Mall owners should reduce rents to compensate for the slowdown in the retail sector, the chief of the Dubai Chamber of Commerce and Industry has said.
Hamad Buamim called for mall operators to reduce their rents this year after retailers reported a severe contraction in sales through 2016 as macro factors such as a strong US dollar, low oil prices and Brexit-heightened job insecurity curbed spending.
Retailers could come under more pressure if the dollar, to which the dirham is pegged, appreciates further. That is likely, according to the US investment bank Citibank, which expects the greenback to appreciate by another 7 per cent this year.
“We need the mall operators to reduce rents and costs,” Mr Buamim said.
He said last year, “most retailers did not actually lose money but they did not see any growth. We need the mall operators to make rents and costs variable, so it is a win-win situation for both parties. The dollar has made the UAE very expensive, our retailers must realise that if they limit themselves to Dubai then there will be little growth available”.
About 260,000 square metres of retail space was completed in Dubai last year, according to broker JLL, which is the highest volume handed over since 2010. This is expected to be exceeded this year and next, with 350,000 sq metres due in 2018.
A significant indicator of the headwinds facing the retail sector was the decline in sales registered by Dubai Duty Free last year, despite rising passenger traffic through Dubai’s airport.
While the retail climate is increasingly challenging in the UAE and the wider region, some groups are still expanding.
Virgin Megastore plans to add one store in Qatar in May and another in the Emirates this year. While many retailers registered double-digit losses against 2015, Virgin Megastore posted single-digit losses, and hopes for a return to sales growth with its application of sales technology.
“The Apple Store opening in Mall of the Emirates hit our sales,” said Nisreen Shocair, the president of Virgin Megastore Mena. She said Virgin mitigated the downturn by bringing in value-priced products with higher margins and a refusal to discount.
“We found the use of technology helped us target our customers. We knew families still like to spend 30 minutes in the shop, but they had economised. Technology will play a big role in the brand moving forward as we know our customers better. We are looking forward with realistic optimism.”
The rise of e-commerce has also played a part in the struggles of conventional retailers. Data about the options and choices viewed by customers has allowed digital players to target customers and tailor their products. This knowledge needs to be harnessed by online and offline merchants.
“The UAE is behind the curve on digital analytics,” said Danny Karam, the vice president of Booz Allen Hamilton. “Mall operators and retailers need to know what time you came to the mall, how long you spent and at what shops you stopped, which can lead to predictive retailing. The giant retailers Walmart and Westfield have been using this technology with programmatic ads that target you specifically. The UAE’s retailers need to offer omnichannel experiences to gain the data first.”
Nakheel, the developer behind Ibn Battuta Mall, said its retail rents were linked to the Rera index and “therefore reflected market conditions”.
Majid Al Futtaim, the owner of Mall of the Emirates, and Emaar, which owns The Dubai Mall, did not respond to queries from The National.
David Macadam, the chief executive of the Middle East Council of Shopping Centres, said the “percentage rent model” is better suited to softer economic conditions where rent is linked directly to turnover.
ascott@thenational.ae
Follow The National's Business section on Twitter
