UAE SHOPPING MALLS
The battle of the brands

Sixty thousand shoppers every day and nearly $2 billion in investment. For the UAE’s top malls, the battle is fierce and the stakes are enormous.

By Ranvir Nayar DUBAI

Business battles in the Middle East rarely get bigger or fiercer than this. And the stakes rarely higher. The last seven years have seen a 200 percent growth in capacity and a total investment of nearly $1 billion. And the pace of development continues unabated. The next three years will see capacity more than double and additional investment of at least 3 billion dirhams ($900 million) in the UAE alone. Welcome to the battle of the shopping malls.

While major, established players like Al Ghurair City and Burjuman Centre are undergoing makeovers and expansions, new players like Sahara Centre are making a foray into the shopping mall market. Although each mall has its own strategy and business plan, they all share the same goal: dethroning Deira City Centre, the unchallenged market leader in the UAE, which controls over a third of the total mall business in Dubai. A visit to City Centre, as it is popularly known, is a must for both residents and tourists alike.

The business of shopping malls involves many interconnected elements; success depends on getting the balance just right. From the architecture of the mall to the choice of stores, mall management has to create a space that everybody wants to visit – and spend money. Once the mall is built, management can’t afford to rest on its laurels. It has to innovate constantly. City Centre, promoted by the Majid Al Futtaim (MAF) Group, seems to have got it right.

Stuck in traffic. City Centre has a unique combination of stores and anchors. The mall houses an up-to-date cinema complex, Cinestar; the region’s first Carrefour superstore; Dubai’s only IKEA outlet; the largest bookstore in the UAE; and a huge children’s play area, Magic Planet. Jim Badour, the general manager of City Centre, says these anchors, along with the other 240 stores that make up City Centre, are the primary traffic pullers for the mall. The formula has worked so well for City Centre that the mall attracts over 35,000 visitors a day – more than twice the number of visitors to any other mall in Dubai.

The phenomenal success of Deira City Centre has inspired its promoter to replicate the same formula outside Dubai as well. In September 2001, the group opened its latest and jazziest mall, Sharjah Centre, located in the neighboring emirate. The Sharjah mall is modeled on City Centre, complete with a Magic Planet. The MAF group has set its eyes on taking the same formula to other countries in the region, and already operates malls in Ajman and Muscat, Oman.

Little wonder, then, that all the malls have City Centre in their sights. Malls such as Burjuman are keen to lure some of the exclusive, high-end brands and the clients from City Centre; for new malls such as the Sahara Centre, the success of City Centre clearly served as an incentive and, to an extent, its business model. For others, notably Al Ghurair, it was more a question of reclaiming lost ground.

Although City Centre’s Badour is not worried about competition, he says that the shopping mall has never stopped innovating and improving. When the complex opened seven years ago, it had only one level. However, seeing the tremendous response, the management began building a second level and since then has constantly been improving the facilities and layout of the complex. “In the two years that I have been here,” says Badour, “we have improved the layout of the Arabian Treasures, upgraded the quality of the food court – which can now seat over 800 people – and improved the children’s play area, which is always crowded. We try our best to live up to our motto: It just keeps getting better.”

Two of the malls that have been affected the most by City Centre’s success are Al Ghurair and Burjuman. Today, both are learning from City Centre’s success. The lesson is especially bitter for Al Ghurair, which, for several years, used to occupy the same enviable position before City Centre came along.

The Al Ghurair shopping mall was revolutionary when it opened in 1981. The Dubai mall marked the beginning of a trend that changed the face of retail business, not just in Dubai but in the entire Middle East. Spread over 35,000 square meters, the Al Ghurair shopping mall was a giant in a market used to small shops in the souks. In addition to size, the shopping mall also had several other advantages. Instead of walking around in the souk in the blazing sun, shoppers can roam in the air-conditioned comforts of the mall, which groups together scores of shops catering to most shoppers’ needs. Throw in a children’s play area, some restaurants, cafés and public conveniences, and the Al Ghurair mall was a complex with something for everyone.

Not surprisingly, the mall was a hit. But the extent of its success came as a surprise even to its management. Within a few years, the mall had captured a significant share of the market, which increased non-stop until the late 1980s when the mall stabilized at about 45 percent market share.

And then it stagnated. As has happened with countless other success stories, the Al Ghurair shopping mall grew complacent and believed its customers to be captive clients with nowhere else to go. So sure was the mall of itself and its grip on consumers that it did not even look around to see what was happening in the market. The management also forgot one basic rule of retail: to attract customers continuously, you need to constantly innovate, upgrade and improve your facilities. You do not get repeat customers unless you give them something new or unique in the mall all the time. Mall owners have to be constantly on their toes and have to be willing to spend money on improvements.

Taking a nap. Dulled by success and the initial lack of competition, the Al Ghurair management turned lax, while its market share remained firm for nearly a decade. Then, competition arrived and found the market leader napping. When a spate of shiny new shopping malls hit the Dubai market, customers abandoned Al Ghurair faster than rats deserting a sinking ship.

Between 1995 and 1997, Dubai became home to half a dozen new malls, which covered a broad spectrum of the market. Among them was the Burjuman Centre. Spread over 30,000 square meters, Burjuman had 180 stores and a very well defined strategy. Located in a newly developed area of Dubai, Burjuman chose to follow its neighborhood and go upscale. Its collection of retail outlets read like a list of the world’s top fashion names: Louis Vuitton, Donna Karan, Calvin Klein, Ralph Lauren, Bally. But it was not just the brands that were attracting customers by the thousands every day; Burjuman’s food court also proved a hit.

Burjuman’s strategy of adopting top brands as its unique selling point was immensely successful, especially among the Dubai elite, who finally had one place that brought together all the brands they wanted. Over time, it became almost a ritual for Dubai yuppies to be seen hanging about at Burjuman.

As Burjuman flourished, yet another hugely successful mall opened up, barely five kilometers away. Al Maya Lal, a successful UAE retailer, saw a gap in the lower and middle segments of the market and diversified, setting up Lamcy Plaza, whose specialty was offering quality goods at discount prices. The price-quality formula worked like magic, and Lamcy Plaza is now one of the most successful malls in the UAE.

“They targeted a very important segment of the market, which had been left vacant by competition. Today, a lot of Asians from the income bracket of 6,000 dirhams or so visit Lamcy Plaza; in fact, even the rich Asians visit the mall when no one is looking,” says a competitor.

Other shopping centers, such as Oasis, have adopted the strategy of hosting a few huge shops that offer the widest possible choice. According to the manager of a rival shopping mall, “If you are looking for things for your baby, you will definitely go to Oasis Centre, even if it is a bit out of the way, because over there, you are sure to find what you are looking for.”

Over the years, the role of shopping malls has evolved significantly in the Middle East. In a region where outdoor entertainment is limited, partially due to climatic reasons, visiting a shopping mall has become a very important part of a family’s outings. In many Saudi Arabian cities and in the UAE, it has become a ritual for families to visit shopping malls in the evenings, often after dinner.

“Retailing the world over is a major component of any economy no matter how sophisticated or primitive it may be,” says Simon Thomson of Retail International, a British retail consultancy. “In the UAE, as in the rest of the Gulf, shopping is as much a recreational activity as a necessity. It is cross-cultural and appeals to all ages and both sexes.”

It has became imperative that shopping provide family entertainment, ranging from bowling alleys to cinemas and children’s play areas. Thomson outlines the recipe for shopping mall success: “Provide quality and value for money. Good location. Easy access. Abundance of car parking. Proper merchandise and tenant mix. Correct market position. Provide what the customer and shopper wants and not what the owner or architect thinks the customer should have.”

The rush to construct new malls is not limited to either Dubai or the UAE. A survey by Retail International found that 10 countries in the Middle East shared 4.4 million square meters of shopping space, and a fresh supply of 2.2 million square meters is still in the pipeline, which would take the total space available to over 6.5 million square meters in three years.

Abu Dhabi, Sharjah, Jeddah, Beirut, Doha, Cairo, Riyadh, Manama, Alexandria and Kuwait City will each have shopping space of over 250,000 square meters. Dubai itself will account for over half a million square meters, making it by far the largest market in the region. Retail International predicts that the growth in Dubai will continue until the year 2025, even if the growth rates start to sap after 2005.

Millions of meters. According to Retail International estimates, the UAE will have nearly a million square meters of shopping space in the next three years, making it the most developed Middle Eastern market. The per capita shopping space in the UAE will be over two square meters, one of the highest in the world.

The surfeit of shopping space may be a boon for shopaholics, but this is disastrous news for the retailers and mall owners. For the mall owners, the risk is twofold. The direct consequence of supply outstripping demand is that rents in the shopping malls drop, thus directly affecting the mall owner’s returns. The other, and perhaps greater, risk is that the stores operating within the mall are unable to make much money, thus forcing them to skip rent payments or fold. In either case, the landlord again loses out.

Excess supply has had another very negative impact: market segmentation. Faced with increased competition, most malls have started occupying niche segments of the market. For instance, the Wafi City mall in Dubai, which was already pretty posh, has recently undergone a makeover and expansion, aimed at taking the mall even further upscale. Other malls have begun focusing on ethnic groups. The Al Bustan mall is focusing on Arab nationals, while the Al Ghurair mall is targetting UAE nationals and some upscale Asian and Gulf nationals.

“The market is very crowded now,” says Al Ghurair’s Avijit Yadav, “and each person is trying to appeal to his own niche. It is a real fight. All the shopping centers are suffering now as the market is getting fragmented and each outlet is left with fewer and fewer buyers. Competition is going to become more and more intense.”

But even as most of the malls are hurrying to carve out their own niches, the market leader, Deira City Center, is sitting comfortably on top of the heap. “It is true that in a few years,” says Badour, “Dubai and the entire UAE has passed from a lack of retail space to a surplus. The competition will divide the market up. It is the weakest players who will suffer first.”

The first signs of trouble are already on the horizon. Some of the new malls, like Mazaya Centre on Sheikh Zayed Road, were built on the expectation that as Dubai expands southwards, there will be a greater demand for shopping malls in the new areas. However, Mazaya Centre is now thought to be in deep trouble. Empty on most days, many of the shops in the center have stopped paying their rent, and it is reported that Mazaya may be looking for a buyer.

Burjuman is currently implementing programs – costing hundreds of millions of dollars – that will bring some of the world’s most famous upscale brands in an exclusive contract. For instance, the new Burjuman will have the only Saks outlet in Dubai. Burjuman is putting a lot at stake with its expensive expansion plans, but general manager Eisa Ibrahim is confident that it will work and strengthen Burjuman’s appeal to customers.

Al Ghurair City embarked on a massive expansion plan in 1998, with the first phase due for completion later this year. Yadav says that the makeover, which has a budget of $375 million, will see the addition of nearly 50,000 square meters of retail space, taking the total retail space to over 80,000 square meters. At the end of the expansion, Al Ghurair City, which is already a mixed-use mall, will also have 30,000 square meters of office space, 700 apartments, a parking lot for 3,500 cars, a 600-seat food court and a multiplex movie theater.

Yadav says that the entire center is being remodeled as part of the program, with a lot of emphasis on creating an Arab ambiance: special colored tiles will be used to decorate the roof and floor of the renovated mall. “We still have a very strong emotional bond with the Arabs,” says Yadav. “We are aiming to be a mall with a complete shopping experience but with a modern Arabic accent.”

Thomson says that mixed-use malls represent the future. Hence, Al Ghurair City seems to have started off on the right note. However, its expansion program has been delayed and has also been affected by the sharp slowdown in the Gulf economies and the events of September 11th.

The next 18 months will be crucial for all the UAE malls. With the expansion of Burjuman and Al Ghurair completed, Deira City Centre will finally find real competition of comparable size and style. The intensity of the battle for the customers will definitely be cranked up a few notches. Let the shopping begin.  

Goodbye to the souk

Gulf consumers can now buy anything they want, anytime they choose. But have they lost more than they have gained?

By Saad Dawood MANAMA

In the last few decades, the Gulf has seen more change than any other region in the world. In fact, such rapid development may never be witnessed again – anywhere. Catalyzed by oil, the area has undergone an incredible transformation in the span of a single generation. Even though the oil boom is starting to ebb, the momentum of change continues to manifest itself across Middle Eastern society in numerous ways: some subtle, some not. For the global entrepreneur, it’s an immense market that’s finally come of age.

Expatriates. The Gulf’s cultural disintegration is accelerated by the phenomenal numbers of expatriates living and working in the region – six out of every 10 people in the UAE, for example, are expatriates. Rampant progress has met with little opposition, and satellite television, the Internet and rising standards of education have increased the pace of change.

Gulf consumers on the whole are easily divided into four segments: extremely wealthy locals, not-so-wealthy locals, affluent expats and not-so-affluent expats. While each group drives specific markets, the not-so-affluent expats continue to be the defining force overall. Local women, enjoying increasing independence and freedom, are fast becoming a major consumer group.

V. Nandakumar, the advertising and promotions manager for one of the Gulf’s largest retail groups, the EMKE Group, explains market sentiment: “The expat is here to make a quick buck, save up and head back home, which makes him a consumer with a nose for sales, special offers and bargains. Only the affluent nationals head for top-branded stores. However, with the arrival of affordable international brands, a lot of nationals are also rethinking their priorities. The fact is that as long as expats form the main consumer base, the market will be dominated by value-for-money products.”

This is not to say that expensive brands are not at home in the Gulf. The luxury goods, home and personal products markets are niche but very lucrative. In Saudi Arabia, the market for furniture and interior decorations is set to expand annually by over $2 billion, fueled by rapid changes in the region’s demographics.

More and more Gulf consumers are also shopping online. Analysts are divided over whether this is due to the novelty factor, or whether the Gulf shopper may actually prefer buying online. Internet penetration levels are nowhere near Western averages, but the number of Internet users grows exponentially each year and, once adequate penetration has been achieved, the Gulf consumer’s online preferences will become evident. Masood Ali, a branch manager for a Dubai bank, purchased his last three cell phones online from local websites. “I was getting marginally cheaper prices in the market,” he says, “but buying online and having it delivered to my office is far too convenient and time-saving for me to think otherwise. I just wish I could sell my used phones online as well!”

His wish could come true very soon. The Gulf’s leading online retailer, UAEmall.com, which attracts about 3 million visitors a month, is planning an online auction area. But as the e-tailer has discovered, conventional wisdom doesn’t apply to the region’s market dynamics. After a successful launch, the website enjoyed a regular flow of visitors but few online purchases. Sales jumped, however, when the management decided to replace online payment systems with COD (cash-on-delivery) options; apparently credit cards are still a no-no with the Gulf’s netizens. Several banks in the region have catered to this sizeable niche by introducing electronic-use-only credit cards with either pre-paid or restricted credit limits.

Stocking up. Small retailers have traditionally served the market. In recent years, however, many medium- to large-scale retailers have mushroomed in the region, some of them chain stores with multiple outlets. Well-known international superstores have also entered the region. The proprietor of a small store in the suburbs of Bahrain is devastated by these developments. “Business shrank by about 40 percent this year,” he says. “People prefer to stock up at the bigger supermarkets. My store is only used for emergencies and by those who don’t have cars.”

The hypermarket phenomenon is fast spreading across the Gulf. The wife of a successful businessman in Dubai comments, “Hypermarkets are really convenient, but I always end up buying more than I intend to. The five-for-the-price-of-three offers are really irresistible. My husband is amazed and says I have enough stock to open my own store!”

Operating on volume rather than mark-up, hypermarkets are a bit like sharks – they can only survive if they move fast enough. An older shopper is naturally opposed to the concept. “I miss the old souks,” she says. “The atmosphere, the noise. You had to bargain with the shopkeepers to get good prices. These so-called supermarkets are just unending shelves with fixed prices and impersonal cashiers waiting to take your money. You can be in and out without speaking a word.”

Traditionally, the moneyed class flew West for the summer and lined the coffers of foreign brands. They now find many of these brands at home. The market has responded extremely well to child-related wares and offers limitless potential. Some of Mothercare’s Gulf franchises account for more than a third of the company’s international sales. Franchising in the Middle East is estimated to grow at about 27 percent annually, through a continuous inflow of leading brands such as Marks & Spencer, Debenhams, The Body Shop, Levi’s, DKNY, Haagen Dazs, Christian Dior, Rolex, Calvin Klein, Benetton, The Gap and countless others. 

It is arguable that the East may be paying a far steeper price for progress than the West. Not to deny the inevitability of evolution, it is nonetheless a sobering thought that centuries of tradition are surrendering to cold economics. The world is entering a new era of single currencies, treaties and trade pacts, but as borders collapse and economies merge it becomes clear that perhaps we are losing more than we will ever gain. Like raindrops scarring a freshly painted canvas, humanity’s colorful cultural divides are slowly dissolving into pale shades of gray.   

Strategies for success

Cartier is one of top names in luxury in the Gulf. Guy Leymarie, the company’s CEO, outlines his vision for the company’s future.

How do you assess the Middle East luxury goods market? And how has Cartier performed in it?
The Middle East is a traditional luxury goods market. It is a market that will grow. It traditionally makes up 8-10 percent of our turnover or a bit more.The Middle East market is similar to the Chinese market at the level of treating clients. We have to integrate a certain number of local cultural parameters. Cartier  restructured itself in the Middle East last year. We are still a long way off what we could be doing in the Middle East. The brand has to reestablish itself in this market.

How did you go about restructuring in the region?
We restructured by establishing a local structure for the first time. In the past, we worked through an agent. We established a young, capable local team. We associated ourselves with local partners – because when we talk about the Middle East, we are talking about a large region with different business cultures and very different market structures – and will continue to do so.

What partners?
That depends on the country. In some countries, we operate directly and in others we will work with partners.

In which Gulf countries will you seek a local partner?
Saudi Arabia.

What about the UAE?
We operate directly there, and our first-year results are more than satisfactory. We expect a lot from this market, and it is a country where we will give ourselves the means to succeed.

What is your point of sale strategy?
It is important to take a very domestic approach to this market – franchises and a certain number of retailers, a distribution network for watches that is selective. We’ll apply the same principles that we use in other markets to this region. In 2002, we hope to open two to three new boutiques.

How many boutiques will you open by 2012?
It would be difficult to say and wouldn’t mean anything. We will have a presence in order to maintain our position as the world’s leading luxury goods and watch and jewelry brand. All this has to do with our potential to grow, the rhythm of growth and, of course, the opportunities. The number of boutiques has nothing to do with the strength of the brand. Sometimes it’s better to have one huge boutique that totally reflects the brand’s values than three or four smaller ones.

What about boutiques in the region?
We were badly represented in the Middle East. It was essentially watches. There were few diversified products, such as leather goods, on the market

Would a Cartier boutique that sold other brands be conceivable?
There is no multibrand concept at Richemont. The key words are integrity, verticalization and autonomy for each brand.

Do you think Richemont might be taken over by one of the luxury goods empires in the future?
I don’t know about Richemont. I only represent Cartier, so I can’t really talk about the group.

Will LVMH’s entry in the luxury watch segment change the market?
LVMH has great brands, especially Zenith and Tag Heuer watches. The greater number of players in watches has led to the growth of this market. The capacity of the market to generate new players is extremely healthy.

Why is Cartier the leading brand?
First, the brand has a long history. It is charismatic and mythical and has become a reference. In the watch sector, Cartier is in a class of its own. Choosing a shape is essential. With other watchmakers, form follows function. At Cartier, the inverse is true. It is the shape of Cartier watches that is exceptional. The mythic status took 150 years to establish. Our role is to make this myth live.

LVMH seems to have recently adopted an approach that is similar to yours.

Other brands use Cartier as a model, though you have to be wary of confusion. When you talk about creativity, you are not necessarily talking about fashion. Cartier has never confused luxury and fashion. Part of Cartier’s strength comes from its ability to adapt itself to new lifestyles. The client has evolved.

What are the brand’s main selling points?
Our savoir-faire, in both watches and jewelry, more than a marketed product. There is a mystique to the brand. Cartier has strong symbolic value.

It your strategy for the Middle East different than for the rest of the world?
No.

What are the leading products in the region?
Each market has its characteristics. It’s in our interest to adapt Cartier to its environment. Cartier in Japan, Cartier in the United States – the products aren’t exactly the same. When a product sells well, it sells well everywhere.

What about counterfeiting, which is a problem for Cartier in the Middle East?
There are no countries that are dragging their heels in the region. There are counterfeiting centers in the world that are more active than the Middle East. Counterfeiting exists everywhere. We’ve always taken a double approach: legal and educative. We will continue to fight counterfeiting and parallel marketing.

What are your objectives for growth?
A few years ago my predecessor and mentor, Alain Perrin, said that Cartier would never be quoted on the stock exchange because everyday speculation on the stock market damages the myth and the magic of the brand. All the magic of Cartier cannot be summed up in a simple growth figure.