips on the incentives being offered to fill this flagship 'national' property, but word has it that the deals to incoming retailers are compelling. Openings within the last months included Bloomingdales, and luxury fashion retailers Oscar De La Renta and Dior, clothing and accessories stores Aeropostale, Un 1 Deux 2 Trois 3, Shoemart and Etam Lingerie and children's fashion store Guess Kids. One of the biggest and latest openings was Cartier this summer - so it's not all gloomy news!
Mall of the Emirates is another example of things moving on if not booming on. It was created by the developer of Bluewater and prior to the Dubai Mall opening, Mall of the Emirates was the Middle East's second largest shopping mall. It opened in 2005, and so its retailers have benefitted from the boom years, but despite the tough times a new extension 'the fashion dome' has opened in September 2010, which will house 30 boutiques such as Versace, Mulberry, Louis Vuitton and Gucci.
So it's clear that Dubai has now got all the world-class retail interiors it can handle. Given that global real estate consultants CB Richard Ellis (CBRE) said that Dubai is second only to London in terms of the number of the "world's top retailers", this isn't such a bad thing. Retailers here though are going to have to work hard for their money and they are going to have to learn some new rules of the game and fast, to generate much needed revenues and pay back the opening costs to survive.
In the boom years brands could just bring their latest retail concept and do well - very well in fact. Now and for the foreseeable future, it is not going to be so easy. Unlike here in the UK, it's unlikely the malls will see any significant amount of vacant properties, as they will be being propped up by their powerful landlords desperate not to see them go! Pride plays a big part in this region, but there will be evidence of stress instore with reduced staff numbers, fewer size options and diminishing product availability and the like, all of which will likely contribute to a deteriorating spiral of retail decline, if just experienced in the short term.
The brands here have the luxury on the shelves and hangers and now need to commit to an equally luxurious customer experience, through staff training and development to trade their way through this flat, low to no growth period. That means developing skills and retail standards to keep their world-class stores looking good. They also need to increase skills in the delivery of great customer service, to train their armies of young assistants who work long hours for little reward, to do significantly more than just say "Hi Sir/Madam"!
It could also mean finding ways to maximise seasonal and special events through promotional activity. Retail marketing needs to be employed and not just discounting. Consumers smell the rat of despair and will desert the brand in droves - however cheap the prices become. Once a brands' devalued, it's a hard slog, if even possible, to get out of the discounting hole. Dubai's struggle is to get people out of their apartments and into the malls again, so a national retail strategy that is less about location, location, location and more about sell, sell, sell is required!
The buildings are in Dubai, now its time for its retailers to invest in how to trade them and not just rely on a relentless round of glitzy mall opening frenzy as the way to gain headlines and make heady money. This challenge means building footfall and securing sales conversion by improving their retail skills and craft. They need to grow their business' appeal with the locals and expats, who for the short-term, may represent a bigger opportunity than the reduced number of conference delegates, tourists and business visitors.